Some further thoughts on Brexit and its impact on procurement

This time from Lorand Bartels (Cambridge University), who argues that the UK will succeed to the EU on the Government Procurement Agreement:

It is the EU alone, and not the UK, that is the relevant party to this agreement.
Accordingly, it is at present the EU that is solely responsible for its obligations under the
agreement, including in respect of the actions of government authorities that are organs of
its Member States. It is submitted that on leaving the EU, the UK will succeed to the GPA in
its own right, in accordance with rules of customary international law on the succession of
states to treaties, and practice under the GATT 1947, which ‘guides’ the WTO.

Although I am not entirely persuaded by the arguments (at least not yet) there is at least a reasonable case to be made for the UK to stay inside the GPA after Brexit.

 

Some comments to Arrowsmith's Brexit whitepaper

Prof. Sue Arrowsmith put out a whitepaper on the implications of Brexit for the UK's procurement rules. Albert has already provided a general comment on some important issues raised by the paper, such as the feasibility of a completely new procurement legal regime and what could be the transitional arrangements. 

There is not much to add to the first part of the paper - the EEA option is pretty much 'business as usual.' I suspect that EEA or no EEA option, not much will change at regulatory level for the next few years - there are too many sunken costs on the current system to warrant a wholesale change just for the sake of change. As such I will focus my commentary in other topics instead.

 

1. The GPA option 

While I agree with the view that the UK would find itself out of the GPA the possibility of speedy re-entry into the agreement is certainly possible as argued by Arrowsmith, it is by no means a given. In a scenario where the UK is negotiating multiple trade deals at the same time any other State will use whatever leverage it can over the UK to achieve concessions elsewhere. Access to the procurement markets within the GPA may well be thrown into the mix of the negotiations, if only because it devalues the commitments made by a UK-less EU. At this stage we should not take for granted that re-joining the GPA will be a 'walk in the park' and to that end I would recommend the sage commentary by Jean Heilman Grier on this topic. As she mentions, the UK would have to negotiate first with the EU the terms of its arrangement and only then the GPA's accession. This could leave the UK with a potentially long GPA-less transitional period.

 

2. Transition period

Arrowsmith suggests that for a transition period '[a] sensible and likely interim solution would, therefore, be to retain the award procedures of the regulations in place, but without provision for enforcement by non-domestic suppliers, pending eventual confirmation, modification/replacement or total repeal of the regulations [...].' I agree with the overall view that the UK must have a tat-for-tat approach to the negotiations (as do the other Member States) to protect its own interests. In this I disagree with Albert's view as restricting access to procurement markets if temporarily is a way to gain some negotiation leverage which I accept is a price to pay in that period.

Having said that I am not entirely sure about the actual suggestion made: i) is it EU/EEA economic operators are entitled to take part in procurement procedures but cannot enforce the rules - as it currently happens with foreign economic operators; or ii) is it that they simply are barred from taking part in procurement procedures? I can understand the second (although retribution would be certain) but cannot understand the first. What would be the point of having economic operators taking part in the procedure only for them not to be able to enforce the rules? Plus, if awarded the contract would they also be barred from enforcing the contract terms under English contract law?

 

3. The Freedom option

In addition, Arrowsmith suggests that '[...]Brexit would see the UK throw off the shackles of EU procurement law, leaving it free to design its own system.' In other words, the UK could finally design its own procurement legal system as it sees fit. While Arrowmsith's preference for a more simpler, single system based off the Utilities Directive are not new, as is a preference for higher thresholds, but describing current EU rules as shackles that need to be thrown off appears to be. Especially if we agree with Arrowsmith's view that Member States have a wide range of discretion in transposing Directives into their national legal systems. As other Member States have used such discretion (sometimes to the point beyond discretion in my view) why has the UK not done so?

After all it is the UK's Government approach to transpose Directives (in general) with a copy out approach and with as few options as possible, thus leaving scope for national/regional rules to be created. The responsibility such national/regional rules are not created in the first place can only be attributed to the respective Government(s). If Portugal, Spain, Italy, Denmark have detailed rules crafted for their own realities, why doesn't the UK do the same? I am not positing those are great legal systems, but at least in those countries lawmakers have made use of their powers in transposition to adapt Directives to the national setting. In short: it can be done.

So, even with a (possible) wide discretion, the UK Government has not opted to implement its own national rules, with the exception of the baby steps taken with contracts below thresholds - where it could regulate them at will as it would not be transposing any Directive. On the other hand, as recognised by Arrowsmith the Scottish Government has taken the opportunity to create its own 'regional' procurement regime in addition to the narrow transposition of the appropriate Directives. However, as correctly pointed out by Arrowsmith, the downside of this freedom to legislate at regional level is an increase in 'regional differences'. These, in my view and based on my own experience, will amount to protectionist measures designed to keep out 'foreign' economic operators, ie those based in another UK region. Therefore, I fear it is much more likely we would end up with a patchwork of regional systems than with the simpler, more efficient system Arrowsmith would like to have.

Finally, as for the simpler, more efficient system that could be designed outside of the EU shackles (setting aside the fact it can be designed inside/below them) it would seem our starting positions are on polar opposites. Arrowsmith appears to prefer a system with more discretion given to the contracting authority and fewer rules, so they can design whatever procedure they might want in compliance with a set of limited principles. I am the first to recognise the current rules limit truly great procurement, but they do so as a trade off - not to shackle the top 1% of contracting authorities (or procurement officers) but as a way to provide enough detail so that all contracting authorities can use them. That does not mean they cannot be improved, but it is important to recognise this trade off. And I will take a set of detailed rules that avoid really bad procurement (or try to) for most people, most of the time over ones which only suit the top 1%. 

There are other downsides to a simpler, less prescriptive system. For example, compliance costs would go up for the economic operators - instead of learning one set of rules/procedures, they would have to analyse the specific rules of every single procurement procedure as even within each contracting authority different departments/officers may prefer to do those things differently. Again, I prefer standardisation as a means to reduce transaction costs overall than the discretion to tweak each procedure to suit the contracting authority.    

In addition, if we look at the contracts below-thresholds, where such simpler approach would make more sense and where currently there are no legal restrictions, why are we currently not seeing great practice being developed? Other than the pilots I ran in Wales a few years ago and the excellent work being done by the Government Digital Service and the Digital Marketplace, are there any other examples we should be looking at? Is it not surprising that the most common practice below thresholds for a long time was a preference by contracting authorities to either just use the restricted procedure with all the transaction costs it entailed or going for non-transparent request for quotes - as those were the reality overworked procurement officers knew. Sticking to the tried and tested approach is always the default even if a careful consideration would say otherwise when there is no time or incentive to carry out such consideration. In essence, these default approaches explain why Central Government contracting authorities are under the obligation of advertising contracts above £10,000 and the baby steps to regulate contracts below-thresholds in the Public Contracts Regulations 2015.

In conclusion, even if possible, I fear a simplified, looser regulatory system would leave most stakeholders (contracting authorities, economic operators) worse off most of the time. While it could (theoretically) facilitate great practice in some instances, my experience in practice leads me to a bearish view on the overall merits of such a regime.  

 

4. Remedies

A final short word on remedies.  Arrowsmith is of the opinion that the current remedies system is 'burdensome.' As such, a freedom option should also consider a review of the current remedies system '[...] that offers a better balance between the costs and benefits of legal enforcement [...].' This point is particularly interesting as on p.13 Arrowsmith correctly highlights one of the problems of the current remedies system to be the UK's preference for the High Court. This is very true but, once more, it is not really the EU legal system fault's for the UK's design of its remedies system. Even within the EU legal framework it is possible to think different.

If we look at Sweden we see a competition authority with strong powers in this are. Denmark also has its own competition authority and the Procurement Boards which deal specifically with procurement matters. After a couple of run ins with the Court of Justice Spain has today a fast, efficient and cheap (for the time being) system of procurement tribunals. In Portugal, as the administrative courts are clogged up with procurement disputes the draft Public Contracts Code explictly accepts the parties may recur to arbitration instead. 

Outside the EU we can find another system which I find very appealing and would probably fit within the current rules: Canada and its Procurement Ombudsman.  Here's an interview with the then Ombudsman Frank Brunetta about his office's work. It is not hard to conceive a scenario where the current Mystery Shopper Service would be transformed into a true Ombudsman-type service with stronger powers than today. Again, this would be perfectly possible within the current rules.

 

5. Conclusion

In conclusion, I agree with Albert's view that most of the debate we can have at the moment is theoretical. Nonetheless, there is a value in having these discussions as they can influence decisions taken down the line. Having said that, I would like to see the same interest and energy in debating how we can improve practice (and national/regional rules) within the current legal framework. It is likely it will stay mostly unchanged for a good while and there is the odd chance they will actually not change at all. 

 

 

 

 

 

 

Brexit implications on the UK's GPA participation

Some food for thought raised by Jean Heilman Grier on the impact Brexit will have on UK's participation on the GPA:

The UK’s negotiations to rejoin the GPA would involve the procurement that it would cover and the conformity of its laws with the GPA. As for its covered procurement, the UK would not be able to simply rollover its current coverage as part of the EU because elements of that coverage are tied into EU procurement directives. For example, its sub-central coverage includes contracting authorities, which are bodies governed by public law as defined by the EU procurement directive. Similarly, the UK covers contracting entities whose procurement is covered by the EU utilities directive.

More here.

 

Links I Liked [Public Procurement]

1. Lessons from cities trying to be better buyers.

2. Some data from the European Construction Sector Observatory.

3.  Clean contracting: safeguarding EU funds in Europe.

4.  Public procurement — the next frontier for tax justice campaigning? I hope not. The economic operators' tax situation is covered (and well covered) on Article 57 of Directive 2014/24/EU and it is connected with the intrinsic situation of the economic operator - not the contract at hand. If contracting authorities (and Member States) do not use the possibilities provided by Article 57 is another matter. Let's not forget that Art 57 allows for the exclusion to happen at any time during the procedure. That does not justify however increasing the complexity of the process by shoehorning tax issues to award criteria.

5.  Brexit' decision raises questions over adoption of Europe's electronic procurement document. It shouldn't as the UK is a fully fledged Member of the EU until the exit actually happens (if it it happens at atll). However, the mere fact we are entertaining this option illustrates one of my fears with the current Brexit limbo - the more time passes, the more likely it is EU law will be disregarded as the threat of enforcement recedes. This is just one of the first examples.

 

Links I Liked [Public Procurement]

1. Belgian Govt. approves procurement of software to track down terrorists. Gosh I would love to see the tender specifications for this one. Was it an output/outcomes based spec? Or did Belgium just accidentally acquired Twitter?

2. Albert kickstarts a big thinking discussion about what procurement should look like. I have a couple of ideas on this as well. As I said last year at the Global Revolution conference in Nottingham, our current system was designed on (and for) an analog world. It has aged as well as BladeRunner's imagination of 2015.

3. House of Commons Library publishes its view on Brexit implications for public procurement.

4. UK Government has a 6 point plan to open up the market for suppliers of all sizes. I for one, welcome any measure which lowers transaction costs for all participants in public procurement. I am worried however about 'continuing engagement.' In any case, the Guidance document is here and the public consultation open for the next three months. 

5. Michael Bowsher mentioned earlier this week at the Catolica Summer School, the recent case of EnergySolutions vs Nuclear Decommission Authority, where the contracting authority took conscious steps to render its decision-making process non-auditable. It is a very long judgment, but a great read.

New episode of the Public Procurement Podcast is up

I have just uploaded episode #24 of the Public Procurement Podcast. The interviewee this time is Warren Smith, Director of Warren Smith, Director, Digital Marketplace part of the Government Digital Service.

We talked at length about the changes in digital procurement the UK Government is curently undertaking, some that already happened and others which will be happening in the future like the adoption of the Open Contracting Data Standard.

You can subscribe to the PPP directly on iTunes.

First draft of the Revised Portuguese Public Contracts Code is now available

The Portuguese Government has just published a first public draft of the Revised Public Contracts Code (PCC) which aims to transpose Directives 2014/23/EU, 2014/24/EU and 2014/25/EU. The draft is available here (Portuguese only) and a public consultation open until September 23rd.

The PCC revision suffered delays and a difficult birth to say the least. I was told by sources in the know that the previous Government (2011-15) prepared two very different drafts: one with significant changes to the structure of the code and the other only with the nips and tucks needed to make it compliant with the new set of Directives.

The current Government appointed a taskforce earlier in the year to work on a third draft and this appears to be their output.

Links I Liked [Public Procurement]

1. Public Works Slowdown Following Implementation of the New Italian Public Procurement Code.

2. Public Procurement Single Market scoreboard for 2015 is out. I think Albert has criticised the scoreboard in the past, but there is a measurement I find quite interesting - procedures with a single bidder. The figures for some countries like Poland and Hungary are really telling, but it would be important to know as well what is the percentage of procedures without transparency where that is happening.

3. World Bank Public Procurement Benchmarking: Behind the Numbers. More here.

4. UK’s Ministry of Defence No Closer to Winning the War on Procurement Waste.

5. Public Procurement Trade-offs: Commerciality Versus Corruption. Peter Smith raises some important and obvious points about trade-offs in public procurement. Beware the siren's call for more "negotiations".

No one really likes competition

Although procurement rules are usually conceived to pursue increased competition via transparency and say non-discrimination, those which benefit from the increased access to procurement contracts coming from the private sector are not really keen in more competition that what is strictly necessary. Particularly, they do not like competition coming xfrom the public sector.

It is no surprise then that in the US private suppliers to the Government are throwing fits of rage with the work being done by 18F (a public agency) to improve procurement practice and procedures within the US Federal Government. It appears lobbyists from industry associations are busy trying to clip 18F's wings as its activity is affecting their profits. Apparently, the problem is not only the work carried out by 18F itself but its role in increasing competition from new private suppliers. 

I for, one welcome competition irrespective of its public or private origin.

More details (and a great writeup) here.

Links I Liked [Public Procurement]

1. Mexico City starts publishing live public procurement open data (Spanish only).

2. GDS is looking for help to design "digital first" public contracts that are easy and simple to use. I am fully supportive of initiatives like this.

3.  On the same vein, is now easier to sign contracts/documents in the G-Cloud 8 framework.

4. We need more contract implementation data says the OKF. Having been a procurement lawyer myself, contract implementation stage is always a good moment to try and extract concessions from the contracting authority. This view is supported by the whole body of research by Jean Tirole and colleagues on incomplete contracts. As there is no competition and limited transparency, economic operators have all the incentives to bend arms and rules at this stage. 

Even then I would not be surprised if added transparency at performance stage would simply shift the focus from cost increases (which can be quantified) to quality decreases (which cannot be quantified easily). 

Soft launching the joint Public Contracts Regulations 2015 Commentary

As hinted a few times before, Albert and I have been busy setting up a joint Public Contracts Regulations 2015 Commentary over the last six months of so. As a recap, we concluded our "procurement tennis" match in the Summer 2015 and a few months later we got a generous grant from the Society of Legal Scholars Small Projects fund to set up a proper website where we could merge a final* and "authoritative" version of our commentary.

The real deal is available at www.pcr2015.uk

The real deal is available at www.pcr2015.uk

So, without further ado we are (soft) launching today the Public Contracts Regulations 2015 Commentary! The reason why we are soft launching it now is that the content is not yet complete. So far we merged the first 24 Regulations and are aiming for releasing the second part (25-73) in early September before finishing at the tail end of October. That will not be the end of the work as this is a live commentary and one that will be updated on a case-by-case approach as required in the future and as time permits!

What we tried to achieve with the Commentary was to provide a clear view of what the law means and the major practical issues we see with each Regulation. By and large both our views are coincidental so merging was mostly an issue of style and avoiding repetition. On the odd topic we disagree on we either took the disagreement out of the commentary (ie, more theoretical arguments such as transparency vs competition) with cross-references to our respective blogposts or if really unavoidable we agree to disagree with a clear note of what each other thinks.

The content on most entries published so has been updated and reflect the alterations introduced by the Public Procurement (Amendments, Repeals and Revocations) Regulations 2016. Most entries hover between 500-1,500 words long but we have a few going close to 3,000. We cross-reference where relevant to appropriate case law and where possible we try to point you towards existing free resources to explore matters further. If we missed any good resources feel free to use the comments section so that we can add them in the future.

The commentary is available with a CC-BY-SA Creative Commons License, so while free to use, attribution to the authors is required. I know a number of you have tried to use our individual blog entries in the past for teaching purposes, you are welcome to continue to do so but our preference is for everyone to use the Public Contracts Regulations 2015 Commentary instead.

Finally, a big thank you to the SLS for supporting the Public Contracts Regulations 2015 Commentary.

*By final I mean consolidated. We plan on updating the content from time to time.

 

Links I Liked [Public Procurement]

1. There's an "official" English translation of the Danish public procurement law. This reminds me of a project idea I had a couple of months ago of translating into English a number of very different public procurement laws. Thanks Carina for the heads up.

2. Court of Auditors publishes Special report no 17/2016: The EU institutions can do more to facilitate access to their public procurement.

3. A public works cartel is found out in Spain (Spanish only).

4. Change rules around public contracts to let charities compete fairly, Big Society Capital tells government. For once, the proposed headline changes are reasonable and are not what we usually see from vested interests (ie, tilt the playing field in my favour). Having said that, "prior market engagement" gives me shivers. Report itself can be found here.

5. Single-Supplier Framework In London – Guaranteeing Value Will Not Be Easy. Agreed. My views on framework agreements in general are bearish and especially single supplier ones.

Food for thought, competition and procurement edition

Another factor that is often not taken into account, he argues, is government purchasing. Monopolists, he notes, often sell to “large intermediary organizations, which may distribute the incidence of monopoly charges progressively.” In the US, federal procurement accounts for roughly one-seventh of the GDP, not including state and local governments. Government, he argues, pays these monopoly overcharges and ultimately transmits them to taxpayers. Since the U.S. tax code is generally progressive, he argues, those overcharges are being borne progressively. Meaning: wealthy people should, in theory at least, pay a greater share, “which actually means that an antitrust intervention that diminishes anticompetitive conduct in government procurement actually has the effect of increasing wealth inequality.”
— https://promarket.org/antitrust-answer-rising-wealth-inequality/

Interesting discussion about the effects (or not) of competition law enforcement and inequality and how procurement in the US may function as redistribution mechanism. The problem with Crane's argument I suspect is that larger companies generate more profit but can pay a lower effective rate of corporation tax than smaller ones by being able to shift profit to cover for unprofitable divisions or using the tax regime to their advantage.

Links I Liked [Public Procurement]

1. Company Owned by Former Kotayk Governor Wins 34 Million AMD in "Non-Bid" State Contracts. Oh the joys of lack of transparency and competition.

2. Agency connected to Conservative Party donor receives £3.9m Treasury contracts.

3. Public Procurement Trade-Offs Should Be Acknowledged and Addressed, Not Ignored. Agreed and I have been saying the same for years. Anyone wants to talk about social considerations in procurement?

4. How the GDS is iterating on Digital Outcomes and Specialists.

5. Only a quarter of councils have social value commissioning policy. See 3 above. The Social Value Act is working as intended - social clauses have to be considered, not used. The fact they are not being used more indicates they imply tradeoffs proponents are not willing to address or acknowledge. If there were no tradeoffs they would simply be used a lot more.