Clifford Chance comments on Boris Johnson's 'Buy British' pledge

Clifford Chance has commented on the Prime Minister’s promise to change public procurement rules in the UK in favour of national businesses once the country is outside the EU in a fairly detailed piece by Andrew Dean.

The article correctly explores the various alternatives for the UK going forward, depending on what type of relationship is struck between the UK and the EU, ie with a deal based on the Withdrawal Agreement or no deal at all. But the important assumption is one similar to that myself and Albert Sanchez-Graells argued two years ago already: in the context of the GPA (which the UK has decided to enter into as a standalone member) the constraints this framework imposes may limit the scope of what ‘freedom’ the UK actually has to do as it pleases.

It is no surprise then that the UK’s coverage offer for the GPA is quite similar to the current EU one, but with a couple of key differences. Dean’s piece cites them in detail, but for me the two key ones are the lack of coverage for contracts below-thresholds and the exclusion of the old Part-B services, now those subject only to the limited rules of Directive 2014/24/EU. These were already restricted in their cross-border relevance anyway so they don’t seem to be a significant change. If they should have not been covered in the first place at EU level however, that’s a different story.

And herein lies the rub of Johnson’s ‘Buy British’ pledge - within the context of GPA participation the UK will not be able to tilt the rules in the favour of its own businesses. As Dean’s argues, the only way for the UK to do so is adopting a blank canvas approach, ie not having any sort of bilateral/multilateral agreement where procurement is covered.

Andrea Leadsom’s recent interview to MLex (gated) really drives home the message that the Government does not understand how the GPA or trade deals work. It also is oblivious to the reality of numbers as most procurement spend in the UK is already done with UK companies. The bit that isn’t is not easily substitutable by national alternatives, hence being won by foreign firms.

More grievously, the Government seems not to understand the consequences of this approach. Obviously, what will happen is that British firms which are successful bidding externally will be cut off from their markets. This will affect direct cross border and possibly as well the joint-venture approach preferred in some markets.

It is also possible that procurement access will become a sticking point in future trade deals, as it has happened in the past. For what benefit? A couple of positive headlines? A less competitive national market? The loss of internationally focused businesses?

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.

UK Competition and Markets Authority finds cartel in construction

This may not come as a surprise to anyone working in this area of practice, but the CMA has provisionally found guilty two companies operating in the construction sector, specifically in the pre-cast concrete drainage sector. These two companies have admitted being part of a cartel whereas a third one is also under investigation but has not admitted any wrongdoing.

Stanton Bonna and CPM together had 90% plus of the market from 2010 and have agreed to pay fines as part of their settlement for their price coordination practice.

It remains to be seen if the companies will be debarred from future public contracts based on Reg. 59 PCR 2015/Art. 59(4) of Directive 2014/24/EU but I suspect the grounds are too narrow to allow for such interpretation.

UK publishes anti-corruption strategy update

The UK adopted in late 2017 a anti-corruption strategy for the 2017-2022 period. One year on from the publication of the original strategy, an update has just been released.

Reducing corruption in public procurement and grants was and remains a key objective of the strategy, but whereas the original strategy included some loftier ambitions, the update provides some information on how the strategy is being pursued.

Some of the information is interesting to say the least, such as attributing an increase in 31% of the number of notices being published on ContractsFinder to a specific single Procurement Policy Note and that the open contracting standard work appears to be ongoing but without any firm commitments on the deployment of the open contracting data standard for example.

The CMA cartel screening tool also gets mentioned (and I think correctly - brownie points for it to be available on GitHub) as does the National Fraud Initiative and its work with local authorities to identify risk factors.

Going forward, the bit I am personally more interested in is buried under goal 3 - greater confidence in efficient and legitimate contract management an area that is sorely lacking attention. Not necessarily only regulatory attention, but also that of the practical type. The update mentions a Contract Debarment trial that was successfully completed in June 2018 and that a preferred approach will be forthcoming in 2019. Contract debarment is an area fraught with practical difficulties and one I think needs to be tackled centrally and not at authority level.

Finally, the update also promises specific guidance on how to apply exclusions in public procurement in December 2018, so that means within the next couple of weeks. This is once more welcomed but in all honestly should have been produced in 2015 or 2016 soon after the Public Contracts Regulations 2015 came into force

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.



Public procurement and contracts: new briefing paper by the House of Commons Library

The House of Commons Library has just published an interesting new briefing paper on public procurement and contracts. It is an introductory text, but one that sets up the scene well to explain how public procurement works in the UK.

The briefing paper can be found here.

After Carillion, Government looks into partially changing its procurement practice

Cabinet Office minister David Lidington has told the Liaison Committee of the House of Commons the following:

“We in government have started to look at lessons in terms of how we go about contracting with companies, [and consider] whether we want to revisit the question of seeking best value for money by getting large contractors in to manage wide ranging, complex projects.

[...]

If a government department were to decide that they wanted to let smaller companies bid for a number of different contacts, that would mean more in-house resource and expertise in the procurement and management”.

I, for one, welcome the (partial) recognition that perhaps more in-house resource for procurement and contract management is not a bad idea overall. But I have not forgotten the multiple instances where Government officials had bragged how "efficient" (ie, cheap) procurement was done in the UK in comparison with other Member States.

Picking up pennies in front of the steamroller as they say.

The problem with Lidington's view is not that larger contracts are bad in themselves (or worse than a multitude of smaller contracts), is that *especially* those monoliths need more resource for procurement and management.

But bearing in mind the approach of delivering Brexit on a shoe string, that is really not going to happen.

The UK Technical Note on Other Separation Issues [Public Procurement]

The UK Government has just published a technical note detailing its approach in phase 2 to a number of different areas, including ongoing public procurement procedures.

The Government disputes the EU's assumption that Union law should be applicable to ongoing procedures and states instead that "in practical terms" the procedures should be carried out under the applicable *national* law. This is slightly disingineuous since it implies that only national rules are relevant for public procurement contracts. That is certainly not the case since contracts not covered by the EU public procurement Directives can nonetheless be subject to EU principles in certain situations (more here and here) as well as jurisprudence from the CJEU. Eventually there may be situations as well whereby direct effect of provisions from the EU Directives would be relevant as well. Neither are "national law" in the context presented by the Government in this technical note.

There are not many differences in the position expressed today by the UK Government and that of the Union a few days ago. But there are two points worth noting. 

In para 32 the Goverment (rightfully) asks for reassurances UK businesses will be able to bid for EU contracts (but strangely not those tendered in other Member States?) for procedures launched before the withdrawal. This is a reasonable request but one that requires reciprocity...

In the same paragraph, the Government also calls for these 'transitional arrangements' to be extended to existing contracts (at EU and Member State levels) instead of only ongoing procedures. When the Commission published its paper last week I noted that the 'transitional arrangements' would end with contract award notice being published and, by definition, did not cover the contract itself. While it is true most procurement rules are connected with the award stage, I made a point about Arts. 70 to 73 of Directive 2014/24/EU therefore not being applicable any longer. 

Personally, I agree with the UK Government view that contract performance for ongoing contracts at the date of exit should be subject to the current procurement rules. But that is a mix of EU and national rules...

The risks arising from single bidder tenders in the UK

Ian Makgill from SpendNetwork and OpenOpps ran a twitter thread a few days ago based on a presentation he did on procurement data analysis.

The whole thread is worth reading and Ian was kind enough to send around the slide deck. One of the slides immediately captured my attention:

File 26-02-2018, 09 38 49.jpeg


It seems that from 2015 onwards there has been an increase in the total number of single bid tenders in the UK as well as a decrease in the average number of days for tenders to be submitted. As far as I can tell, Ian is implying both are correlated since the Public Contracts Regulations 2015 allow for shorter timescales to submit tenders. On another slide he argues a total increase of single bid tenders of 476% since 2012 and that is visible on the slide above as well. There is a clear trend for 2016 and 2017 which is markedly different from the years prior to 2015.

It is unclear how the increase is distributed, ie if the increase is happening across the board or if it is concentrated around specific characteristics, such as sector, project complexity or choice of procedure. It may be that, for example, in large/complex contracts the reduction in timescales affects them more than smaller contracts or the opposite - it is in the smaller contracts that the very short turnaround times really impact competition.

Single bid tenders are problematic for competition since they imply an absence of real competition during the procedure. The Economist had already pointed out in late 2016 the decrease in competition for public contracts. Lack of competition is bad by itself on a traditional open or restricted procedure but potentially much more problematic on any procedure with negotiations or dialogue such as the competitive procedure with negotiation or the competitive dialogue. 

For example, between March 2015 and January 2018 the competitive procedure with negotiations was used 458* times in the UK. It may have displaced some use of competitive dialogue (502 contract notices in the same period) but I suspect most of the substitution happened with the restricted (6,467) and open procedures (22,428) since they remain the 'standard' procedures. I would love to see how likely it is for the competitive procedure with negotiation and competitive dialogue to end up with a single bidder. However, for now a change in procedural practice does not seem to hold the smoking gun.

There are a couple of additional potential explanations for Ian's finding in addition to his implied justification of reduced timescales. At this moment I don't think either of them fully explains what Ian found. The first is an increase in pre-market engagement which has long been touted as a "great" idea for public procurement. The second is a negative competition externality arising from the increase in transparency in contract award information.

Regarding pre-market engagement, it is now clearly allowed in Regulation 40 (Preliminary market consultations) for the contracting authority to engage with conversations with potential bidder(s) before launching an official tender. I have had reservations about the negative impact of said conversations on competition and guaranteeing a level playing field in the subsequent tender procedure. Combined with the shorter timescales for tender submission, any bidder with advance information about the contract will be in a better position than the competition to participate. 

As for the second, the argument in competition law circles goes that the more information you give to the market, the easier it is for cartels to collude. Overall this idea is not to be disputed but I find it unlikely we would observe in the data such a quick increase in collusion immediately after the new rules came into being. Especially as contract award data is still patchy and not really easy to parse.

How do we go about checking the reasons behind this sudden increase in single bid tenders? First, I think we need to narrow down on which sector/types of contracts this is really happening. Then we need to test those hypothesis and there are a few (non-robust) ways of going about to do so. Comparing with the previous status quo (ie, what was happening with contracts before the legal change) and comparing with other EU Member States where this data is reliably collected like Portugal or Slovakia. Portugal has just transposed the Directives so the reduction in timescales is effective only from January 1st onwards. And while the country publishes a monthly summary of procurement data, the monthly report does not include any information about the number of bidders whereas the larger yearly one does. 

* I used data directly from the TED which mostly covers contract above tje EU financial thresholds and as such is a lot less complete than Ian's.

Are UK contracting authorities publishing contract award information?

The answer is: not all and not all of the time irrespective of the clear legal commands to do so. OpenOpps looked into the practice for contracts published on ContractsFinder and this is what they found out:

On average, central government departments had 23% of tenders incomplete. For example, Department for Education has issued 70 tenders and just 43 contract awards (39% incomplete) and the Department of Health has issued 101 tenders and only 33 contract awards (67% incomplete). The better performers were FCO Services and the Department for Transport. FCO Services has issued 187 tender opportunities on Contracts Finder, but published 186 contract awards (only 0.5% incomplete). The Department for Transport has published 97 tender opportunities and 94 are complete (4% incomplete).

As I suspected, local Government is a lot worse:

This trend of leaving tenders incomplete is less greater in local government where, on average 65% of the notices are incomplete. According to our analysis, 114 local government publishers of tender notices have never published a contract award notice, whilst only 37 local government publishers had published all of their contract awards notices, and 17 of these had published just one tender notice and one contract award. Clearly, the lack of contract award notices is not the only issue, low publishing numbers are also a problem. For example, Cambridgeshire County Council managed to publish just five tenders into Contracts Finder, when they’ve managed to publish 173 tender notices elsewhere since January this year.

As the data analysis was done only on ContractsFinder it is possible that for contracts above the EU thresholds contracting authorities are complying with the requirement to publish the results instead on the Tenders Electronic Daily.

Links I Liked [Public Procurement]

1. World Bank starts MOOC on PPPs (French only). Older English version here. I sincerely hope they cover also the downsides of PPPs.

2. 18F publishes beta website with US Government spending. Now if only we would do the same in Europe...

3. Night bus service in Barcelona to be re-tendered (Spanish only). Never understood why the night bus service in Barcelona uses different buses from the day ones. All that capacity sitting idle during the day? Makes no sense.

4. Just Another Paperclip? Rethinking the Market for Complex Public Services. Good report by Gary Sturgess.

5. An Exercise in Underachievement–The UK’s Half-Hearted Half-Measures To Exclude Corrupt Bidders from Public Procurement. Talk is cheap.

Simplification for whom?

One of the topics for discussion in last week's Procurement Week was simplification of public procurement and how Brexit could finally enable the simplification of the legal framework in the UK. Simplification, like flexibility, is on the eye of the beholder.

The problem with simplification is that it has different meanings for the various public procurement stakeholders. Simplification for the public sector means fewer constraints when awarding a contract, and in that sense is closer to flexibility than really simplification. As for the private sector, simplification means lower transaction costs and standardisation, ie the certainty the procedure will be identical (or very similar) irrespective of the contracting authority managing it. It is fundamentally at odds with the public sector view of simplification. Although both sides want simplification, what is meant by it is very different.

The simplification oxymoron

There's an intrinsic contradiction between simplification and flexibility when it comes down to the regulation of public procurement. The system can be optimised either for one or the other, but not both at the same time. Let's look at the current Public Contracts Regulations 2015 for example.

The introduction of the ESPD and associated rules on information retrieval about economic operators simplified their life and reduced their transaction costs. They no longer have to provide all the documentary evidence about their capacity or technical capability at the beginning, only later in the procedure. But this does only constitutes a partial simplification: the workload associated was shifted to the contracting authority which is now under the obligation of fishing for this information in national and foreign databases (in first instance). In a sense, this is only right since contracting authorities have long indulged in asking for significant amounts of qualifying information "just in case" without considering the implications of such requirement. Nonetheless, the simplification achieved for one side implied an increase in complication for the other.

As for flexibility, the profusion of different procedures in the last 13 years - particularly those with negotiation involved - provides contracting authorities with ever more specific "tools" to do its job. First, came competitive dialogue. But that was not flexible enough (that is, it did not include the magic n-word), so we can now find on Directive 2014/24/EU competitive procedure with negotiation, innovation partnership and competitive dialogue - all three overlapping like a nice Venn diagram.

No surprise then that we can now find contracting authorities using the competitive procedure with negotiation to award innovation partnerships (here and here) when the latter is supposed to be used by itself. But at least we got flexibility, meaning it is up for the economic operators to adapt and get used to multiple different ways to do the same thing. Guess who will support the cost of all that flexibility?

It is ironic as well that at least in the practice with innovation partnerships contracting authorities are basing themselves on a procedure with more prescriptive rules (the competitive procedure with negotiation) instead of embracing the full flexibility offered by the innovation partnership rules.

One final word about introducing more flexibility in procurement regulation in the UK. The Directives provide ample of space for additional national rules - or national solutions for issues not solved by the Directives themselves. Case in point, how to run the innovation partnership. However, the UK has always preferred the copy paste (sorry, copy out) approach to transposition of EU Directives and refusing to introduce further rules. No surprise then that even the regulation of contracts below EU thresholds is so sparse and restrained. Why would it change with Brexit? Other than the EU Directives no longer being a scapegoat for "we cannot do that" or bad practice, that is.

 

PS: This is not to say simplification for both sides cannot happen - it can - but is very hard to achieve in practice. When done well, electronic procurement might be an example. When done well.