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. 

 

 

 

 

 

 

Denmark is first out of the gates with a Innovation Partnership

The innovation partnership is finally getting some use. The first tender (call?) was published only a couple of days ago on the Tenders Electronic Daily. The project is for a partnership looking to develop innovative means for overcoming elderly dehydration. The tender is being launched by the Market Development Fund in conjunction with a number of different Danish local authorities.

I look forward to see the developments on this project. It is interesting that although the Innovation Partnership was transposed into England, Wales and Northern Ireland almost 18 months ago it is yet to be used here. So much for the UK Government mantra of "making sure contracting authorities can use the novelties straight away."

As I said many times before, this procedure (as the competitive procedure with negotiation) is going to be used sparingly and in reality most of its use cases would fit on a generous interpretation of competitive dialogue.

Hat tip to Willem for mentioning the launch on Twitter.

 

Links I Liked [Public Procurement]

1. Italian MOD moves from Microsoft Office to LibreOffice. Very interesting move, particularly taking into account we are talking about a Ministry of Defense. After a few (maybe one) success story with Munich, LibreOffice has not really been able to get a foothold in the public sector.

2. Banks love the blockchain. Maybe I should get cracking with a research project looking into how we can use the blockchain in public procurement. Any takers?

3. Could the public sector keep its services but save millions by using smaller consultancies? Speculative, but good point made by the authors about what 18F in the US has done with CALC. The more price transparency exists in public procurement, the more difficult it will be for companies to profit from arbitrage.

4. Sally Collier goes on the record that she wants Government to move away from frameworks. I think these are excellent news. Let's hope the CCS delivers on this.

5. Denmark and Smart Cities. As always, I am sucker for these stories...

Public Contracts Regulations 2015 - Regulation 1

As promised yesterday, myself and Albert Sanchez-Graells are kicking off 122 days of running commentary on the new Public Contracts Regulation 2015 which transpose the Directive 2014/24/EU to (part of) the UK.

Before diving into Regulation 1 I would like to make a couple of comments regarding the style and timing of transposition.

Transposition style

As with the previous Regulations, the Government opted to more or less copy and paste the Directive into national law. There are a few sections that do not come from the Directive itself (ie, Chapter 8) but by and large we are talking about of taking the content of the Directive and present it on a “legal” format/style similar to other laws of the country. In my civil law mind I still find it easier to understand the Directive than the transposition even though the content is fairly similar.

The larger point to make here, however, is that by transposing the Directive by simply copying and pasting it, the Government missed the opportunity to fill in the blanks and/or solve any discrepancies left in the original. This produces the benefit of ensuring a degree of real harmonisation with other Member States that followed a similar approach. The caveat of course is that any unclear provision in the Directive will remain unchanged in the national law which compounded with copious amounts of guidance, guidelines and suggestions which will surely follow will make for significant differences in practice. Again, to my civil law mind it made more sense to try and solve those issues directly in law instead of patching them up with guidance further down the line. Personally, between certainty and flexibility, I mostly prefer the first. This is the approach taken in Portugal and Spain for example, where successive procurement Directives are woven into national law, albeit with varying degrees of success and confusion!

If this “light transposition” will make the procurement regulations for England and Wales be similar to some of the other Member States, it remains to be seen how comparable will it make to Scotland. Procurement is a devolved power in Scotland and the Scottish Government is now in the process of transposing the Directive. As both Governments have very different policies for procurement (just think about Community Benefits and what it means in Scotland vs in Central Government) I would not be surprised if both sets of Regulations diverge a lot more than the outgoing ones. I think that looking into the performance of cross-border tenderers over the next few years (ie, English companies in Scotland and vice-versa) will make for a nice research project a few years down the line.

Timing

The second preliminary point I would like to point out to is the timing. As far as I know, the new Public Contracts Regulations 2015 is the first transposition of Directive 2014/24/EU (please feel free to correct me in the comments). Denmark is not far behind but I do not think they are there yet.

Why this sudden rush to get a new law out less than 11 months after the Directive’s publication? The cynic's view can only be that Central Government wanted to get it out of the door before the general election of May 7th, 2015. The actual laying date is an indication of this intention: February 5th is exactly 3 months and 2 day before the election date, pretty much right before the cut off date of the last 3 months of Parliament.

The timing may indicate the fear that the current Government will not be in power come May or an intent of Francis Maude (Minister for the Cabinet Office) in ensuring its legacy as he will be standing down in May as well. The real reason is less important than the consequences: we will be saddled with these Regulations for the foreseeable future. Yes, they can be amended by the next Parliament, but the stake is already firmly planted in the ground that “this is it” in terms of transposition.

It is no surprise then that to comply with the timings Government decided to go for the copy & paste approach instead of a more considerate approach. However, the rush shows some cracks in typos and minor mistakes (there is one right in Article 2).

As an alternative to the full transposition the Government could have done what France did, by transposing temporarily some bits of Directive 2014/24/EU it considered important, while taking its time before undertaking the complete job.

With this interlude out of the way, let’s talk about Regulation 1 then.

Public Contracts Regulations 2015 - Regulation 1 Citation, commencement, extent and application

In addition to the transposition rush, Regulation 1 states that most of the contents will come into force before the end of the month. This is a very short time frame to let contracting authorities and the market now about what is changing and adapt practice accordingly. One can argue that we are mostly talking about the Directive as it was published last year so the rules are not entirely new or unexpected but I digress.

There are a few exceptions to this short vacatio legis though. For example paragraph 3 states that rules on communications and e-certificates of Regulation 22 and 61 come into force only in October 2018, except in the cases where the contracting authority is trying to use electronic means to shorten the usual time limits of a procedure (26th of February) or for central purchasing bodies (18th April 2017). In my view, the new rules on communications are beneficial for both contracting authorities and suppliers and should have had a shorter transition period. I still remember the doomsday discourse in Portugal back in 2008 about the end-to-end e-procurement requirement in 2009 or 2010 (“no one is ready!”; “the fields will remain untended!”; “the sun will not rise tomorrow!") and when the switch was finally flipped, everyone adapted pretty quickly. I am certain the same thing would happen here even if the transition period was shorter.

Regulations 106, 108, 110 and 112 of Chapter 7 and 8 will also come slightly later into force for contracting authorities not performing their functions on behalf of the Crown (April, 2015). These regulations cover mostly contracts below thresholds and they constitute one of the major departures from the Directive 2014/24/EU as they are not covered by those rules.

The final part of Regulation 1 states the extent and application of Public Contracts Regulations 2015. As mentioned in the intro, Scotland is not covered at all. Furthermore, Part 4 (covering Chapters 7-9, which are not part of the Directive) do not apply to the contracting authorities in Wales and Northern Ireland whose functions are wholly or mainly devolved functions. It is actually a shame that this is the case as below-threshold procurement should be the main battleground for regulation and transparency for the next decade.

Albert's post is up here and full of good info.

That’s it for today. Join us tomorrow for Regulation 2.