Boris Johnson takes aim at procurement once more.

In a leadership hustings in Nottingham, Mr Johnson said he wanted to change public procurement rules which could see UK companies favoured when bidding for billions of pounds worth of Government work.

The obvious figure Johnson is missing here is that 97% or so of procurement is spent with British companies, so the upside of the measure is pretty much non-existent. However, any move to tilt the playing field in favour of British companies will trigger some significant downsides. First, obviously access to the EU public procurement market would be foreclosed and this would predominantly affect those companies with an international outlook. In other words, it would affect directly the “global Britain” type of companies.

Second, the UK has recently signed an agreement to join the Agreement on Government Procurement (GPA) as soon as it leaves the EU. This includes a set of commitments from the UK and naturally the assumption the current rules (which already are GPA compliant) are not rolled back. If they are, then the UK would surely have to renegotiate its participation in the agreement. In any event, I remain of the opinion that while the UK wants to stay within the GPA framework the flexibility to simply change procurement rules to its heart content is very limited.

UK (re)joins the GPA

The GPA members and the UK have reached an agreement allowing for the country to acceed to the Agreement if and when it leaves the European Union. This agreement ensures a continuity of the international procurement legal regime for UK-based undertakings and those based on the GPA members.

Back in 2017 myself and Albert Sanchez-Graells concluded that the UK was not a party to the current GPA in its own right and would have instead to apply for accession. Our colleague Ping Wang from Nottingham reached a similar conclusion.

In the paper we posited that the accession could follow a streamlined process but we assumed that even then it would take a significant amount of time. In this instance we were proved wrong, with the accession ocurring quicker than we anticipated.

Regarding possible change to the UK's legal regime(s) post-Brexit, we remain convinced that the accession to the GPA limits the scope of the changes that can be introduced.

Asymmetric retaliation in the UK GPA accession

Last week, Bloomberg ran an article claiming the USA and two other countries were blocking the UKs accession to the GPA agreement. Yesterday, it doubled down on the story stating New Zealand and Moldova as the two other members blocking the UK. and provided more information about why Moldova is making life difficult for the UK. The Moldovan reasons are simply delicious and a prime example of asymmetric retaliation. In hindsight, they capture beautifully the zeitgeist of Brexit. All in all, what myself and Albert predicted about a year ago in our paper is panning out: UK going for a straightforward accession as possible but with the flank exposed to demands from current members.

So far it seems that the current members are willing to run down the clock to November 27th when the WTO government procurement meeting occurs. To be fair, there is no reason or incentive to do otherwise for a number of reasons. First, because the UK is not leaving the European Union until March 29th, 2019, so there may be time for an agreement until then. If ratifications are required, then agreeing now or in March does not make a significant difference.

Second, the longer the uncertainty lasts the weaker the UK bargaining position and the more willing it will be to make concessions. And herein lies the rub: those demands for concessions can come from anywhere in the spectrum of interests of the other members, effectively meaning they may be completely unconnected with procurement. Procurement is simply being used as leverage to obtain concessions elsewhere (again, read between the lines of the Moldovan reasons…).

Finally, contrary to popular perception, the UK procurement market is not that open to foreign bidders. Only large contracts are subject to the GPA rules and those tend to be of interest to large companies. And which countries have large companies operating in foreign public procurement markets? Above all, two: USA and the UK. So, the USA is effectively reducing competition for procurement contracts inside its market and also - probably more crucially - taking key players out of competition abroad. So for the USA it makes sense to make life as difficult as possible to the UK unless really good sweeteners are thrown in (NHS privatisation anyone?). So for the price of losing access to the UK market the USA is blocking competition in all other markets (exception may be EU of course) as the UK also has no Free Trade Agreements in place. As for Moldova, it sits on the other side of the spectrum. It knows its companies stand no chance in hell of winning contracts in the UK so why open its home procurement market for free? Better to try and win a concession elsewhere like, say, visas.

Overall, I suspect the overarching interest of all parties will lead to a deal sooner or later, but so far we’re still in the multidimensional chess part of the game.

PS: The irony of New Zealand being the third blocker is not lost on me. Eat your hat, brexiteers.

Some thoughts on the Brexit "no deal" guidance for public procurement

The UK Government published recently a guidance note on the potential impact for public contracts access in case there is no deal with the EU before March 29 2019. There is not really much actionable information and perhaps calling it “guidance” is a slight misnomer as the document is more of a “heads up, this may happen” type of document.

Post March 29 2019, the Government implies that UK contracting authorities will be using a new UK-based e-notification service instead of OJEU/TED. However, there is no information whatsoever about this new service, who will set it up, by what date and how it will operate. In short, it adds no legal certainty to the implications of the UK departure. It might have been preferable to simply refer to the need to use Contracts Finder and similar regional portals for the time being instead of re-inventing the wheel once more.

Looking into the part about procedures ongoing at that date also yields reasons for concern. Here’s what the guidance contains:

“There will be more engagement on about how to deal with ongoing procurement procedures in the handover period between the two systems nearer the time. This will be described via appropriate communication channels and in guidance, which will be made available on GOV.UK.”

Again, not exactly reassuring. What will happen to those situations whereby the contracting authorities (and suppliers) are reliant on the European Single Procurement Document or e-Certis and associated databases to get data about economic operators taking part in ongoing procedures? And would the EU economic operators (and GPA ones) lose their status halfway through the procedure?

Finally, a word about the GPA. The guidance confirms that the UK is seeking individual accession to the agreement (as forecast by myself and Albert Sanchez-Graells). As the accession request was submitted in June 2018, the process will take time and it is simply impossible that the accession would be wrapped up by the end of March 2019. In consequence, UK economic operators would not only lose access to the EU procurement market but also to those of GPA members. As for economic operators from GPA countries, it would be up to the UK to decide how to treat them, but even if they were admitted to tendering doubts will remain about their eligibility for remedies.

New paper on Brexit and public procurement published

Albert and I have just published a new paper on the impact of Brexit in the regulation of public procurement in the UK. The paper is called 'Examining Brexit Through the GPA’s Lens: What Next for UK Public Procurement Reform?' (2017) 47(1) Public Contract Law Journal 1-33 and the ungated copy is available here

Here's the abstract:

"The United Kingdom has formally started the process of leaving the European Union (so called Brexit). This has immersed the UK Government and EU Institutions in a two-year period of negotiations to disentangle the UK from EU law by the end of March 2019, and to devise a new legal framework for UK-EU trade afterwards. The UK will thereafter be adjusting its trading arrangements with the rest of the world. In this context, public procurement regulation is broadly seen as an area where a UK ‘unshackled by EU law’ would be able to turn to a lighter-touch and more commercially-oriented regulatory regime. There are indications that the UK would simultaneously attempt to create a particularly close relationship with the US, although recent changes in US international trade policy may pose some questions on that trade strategy. Overall, then, Brexit has created a scenario where UK public procurement law and policy may be significantly altered.

The extent to which this is a real possibility crucially depends on the framework for the future trading relationship between the UK and the EU. Whereas ”EU-derived law” will not restrict the UK’s freedom to regulate public procurement, the conclusion of a closely-knit EU-UK trade agreement covering procurement could thus well result in the country’s continued full compliance with EU rules. Nonetheless, this is not necessarily a guaranteed scenario and, barring specific requirements in future free trade agreements between the UK and the EU or third countries, including the US, the World Trade Organisation Government Procurement Agreement (GPA) seems to be the only regulatory constraint with which future UK public procurement reform needs to conform. However, the position of the UK under the GPA is far from clear. We posit that the UK will face a GPA accession process and GPA members may see Brexit as an opportunity to obtain new concessions from the UK and the EU, which could be both in terms of scope of coverage or regulatory conformity. Further, given the current trend of creating GPA plus procurement chapters in free trade agreements, such as the US-Korea FTA, the GPA regulatory baseline will gain even more importance as a benchmark for any future reform of public procurement regulation in the UK, even beyond the strict scope of coverage of the GPA. Given the diversity of GPA-compliant procurement systems (such as the EU’s and the US’), though, the extent to which the GPA imposes significant restrictions on UK public procurement reform is unclear. However, we argue that bearing in mind the current detailed regulation in the UK might itself limit deregulation due to the need to comply with the international law principle of good faith as included in the 1969 Vienna Convention on the Law of Treaties and, to a certain extent, the United Nations Convention Anti-Corruption. 

The aim of this paper is to try to disentangle the multi-layered complexities of Brexit and to explore the issues that Brexit has created in the area of international public procurement regulation, both from the perspective of ‘internal’ EU law-related issues and with regard to broader ‘external’ issues of international trade regulation, as well as to assess the GPA baseline regulatory requirements, and to reflect on the impact these may have on post-Brexit public procurement reform in the UK."

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.


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.


New paper: Public procurement financial thresholds in the EU and their relationship with the GPA

I have just uploaded to my SSRN repository a new paper which will be published later this year in the European Procurement and Public Private Partnership Law Review (EPPPL). The paper is focused on the relationship between the EU procurement thresholds and the GPA, arguing that the current threshold levels are arbitrary and effectively set by the EU's GPA commitments. Here's the abstract:

The regulation of procurement within the European Union is binary: above certain financial thresholds, contracts are subject to full EU regulation, whereas below they are only subject to national rules (in general). First introduced in the 1970s, the financial thresholds are arbitrary without a clear justification for their specific values. Thresholds remained fairly stable in nominal terms and over the years became solely dependent on the commitments assumed in the various revisions of multilateral procurement agreements, currently the Government Procurement Agreement (GPA) 2014. In consequence, the external market access commitments accepted by the EU in the GPA determine today the size of public procurement internal market.

While it is true that inflation and currency fluctuations have progressively reduced the real term value of thresholds, no proactive reductions have been undertaken by EU lawmakers, contrary to what was done with trade tariffs. In consequence, current threshold levels do not reflect any productivity improvements or transaction cost reductions achieved during the last 40 years. By remaining stable in nominal and changing only due to external pressures and inflation inertia, the thresholds have effectively functioned as a ceiling and a floor to the concept of internal market in public procurement within the EU.

This is the second paper of my "thresholds trilogy", with the first one focusing on cross-border interest for contracts below-thresholds (also available on SSRN). I am currently drafting the third one which will argue that we should make do with thresholds altogether or else we will never complete the internal market.

Public Contracts Regulations 2015 - Regulation 90

Regulation 90 - Duty owed to economic operators from certain other states

This Regulation extends the duty created in Regulation 89 to economic operators based in other countries. This extension is provided for economic operators from countries signatory to the Government Procurement Agreement (GPA) and other countries where a bilateral agreement on procurement exists. The number of signatory parties to the GPA is small but growing.

As for the GPA extension, it is applicable only to contracts covered by it. Defining what is covered is not easy and depends upon looking into the specific commitments both the EU and other parties have made. As such, paragraph 2 establishes a "minimum common denominator" approach to the duty, making it depending on the reciprocity of the GPA state.

Let's use an example with a works contracts. The EU's GPA commitment is identical to the thresholds so in absence of a "minimum common denominator" rule, all contracts over €5,186,000 would be open to economic operators from all other GPA parties. However, the minimum common denominator rule only extends the obligations from Regulation 89 if there is reciprocity in the commitment of the other GPA member.

In our example the contract is valued at €5,500,00 and both American and Israeli economic operators want to take part on it. Only the first are entitled to the duty from Regulation 89. Why? Because their GPA threshold for works contracts is SDR 5,000,000 (identical to the EU's) whereas Israel has adopted a higher threshold of SDR 8,500,000, well above to the EU threshold. However, Israel will bring down this threshold to SDR 5,000,000 in 2020.

Bilateral agreement extensions apply in case the EU has entered into an agreement whereby it granted to a third country remedies that are "no less favourable" than the ones given to EU based economic operators (paragraph 3). I am surprised that the Regulation refers specifically to "EU economic operators" instead of EEA ones as this Regulation is extending the rights of Regulation 89 to economic operators from other countries.

EU procurement thresholds: it's time to bring them down

A version of the presentation I delivered yesterday about thresholds on Global Revolution VII is up on the presentation's tab.  For those of you in attendance yesterday, I used Perspective on the iPad to plot the graphics. Took me (and my wife) an eternity to format the spreadsheet tables correctly so that the graphs would turn up as they were supposed to.

If I have the time I may record a re-run of the presentation and put it up somewhere as a screencast as the slides follow my spartan style with limited text on each slide.

As for the content itself, the crux of my argument regarding thresholds and the internal market is that they are a product of compromises based on assumptions done in 1970s and 1980s which no longer hold true. We take them (and their values) as received wisdom and "that they are what they are" and have not taken into account any technological developments which have increased productivity, reduced transactions costs (IT, internet) or marginal costs in many industries. Thresholds remained nominally stable for the most part, although Inflation eroded the real value for goods/supplies. However, inflation has not done so for works (there was a big jump from 1M to 5M for the works threshold in 1989) and only to a limited extent for services (thresholds introduced in 1992).

The internal market thresholds have been glued to the EU's GPA commitments over the years and in my view conceding that the internal market is a common minimum denominator determined not by internal pressure but by those GPA commitments. Why is that?

Directive 2014/24/EU includes in its Article 92 a mandate for the European Commission to review the thresholds in the next three years in accordance with "inflation", "transaction costs" and to increase the GPA thresholds. Well, as our internal thresholds are identical to the GPA ones it is obvious that the real intention here is to increase procurement thresholds across the EU (as suggested by some scholars).

There is a fundamental misunderstanding on the equation that "higher prices = cross-border interest," as cross-border interest by economic suppliers depends on a number of different variables and factors not connected at all with a fixed value. Examples: time of the year; current workload; wider economy; resource availability to take part in tender or deliver contract within timeframes expected; etc. Not to talk about the two big ones: language barriers and legal differences (outside the strict procurement process). I have always been puzzled why private companies seem to be very keen and comfortable with private cross-border trade with suppliers on other Member States, but in public procurement only around 3% of money is spent directly with suppliers based on other Member States.

Raising thresholds would be bad for four reasons:

i) It would reduce what is already a small procurement "internal market" (only 18.5% of procurement spend covered), which may be the outcome some are looking for in the first place...

ii) It would misunderstand that as we introduce more technology into our lives certain classes of products/services will become cheaper, not more expensive. I am speaking about anything that involves computing power, economies of scale and/or bits&bytes.

iii) Connected with ii), it would ignore that the digital economy in the EU is getting close to 10% according to some guesstimates and that we are now finally building a digital internal market and there is nothing intrinsically more cross-border than bits&bytes.

iv) "But, Pedro what about cross-border interest for contracts below-thresholds?" If the cross-border interest is such a good idea why don't we apply it to all public procurement contracts then? When it takes someone as smart as Andrea Sundstrand 6 cases of the CJEU (and where 6 more could have been mentioned) to create a patchwork regime for a "super-procurer" to be able to comply with the cross-border requirement, I do not really need to make a case. If 15 years after Telaustria, we are still discussing what the hell is cross-border interest and how to reliably determine it, something is really wrong with the whole idea. But you can find some further thoughts of me here.

PS: Thanks for the pushback during the presentation and forcing me to think harder about this.

Public Contracts Regulations 2015 - Regulation 25

Regulation 25 - Conditions relating to the GPA and other international agreements

Regulation 25 transposes Article 25 of Directive 2014/24/EU on the treatment of economic operators based in GPA signatory countries or similar agreements the EU is party to. Albert has already split enough hairs about the small(ish) difference of the two texts: the Article refers to Annexes 1, 2, 4 and 5 of the GPA, whereas the Regulation mentions Annex 7 instead of 5. The reason for that difference is simply due to the coming into force of the 2011 GPA agreement in April 2014.

You should read Albert's entry for the GPA technicalities, as he puts his point across very well. I will focus my commentary on the "other agreements" part of the Regulation, particularly the forthcoming TTIP agreement between the EU and the USA as there is a chapter on public procurement market access open in the negotiations. If successful, these measures will open up the procurement markets in both sides of the Atlantic more widely than currently in the GPA.

Regulation 25 ensures that whatever conditions are offered in the TTIP to American economic operators, they will not be discriminated against when participating in public procurement procedures in England, Wales and Northern Ireland. For example, imagine that the TTIP includes financial thresholds that are identical to the ones contained in Directive 2014/24/EU which are slightly smaller than the GPA ones. American firms will thus be entitled to equal treatment up from that lower value contained in Directive 2014/24/EU. 

The tradeoff offered by the TTIP is that European economic operators (including the ones based in England, Wales and Northern Ireland) will be entitled to similar beneficial access in American public procurement markets. As there are no language barriers between the countries and there is plenty of common legal ground between both jurisdictions, it is natural that UK, Ireland and the USA will see a higher degree of cross-Atlantic procurement than other Member States.

PS: On general TTIP issues check Dr. Paolo Vargiu's excellent blog.