Public procurement: legal implications of Brexit for your business

The three main questions to consider in relation to public procurement on the UK’s exit from the EU are:

• How much of your business is won through competitive procedures in the UK and EU? It is not known what access will be granted to EU markets once the UK officially leaves the EU. Certainly UK companies will not have the right of remedy if they are discriminated against for not being based in the EU. There is also a risk that major projects, particularly those impacted by EU funding, are delayed while the specifics of the Brexit deal are worked out.
• Do your current contracts, or those you are bidding for, provide for variations? We are already seeing instances where the currency fluctuations caused by Brexit are driving increased costs in supply chain.  In turn, suppliers are looking to renegotiate terms in public sector contracts.  Public procurement rules significantly restrict what variations can be permitted in public contracts.  It is important to consider how Brexit may affect the provision of goods or services under your contracts and that there is often little scope to negotiate terms in public procurement procedures.
• Will the procurement regime change? As the UK government had a great deal of input into the current procurement directives, we suspect that the procurement rules will not be subject to widespread change immediately after Brexit.  However, depending on the exit deal negotiated, the government may take the opportunity to amend the rules to encourage public bodies to openly take account of local social factors when procuring contracts.  Many people suspect that the remedies regime will be watered down, reducing the scope of challenge against the public sector.

These issues, and the wider consequences of Brexit for public procurement, are considered in more detail below.

Procurement rules likely to remain

The regulations that govern public procurement in the UK implement several EU directives.

Following Brexit, there will no longer be an obligation to implement these directives, so the UK regulations could, in theory, be repealed.

However, public policy considerations mean that it is highly unlikely that the UK government would adopt a position where no legislation governed the procurement of goods and services by public authorities:

• public authorities in the UK have a “best value” obligation when procuring goods and services, which is most clearly met with some form of competition;
• regulating public procurement supports many of the government’s policy objectives, including supporting economic growth through SMEs and “open government”; and
• the UK also has complex anti-bribery, anti-corruption and competition laws. Regulation of public procurement of goods and services is one method of driving compliance with laws in these areas.

 An opportunity to change the UK regime?

Under the existing regime, suppliers from EU Member States other than the UK who tender for contracts have equal rights to those of UK bidders.

The UK government cannot currently exercise any policy that gives preferential treatment to UK-based companies which, in the government’s eyes, might provide more jobs and general economic growth in the UK.

Following Brexit, the UK government could take steps to improve the position for UK firms in winning public contracts within the UK. However, any steps are likely to be limited by rules governing access to EU markets, which we discuss below.

The range of remedies available for unsuccessful bidders to challenge public authorities is perhaps more likely to change over time. Remedies currently flow from the EU directives, which the UK government may regard as too supplier-friendly.

Access to EU markets

As there is no real clarity on what Brexit will actually mean for the UK’s relationship with the EU, it is unclear what level of access the UK will continue to have to the EU market.

What seems clear is that leaving the EU is unlikely to result in a complete bar on UK suppliers bidding for public contracts across other Member States, or EU suppliers bidding for UK contracts.

However, the UK will need to be mindful of discussions currently taking place in the EU, which concern how the EU can ensure that its Member States have equal access to those third party markets that are granted access to the EU.

If the UK attempted to put in place protectionist measures for UK procurement, this could cause the EU to take steps to exclude UK firms bidding for contracts within the EU (as is seen with other nations currently outside the EU that have protectionist purchasing regimes).

The UK’s membership of certain treaties (for example the Agreement on Government Procurement) will also require it to continue to regulate public procurement effectively through some form of legislation.