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Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

The UK government has indicated that the UK’s approach to public procurement will fundamentally change post-Brexit. While it remains to be seen whether such a fundamental change will be possible in practice, the UK government’s pronouncements clearly suggest that change is on the way, which will most likely provide a less prescriptive framework for UK contracting authorities to follow.

These changes will almost certainly have a significant impact on how outsourcing and technology providers interact with the UK government, both in the context of their current agreements and also in respect of future contract bids and awards.

Current Regime

The laws that govern the UK’s public procurement regime are largely based on EU rules found in several EU directives and the Treaty on the Functioning of the European Union. Broadly speaking, these rules aim to open up public procurement to EU-wide competition. Public bodies must, for example, award public contracts without discrimination on grounds of nationality and advertise their contracts EU-wide via the Official Journal of the European Union ( OJEU).

These EU rules have been implemented in the United Kingdom. The key regulation in the United Kingdom is the Public Contracts Regulations 2015 (PCR). Other more specific regulations, like the Utilities Contracts Regulations 2016 and the Concessions Contracts Regulations 2016, govern particular aspects of the regime.

The United Kingdom, by virtue of its EU membership, is also part of the World Trade Organization’s Agreement on Government Procurement (GPA). The GPA provides a framework of rules under which public contracts may be awarded. GPA parties must, for instance, have a “domestic review procedure” that allows suppliers to challenge suspected breaches of the GPA. GPA parties must also guarantee fair treatment and non-discrimination of foreign bidders for domestic contracts.

New Approach Post-Brexit

Brexit will of itself initially have a limited impact on UK procurement law. The UK’s regulations will remain in force post-Brexit unless they are repealed or amended. This will be the case regardless of whether an agreement is reached between the United Kingdom and European Union before December 31, 2020. At the end of the transition period, however, the UK government is free to rewrite the procurement regulations, and this appears to be the government’s intention.

UK Prime Minister Boris Johnson announced on November 29, 2019 that the government would “fundamentally change” public procurement rules to “back British business.” The corresponding press release reportedly criticised the EU-based regulations as “absurdly complex, burdensome and costly” and describes the obligation to advertise in the OJEU as “burdensome and pointless.” Johnson’s announcement follows similar sentiments expressed earlier last year by the prime minister’s chief adviser Dominic Cummings, who characterised the UK’s procurement system as “complex, slow and wasteful.”

The government intends to implement the new framework by January 1, 2021. The new rules will reportedly correspond with other “sensible” public procurement systems and adhere to principles such as value for money, accountability, equal treatment and the opening up of markets.

Changes have already been made. The Public Procurement (Amendment etc.) (EU Exit) Regulations 2019 have been enacted. This will replace the requirement for public bodies to advertise their contracts in the OJEU. Instead, such contracts will need to be advertised via a new e-notification service called “Find a Tender.”

The details of other changes are not currently clear. Any changes could potentially simplify the current procedure and correlate more closely with the GPA. Although the GPA is based on the same principles as the EU and UK regulations, it is less prescriptive in how it requires authorities to achieve those principles. For instance, the rules on remedies in the GPA do not refer to any “standstill” obligation after notifying affected undertakings of an award decision. There are also more limited rules regarding criteria and evidence for qualification. It would be possible, therefore, for the UK to implement a lighter-touch procurement process.

Comments

There is a clear emphasis from the UK government on changing the current procurement regulations. The extent of the government’s ability to make such changes, particularly its desire to favour British businesses, however, is less clear.

First, considering the stated intent of favouring UK businesses, the United Kingdom has committed to remaining a party to the GPA post-Brexit. One of the core principles of the GPA is non-discrimination. Favouring and promoting local businesses may therefore be difficult to achieve in this context. The United Kingdom may achieve this indirectly by, for example, requiring tenderers to subcontract some of their work to domestic contractors. However, such measures may be indirectly discriminatory and may still fall fowl of the UK’s obligations.

Furthermore, any future EU-UK trade deal may impose procurement commitments that are substantially similar to the current procurement regulations. Such a trade deal is unlikely to permit domestic bias and will instead be implemented to promote non-discriminatory access to each country’s public procurement markets.

Second, it will be interesting to consider how “laissez faire” the government’s new procurement approach will be.

A less detailed procurement system should de facto provide greater purchasing autonomy to contracting authorities; however, is this really what the UK government, and in particular the Cabinet Office, really want, when most recent initiatives have been to centralize and streamline purchasing power and decisions, and supply chains? UK contracting authorities are currently constrained by the regulations; if these restraints are to be removed or loosened, then it may be that the UK government will want to ensure that its internal governance is strengthened, to provide for greater oversight and influence by the Cabinet Office.

A less detailed procurement system would immediately impact existing contract arrangements. For example, PCR regulation 72 determines whether a change to a public contract is material and whether it thereby constitutes a substantially different contract that requires a new procurement process. The GPA provides no guidance on this issue. Will UK contracting authorities be free to negotiate such material changes, without going to market?

Irrespective of the detail of the new procurement rules, it does seem likely that outsourcing and IT suppliers must prepare for a less open and transparent UK government purchasing market. They can expect fewer contracts going out to open tender, and more extensions and renegotiations being conducted on a sole source basis without recourse to a market engagement. Maintaining good customer relationships with individual authorities will become even more essential, as buying decisions may move away from transparent and objective criteria.

Additionally, there may well be greater scope for buying decisions based on innovation and true investments, which have perhaps been constrained by the need for buying criteria that have to be justified primarily on the criterion of most economically advantageous.

How this develops over 2020 and beyond will be fascinating to watch.