Considered in Grand Committee
My Lords, procurement by the Government and public sector bodies represents a significant sector of the UK economy. It is essential to the day-to-day running of government and is appropriately regulated. The Government are committed to ensuring the continued functioning of this important marketplace when we leave the EU. If a transitional deal is agreed with the EU then the existing procurement regulations will remain in place during the transition period. However, if no deal is reached with the EU then certain aspects of the existing regulatory scheme for public procurement will be deficient and will simply not work. The draft regulations before the Committee seek to address those deficiencies that would arise in a no-deal scenario.
The amendments made to the legislation reflect the UK’s new status outside the EU. It provides a balance between the need to maintain continuity based on established principles and the existing framework with the need to correct deficiencies to the extent permitted by the European Union (Withdrawal) Act. This will ensure the legislation is operable, effective and makes sense. This instrument primarily makes amendments to three sets of regulations—the Public Contracts Regulations, Utilities Contracts Regulations and Concession Contracts Regulations—that regulate public procurement in England, Wales and Northern Ireland. These sets of regulations implement EU directives on awarding contracts and concessions in the public and utilities sectors, outside the fields of defence and security.
This instrument amends or revokes various EU regulations and decisions relating to public procurement that will become retained direct EU legislation on exit day. It also makes small amendments to various pieces of domestic legislation, including some primary legislation, that are not primarily about public procurement but which contain public procurement references that will become deficient on exit day. These changes address the UK’s new position outside the EU while continuing to facilitate a functioning UK internal market.
As we leave the EU, the UK is working to join the WTO government procurement agreement in its own right. We are currently a GPA member through being an EU member state. I am pleased to say that the other GPA parties have agreed in principle to our market access offer and accession. We have taken precautions against the UK’s accession not being fully completed by exit day. One of the amendments to the public procurement regulations ensures continued guaranteed access, rights and remedies on current terms for suppliers from existing GPA countries for a time-limited period from exit day. Without this amendment, suppliers from GPA parties would no longer have the guaranteed access, rights and remedies that they currently enjoy in our public procurement contracts. This will mitigate the risks of a short gap in GPA membership by facilitating continued market access.
Through the amended regulations, control over public procurement is returned to the United Kingdom. All notices for public procurement opportunities will in future be published on a new UK e-notification system. Business continuity is meanwhile assured through the transitional provisions that will generally apply the amended regulations, even in relation to procurements that are already under way on exit day.
In a no-deal scenario, this instrument reflects the UK’s status as a non-member state, at the same time as ensuring a functioning internal market exists that complies with the requirements of the GPA. It provides the continuity and legal certainty required by public procurers and suppliers. I commend the regulations to the Committee and beg to move.
I thank the Minister for introducing the regulations, and those who drafted them for their hard work. Shall we get the good points out of the way first? I thought there were three. The first is that any regulation-making powers under the 1958 list will be by affirmative procedure—a tick for that one. The second was the ban on convictions being carried over as grounds for exclusion—tick. Thirdly, it looks as though Gibraltar has been included, which I assume is with the agreement of the Government of Gibraltar—tick. However, I have a number of questions.
One of my major questions is about the bold statement that no impact assessment has been made, despite the regulations introducing a requirement for businesses to use a new e-notification system that might include considerable changes to their own data systems, requiring software changes and internal training. These things never just happen, and preparing for them could well be expensive for the companies involved. That is a concern, given that the Explanatory Memorandum also states that there has been “no consultation”. It is hard to see how on earth it could have been decided that there would be virtually no cost to the companies affected, particularly small and medium-sized companies. It is exactly those companies, which do not have their own sophisticated IT departments, that could therefore face quite a challenge. It would be helpful to have some explanation of why no consultation and testing took place with them, and how it was therefore possible to take the view that the change would have no impact.
My second question relates to the exit date. I think that I am right that no definition is given in the regulations, presumably because they are made under the withdrawal Act of 2018, which itself defines exit day. I know that the Minister will not comment on this, but a number of us think it extremely unlikely that we will leave on 29 March and that there will very likely be a request for an extension to Article 50, and therefore a change of exit date. Should exit day be amended by statutory instrument under, I think, Section 20(4) of the Act, does that automatically amend the date on which these regulations would come into force? Would the eight months after which Regulations 6, 8 and 10 would come into force automatically follow the new exit date?
My third question is about e-notification, which I touched on earlier. I am worried about it because this is a no-deal preparatory statutory instrument, which sort of assumes that there will be no deal in seven weeks’ time. It would be helpful if the Minister could indicate when he considers that the e-notification system will be up, ready to run and fully tested; hopefully, it will be pre-tested with potential users. Some response on that would be helpful—as would some thoughts on what happens if it is not ready on exit date, particularly as another part of the regulations says that notices cannot be published on any other national portal until they have appeared on the e-notification system. Since we know that these things do not always appear quite on time, what happens if the system is not ready by 29 March? Can the Minister also tell us what sort of training and support will be given to those who need to access it? Perhaps he might know, or be given guidance on, how different this system is from the one currently used with EU procedure.
My fourth question turns to the GPA. The Minister said that the other parties have agreed in principle to us becoming a member of the WTO Agreement on Government Procurement. However, I am interested to know why, both in the regulations and in what he says, there is an indication that that might not have happened by exit date. Paragraph 7.20 of the EM suggests that it may not have happened. Can he explain why there might be a delay, given that we have applied, I assume, and he has heard that the other parties are happy? Basically, what is the problem?
My fifth question is about the CMA. The purpose of these regulations is to ensure that the “award of public contracts” is done in a market which is,
“open and competitive and that suppliers are treated equally and fairly”.
As I understand the regulations, the CMA will oversee and enforce this but that is something of a problem in that we do not yet know the nature of the state-aid regime post Brexit. We do not know the anticipated regime, nor exactly how it will oversee and enforce it. Obviously, state aid is very relevant to procurement, but the market is populated by international actors. They, and our people doing the procurement, will need to be clear about what the regime is. The relevant SI for the CMA bit of this was laid only on 21 January, and there is no indication of when the CMA will publish its policy statements. It says it will be before the end of March; should we come out on 29 March without a deal—which is what this instrument is about—there will be almost no time for anyone to know what the policy on which it will work to oversee the market is.
The Minister will be very pleased to know that I have only seven questions. My sixth question is about the financial threshold. The role of converting the GPA threshold into sterling will fall to the Cabinet Office Minister under these regulations. I was not clear about how this decision will be communicated. At the moment this is done through the normal EU channels but once that no longer happens, what is the transparency? This should be quite a simple decision and how it will happen is laid down, but it would be good to know how it will be communicated.
My last question is about something that I am sure everyone in the Room except me knows, so I ask it very much for my own benefit. It is about social obligations. A contracting authority can refuse to award a contract to the lowest bidder if the bidder,
“does not comply with certain … obligations in the field of social, environmental and labour law”.
I understand what environmental and labour law cover, but I am personally unsure whether “social law” would include consumer law, or whether it is more about social benefits and so on. For my benefit, could the Minister clarify whether consumer law would be covered? I am sorry that I have lots of questions, but that is partly why I asked my colleagues if they minded me going early. I think that gives other people in the Room a chance to find the answers before the Minister has to reply.
My Lords, having read this lengthy SI and being conscious of the other 600 or so coming our way, my sympathy for the officials working on Brexit is deeper than before. My despair at the Government refusing to rule out a no-deal Brexit is deepened when I think that some of all this is to guard against the contingency of no deal and would not be necessary if we ruled out that possibility. I know that a huge amount of extra work is going on across Whitehall to guard against a contingency that Parliament would not accept if we found ourselves drifting towards it. However, in the event of a withdrawal agreement, we will still have public procurement issues.
I want to ask primarily about the agreement on government procurement and the adjustment of moving to WTO terms, so to speak, in moving from the EU regulations to the GPA. Like the noble Baroness, Lady Hayter, I heard the Minister say that others have “agreed in principle” to this and that we are “working to join” the GPA, which suggests that we will not have joined by the end of March. I hope that he can tell us when we might do so and what will happen if we leave in an orderly fashion in the next few months—I do not know how we will manage that but we will try to do it somehow—before we have joined the GPA, with a gap in between.
I note that paragraph 12.3 of the Explanatory Memorandum says that,
“in a no deal scenario where the UK is not participating in the GPA, it may be that economic operators would no longer have guaranteed access to the procurement markets of GPA parties (including the EU) or the remedies provided for by them”.
I understand that to mean that British companies will suffer in having no access to other countries’ markets. What would the situation be? Can the Minister explain a little about the difficulties we appear to have run into between October and November last year in applying to become an independent member of the GPA? Why was the United States so resistant to UK admission, as some of the documents I have looked at suggest? Are Her Majesty’s Government confident that, in rejoining the GPA as an independent country, we will find that procurement in the United States—by states as well as by the federal Government—will be open to the UK? I recall from my time in the US as a student that other countries constantly complained about how they could access federal procurement but states did not think that they were bound by international agreements of that sort.
Why did New Zealand express reservations about the UK becoming a full member of the GPA? Given that Liam Fox provides constant assurances that New Zealand is willing to offer open arms to the UK through the most generous possible trade deal after Brexit, it struck me as rather odd that its Government did so. New Zealand is a massive friend to the UK, ever grateful for having been colonised by British people. One would have thought that there would be no problems what ever.
Will Irish firms be in an intermediate position in any way in terms of access to government procurement? I am conscious that the Belfast agreement and our future relationship with Ireland are not exactly foreign matters. Can the Minister say anything about our confidence in standards of enforcement in the GPA? Moving from the EU framework to the World Trade Organization GPA framework represents moving to a looser framework. It is a bit like moving from Europol to Interpol. Standards of enforcement tend to be lower; for example, I know that China is about to join the GPA but I cannot imagine the Chinese opening their domestic state procurement market as fully as we have managed with France, Italy or Spain. Is a little more assurance on that point possible or are we simply accepting that we are moving from a tighter, more effective framework to a looser and less effective one?
My Lords, I will begin by asking the noble Earl some specific questions, and then make some wider remarks. First, what status would British public procurement contracts have in the Official Journal of the European Union? In a no-deal scenario, is it the intention that the United Kingdom would still advertise its contracts in the Official Journal? Indeed, would it be legally possible for it to do so? If it does not, either because it is not legally possible or because it is a policy of the Government not to do so in a no-deal scenario, will that not in practice mean that our procurement market in the United Kingdom is a great deal less competitive after than it was before because, if people do not know about contracts and there is not a level playing field for them to apply, fewer people will apply? That is an important point. I simply do not understand the position in a no-deal scenario.
Secondly, from what the Explanatory Memorandum says, I assume that it will still be entirely open to UK companies to bid into the EU procurement market, in the same way as it is open to countries outside the EU at the moment. It is the issue about the advertising of contracts in respect of the United Kingdom that seems significant.
My third question relates to the point just raised by the noble Lord, Lord Wallace, of the slightly conditional language used by the noble Earl in his opening remarks about whether we will or will not be a member of the GPA by 29 March. I took him to say that we might be, but he could not give a guarantee. Having looked at the statements made by the WTO and Julian Braithwaite, the United Kingdom’s representative there, my under- standing is that our application has been accepted in principle but that there are a number of issues still being worked through. Perhaps the noble Earl could update us. That seems a point of some importance for people in these markets to understand—whether we definitely will or may not be an independent signatory to the GPA by the end of March—not least because of the remarks made by the noble Earl himself in his introduction, where he said, I think, that having that independent membership would give us,
“continued guaranteed … rights and remedies”.
I assume the reverse is also true: if we are not an independent member at the end of March, then for the period when we are not we will not have guaranteed rights and remedies, and this could leave British companies seriously vulnerable in enforcing their rights.
My fourth question relates to paragraph 7.39 of the Explanatory Memorandum and what the regime will be in respect of state aid. A number of questions arise from the paragraph, so I will quote it:
“In respect of abnormally low tenders submitted by bidders who may have been in receipt of state subsidies, the intention”,
of the Government,
“is to treat non-UK economic operators on a level playing field. Further, although a new UK State aid regime is envisaged in which the function for enforcement is to be conferred on the Competition and Markets Authority, in the area of public procurement, it would be inappropriate for economic operators established in the UK to be required to demonstrate that aid provided by the UK Government was compatible with the UK’s State aid regime in contrast to economic operators not established in the UK”.
Is my understanding of this correct, namely that whereas we intend to apply state aid rules to European bidders for our contracts, we are not intending with these regulations to insist on those same state aid rules being applied in respect of UK bidders for European contracts? The obvious point which arises if that is the case is that it will not be accepted at face value by our European partners, who will of course presumably continue to insist on the application of their state aid rules, which are the same as now. They will not change those rules. I therefore do not understand the actual effect, because the implication in paragraph 7.39 is that the UK could start, for example, flouting existing state aid rules to support UK bidders for EU contracts. As I understand it, that would be legal under the regime envisaged. What is the point of allowing that if those same rules are going to be applied by the EU in the first place? Let us think about real-life situations. It is not in the interest of the United Kingdom that we be regarded as an unreliable bidder in respect of state aid for EU contracts. If a belief gains ground that because these rules do not apply we are content for UK companies which are in receipt of state aid to bid, that will in quite short order lead to significant tension between us and the European Commission. Would a better arrangement not be to say that if we are so keen on state aid rules being applied in respect of EU bidders for UK contracts, the right, reasonable and collegiate thing for us to do would be to insist that those same rules applied in UK domestic law to UK bidders for European contracts? Is the noble Earl with me on those points? They are technical but extremely important for bidders for these contracts.
More broadly, we are again in a slightly surreal Alice in Wonderland situation. We are told—it comes up again in the impact assessment and the statement on consultation—that these changes are technical. Indeed, they are technical in the sense that they replace an existing procurement regime which operates within the European Union market with one that operates within the UK, only with minimal changes. That is certainly correct, and for that reason there is no impact assessment and there has been no consultation. However, at another level they are anything but technical; this relates to a point that my noble friend Lady Hayter made. The act of leaving the EU with no deal means that we are at one stroke potentially rupturing our entire access to these markets and the entire access arrangements of EU bidders to our market. As the noble Earl does not appear even to guarantee that we will be a member of the GPA—subject to what he says in his response—we cannot even be sure that we are able properly to enforce existing contracts which United Kingdom operators have entered into, because the ability to enforce those contracts depends upon our membership of the GPA.
While the technical wording of the rules may not have changed in terms of how we intend to operate public procurement, the act of leaving the EU will fundamentally rupture the entire regime for public procurement, including potentially closing European markets to UK operators over time and closing UK markets to EU operators. This goes against the whole drift and success of EU policy over the past 20 years, which has been systematically to open public procurement markets. I see from the latest EU statement on the three directives in this area that they are estimated to be worth €1.9 trillion a year, paid by 250,000 public buyers across the EU. This is a very significant reason why we engaged in the construction of the single market, why we have played such an active role in setting up the rules and why we have been absolute hawks on issues of state aid and intervention by EU Governments—some of our fellow European Governments have not been as open to the concept of competition in public procurement markets as we have been.
As this statutory instrument goes through, it is important to note that the loss to the UK will be huge. It relates directly to paragraph 12.3 of the Explanatory Memorandum, which was quoted by the noble Lord, Lord Wallace. Those of us who are becoming familiar with these statutory instruments after dozens of them are now used to this formula. The technical changes made in this statutory instrument to make it compatible with UK law on exit are minimal. However, the actual act of leaving the EU in relation to the real-world operation of the law is massive. Paragraph 12.3 is another statement exactly in that tradition. It says:
“An Impact Assessment has not been prepared for this instrument because the framework and principles underlying the Regulations have not been substantially amended”.
Three sentences later, however, it goes on to say:
“It will be open to UK economic operators to continue to respond to contract notices published on OJEU by member States but in a no deal scenario where the UK is not participating in the GPA, it may be that economic operators would no longer have guaranteed access to the procurement markets of GPA parties (including the EU) or the remedies provided for by them”.
Those euphemistic words amount to the undermining or closing of a substantial part of the markets in which UK companies currently operate. The fact that it is caused not directly by these regulations but by the decision to leave the EU in a no-deal scenario—which underpins these regulations—will not greatly satisfy or mollify those companies whose livelihoods are trashed as a result of a no-deal Brexit.
My Lords, I thank all noble Lords who have spoken for their questions. If noble Lords will bear with me I will do my best to answer them, although not necessarily in the order in which they were asked.
The first question of the noble Baroness, Lady Hayter, was about the lack of an impact assessment. As I said in my opening remarks, this statutory instrument was designed to ensure continuation of the current system where possible. The impact of the amendments, including the replacement of the OJEU with the UK e-notification service, was deemed, after a de minimis impact analysis, to be below an annual cost of £5 million, which is the critical figure in this context. Consequently, in line with published guidance, a full impact assessment was not required or produced. We do not anticipate that the costs of complying with the amended regulations will be very great: in fact for all practical purposes they will be unchanged, because this amendment only fixes deficiencies and removes reciprocal rights—it does not change processes and procedures that would affect the cost of running or participating in a procurement under the regulations. That is why there was no consultation.
No, my Lords. These regulations are designed to ensure that the experience of businesses using the public procurement system is virtually unchanged from today. Our aim has been to produce as smooth a transition as possible—even in the event of no deal. Of course, as the noble Lord, Lord Adonis, has pointed out, there will be changes in the wider context of bidding in the European market; I will come to that in a minute.
The noble Baroness, Lady Hayter, asked what would happen if exit day was deferred. If that were to happen, and the withdrawal Act amended, that would feed directly through into these regulations, so no specific amendment would be required for that. She also asked me about the GPA thresholds and how they will be published. To update the thresholds, the Minister for the Cabinet Office will need to exercise the new regulation-making powers conferred by this instrument. The new thresholds will, therefore, be reflected in the public procurement regulations themselves and be publicly available and notified by procurement policy notice.
The noble Baroness, and the noble Lord, Lord Wallace, asked about the GPA. As I said in my opening remarks, the UK currently participates in the GPA via its EU membership. We need to accede to the GPA in our own right to maintain legally guaranteed access to public contract opportunities that the GPA provides. The offer that we have made to GPA parties maintains our existing commitments in the UK part of the EU schedule. The European Union (Withdrawal) Act 2018 aims to ensure as much continuity as possible. It is, therefore, the UK’s intention to join the GPA in its own right and, ultimately, to transpose the other international agreements between the EU and third countries. Accordingly, all suppliers should continue to be treated equally and fairly through open competition. Keeping our procurement market open to international competition clearly ensures better value for money for the taxpayer and facilitates UK suppliers being offered reciprocal rights to participate in procurements abroad.
Noble Lords asked me what would happen if our GPA accession did not take place by exit day. We have made good progress in our accession process and, as I said, we have received agreement in principle to our GPA market access offer. Despite this progress, we have taken the necessary precautions in the event that the UK’s application to accede has not been fully completed by exit day. In this scenario, economic operators established in territories and states that are GPA parties would no longer have the guaranteed access and associated remedies that they currently have in relation to UK public procurements. One of the amendments in the public procurement regulations guarantees continued access, rights and remedies for suppliers from GPA countries for a time-limited period from EU exit. This approach has been taken to mitigate the risk of a short gap in GPA membership. This will facilitate UK suppliers being offered reciprocal rights to participate in procurements abroad.
The noble Lords, Lord Wallace and Lord Adonis, asked about the attitude of other countries—New Zealand and China in particular—to what we were doing in relation to the GPA and standards. New Zealand has, in fact, accepted our final market access offer. It continues to be interested in other aspects of the UK’s WTO membership. China’s application has been in train for many years and I am advised that it is unlikely to be completed in the near future. There will be no change to the standards that we currently operate. A draft decision inviting the UK to join has been sent to all GPA parties. It is expected that the formal invitation will be issued at a committee meeting this month. Parties were interested in how the decision described the UK’s relations with the EU during the transition period.
The noble Lord, Lord Wallace, also asked about oversight carried out by the Competition and Markets Authority. This instrument does not provide for oversight by the CMA of the public procurement regime. Aggrieved suppliers will, however, continue to be afforded the remedies provided for in the regulations. In that way, contracting authorities and other entities will be held to account by the courts.
The noble Lord, Lord Adonis, asked various questions about the Official Journal of the European Union and the publication of contract opportunities. In a no-deal scenario, the UK is unlikely to be afforded access to the Official Journal for the purposes of advertising public contracts. That is simply a facet of no longer being a member of the EU, and that is why we have developed our own system to which UK bidders, EU bidders and bidders from the rest of the world will have access and in which they will be able to see UK public procurement opportunities. UK authorities may continue to advertise some types of procurement opportunity in the Official Journal—where the UK is participating in EU research and development projects, for example—though we anticipate that being a relatively rare event.
Is the noble Earl saying that to advertise in the Official Journal of the European Union you are required to be an EU member? Could he say—or follow up in writing afterwards—whether Norway and Switzerland, countries with very close economic associations, including membership of some of the economic institutions of the EU, do or do not advertise public procurement opportunities in the Official Journal? If it is possible to advertise in the Official Journal without being an EU member, it would be good to know whether the United Kingdom could continue to do so, since it would be a big advantage to be able to advertise our public procurement opportunities in that way.
I take the noble Lord’s point entirely. I need to seek advice on the question that he asked me about Switzerland and Norway, as I do not have that information to hand, but clearly, to the extent that we are allowed to avail ourselves of the OJEU in any public procurement context, it will be an advantage. However, I am advised that the new UK e-notification system which is being developed will be accessible by the same portal that suppliers use at the moment. To that extent, the process which they go through will feel quite normal. I can advise the noble Baroness, Lady Hayter, that the new system is on track to be in place by 29 March 2019.
My Lords, am I correct in thinking that provided we have an agreement as we leave and therefore also a transition period, during that transition period many of the same arrangements will continue? If so, it is possible that the answer to the question asked by the noble Lord, Lord Adonis, is that during the transition period we will continue to have access. The question of what happens after 2020, 2021 or whenever it is has to be negotiated; the future relationship negotiations have not yet begun.
The noble Lord is absolutely correct. Clearly if the agreement proposed by the European Commission is agreed, or something like it is agreed, the implementation period will kick in, and therefore we will be as if a full member of the European Union for purposes of public procurement. There will then be the question of what long-term arrangements are negotiated by and through the Commission.
The noble Baroness, Lady Hayter, and the noble Lord, Lord Wallace, asked what would happen if the e-notification service was not ready, and what training and support was being provided. As I said, the system is on track for exit day but, if not—if something unexpected were to happen—notices will be published on existing national portals for notices, such as Contracts Finder for England and Public Contracts Scotland, until the UK e-notification service is ready. Notifications are made through the EU exit portal to businesses, but I must emphasise that we do not anticipate that there will be a gap in that context.
As far as support to suppliers goes, communications have been published in the form of a technical note and on the Brexit portal to prepare suppliers for transfer from the Official Journal of the European Union to the UK e-notification service.
I hope I have answered most of the questions from noble Lords to the extent—
I have just alighted on my note to that effect. The noble Lord, Lord Adonis, essentially asked whether the implication of the Explanatory Memorandum is that the UK could start flouting the EU state aid regime. On leaving the EU, the UK will no longer be bound by the Treaty on the Functioning of the European Union, so economic operators will not be subject to the EU’s state aid regime any more than a third-country supplier receiving state subsidies would be. The UK has developed its own state aid regime, but it is important to remember that this instrument does not disapply the state aid rules. Rather, contracting authorities will simply no longer be required to look behind an abnormally low tender to investigate whether a bidder was in receipt of unlawful state subsidies. That is because the UK will no longer be a participant in or bound by the EU’s single market and competition rules.
I asked a question about whether the description of social law includes consumer law. I am happy for the Minister to write to me if he needs to check that.
There was one question I omitted to ask. It is not particularly relevant or specific to these regulations, but the Minister may know the answer anyway. It is: assuming this goes through, is approved by the House, therefore becomes law and then we get a deal, what happens? Do all these statutory instruments get repealed? What would be the status of all these no-deal statutory instruments should we get a deal?
In that case, the impact assessment for no deal should have been part of the statutory instrument. I read it as being partly about no deal and partly about the withdrawal agreement, because if we leave with a deal before we have completed joining the GPA the consequences could be quite substantially adverse.
The two situations would indeed be very different. The Government hope that Parliament will agree a deal, which will make for a much smoother transition in the implementation period for businesses, private citizens and everybody else than if there is no deal. However, as has been said many times in the Chamber, it behoves a prudent Government to prepare for these contingencies. Unlike the statutory instrument we will debate next, this one is purely designed to address the contingency of no deal.