Public Procurement (Amendment etc.) (EU Exit) Regulations 2019
(Limited Text - Ministerial Extracts only)
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The Minister of State, Ministry of Defence (Earl Howe) (Con)
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.
Baroness Hayter of Kentish Town (Lab)
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.
Earl Howe
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.
Lord Wallace of Saltaire
If I understand the Minister correctly, paragraph 12.3 should therefore read: “Provided that there is a withdrawal agreement, the impact will be limited, but in the event of no agreement there will be a considerable and adverse impact”.
Earl Howe
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.
Lord Adonis
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.
Earl Howe
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.
Lord Wallace of Saltaire
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.
Earl Howe
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.
Earl Howe
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.
Baroness Hayter of Kentish Town
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?
Lord Wallace of Saltaire
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.
Earl Howe
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.