Keeping the Faucet Open: The Implications of Brexit for European Public Procurement

brexitThe implications of Britain’s decision in June 2016 to leave the EU are gradually becoming clearer.  In the area of government procurement, a paper by the European Parliament has highlighted the various models available to UK and British companies, post-Brexit, for participation in the EU market.

The paper proposes that, in addition to the European Economic Area Agreement (EEA) model and the World Trade Organisation Agreement on Government Procurement (GPA) model – two models which we’ve already discussed in a previous alert – there is potential room for either an “EEA-minus” approach or a “GPA-plus” approach, both of which are explained in more detail below.  The European Commission estimated in 2015 that public expenditures for goods, works and services amounted to 13.1% of EU GDP and 13.6% of UK GDP, and this makes it understandable why the EU is so keen to ensure that the EU and UK markets stay open and accessible to each other after the UK’s withdrawal from the EU.

A quick recap of the EEA and GPA models

Under the EEA model, the existing EU procurement directives apply in the same way to EEA countries as within the EU; for example, the EU’s common advertising system for notices – Tenders Electronic Daily (TED) – still has to be used and notices have to be submitted in one of the EU’s official languages.  In addition, the same obligations apply with regard to below-threshold contracts for cross-border interests.  However, the EEA model does not provide for a customs union.  Essentially, this means that non-EEA products do not have guaranteed access to the market, even when such products are offered by EEA entities – the logical conclusion of this being that UK entities may find themselves shut out of EU-originating procurement exercises, without any recourse.

As for the GPA model, it is still unclear if the UK would need to rejoin the GPA after Brexit, with or without a new formal application.  This would be the first question to answer, should the UK opt for this model, but this issue is more logistical than structural.  The GPA itself is a robust framework for public procurement and, importantly, it provides remedies for affected entities before national review authorities.  Indeed, the GPA model has been used by the EU itself in public procurement agreements with its trading partners who are not parties to the GPA.  Therefore, the GPA model could be a viable option for a significant EU-UK agreement on procurement.  Still, much like the EEA model, the GPA lacks crucial detail on issues such as handling concessions, modifying existing contracts, and dealing with procurements by one public entity from another.

Finding a middle ground?

An “EEA-minus” approach would use EU law as the basis for procurement-specific rules, thereby maintaining EU access to above-threshold UK markets on the same basis as at present.  In addition, the UK would be permitted to continue using the common EU advertising system.  The paper acknowledges, however, that it is likely to be difficult to simultaneously maintain this model and ensure consistent application and development of rules based on EU law, in light of future developments in EU legislation and case law.

On the other hand, a “GPA-plus” approach would maintain access based on the GPA but be supplemented by additional rules, which could be used to address any important issues that are not covered by the GPA, including rules based on EU law. Such rules may be suitable for eventual inclusion in the GPA itself or of specific relevance to the EU’s relationship with the UK.

Whatever approach is taken, the devil will most certainly be in the details.  Even after a model is eventually chosen, considerable thought will have to be given to matters such as transparency rules on below-threshold procurement and the use of enforcement mechanisms, including inter-governmental enforcements.  The EU procurement regime is the product of multinational input and repeated iterations over the years, and we anticipate that this paper from the European Parliament is just the start of a similar journey between the EU and the UK.