Documents considered by the Committee on 19 December 2017 Contents

5Public procurement

Committee’s assessment	Politically important
Committee’s decision	(a) Not cleared from scrutiny; further information requested; (b) and (c) cleared from scrutiny; drawn to the attention of the Business, Energy and Industrial Strategy and Exiting the European Union Committees
Document details	(a) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Making Public Procurement work in and for Europe; (b) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Helping investment through a voluntary ex-ante assessment of the procurement aspects for large infrastructure projects; (c) Commission Recommendation on the professionalisation of public procurement Building an architecture for the professionalisation of public procurement
Legal base	(c) Article 292 TFEU
Department	Cabinet Office
Document Numbers	(a) (39116), 13286/17, COM(17) 572; (b) (39088), 12977/17, COM(2017) 573; (c) (39101), 12977/17573 + ADD 1, COM (17)

Summary and Committee’s conclusions

5.1On 3 October 2017 the European Commission adopted a procurement package, consisting of a non-legislative Communication setting out the overall policy framework for its proposals, and two additional non-legislative proposals.44 The overall aim of the package is to make European procurement more efficient, to maximise use of digital technologies, and to simplify and accelerate existing procedures.

5.2The Communication45 identifies six priorities for action. It encourages the Member States to apply strategic criteria more systematically when awarding public contracts, with a targeted approach for certain priority sectors. It also advocates improving procurement skills for public buyers; improving access to procurement markets (particularly SMEs); increasing transparency and integrity of procurement processes through the collection and dissemination of good quality data; digitising procurement processes; and increasing cooperation among public buyers across the EU.

5.3Two separate documents develop particular aspects of this strategic approach: a recommendation46 identifies steps Member States should take to ensure that public buyers have the necessary knowledge to comply with EU rules, and a Communication on the voluntary ex-ante assessment of large infrastructure projects47 establishes a Commission-run voluntary scheme to help public authorities assess whether a project is compatible with the EU regulatory framework before taking further steps.

5.4On 10 November 2017 the Minister for Government Resilience and Efficiency at the Cabinet Office (Caroline Nokes) submitted three explanatory memoranda relating to these proposals.48 The Minister indicates that the Government supports the proposed strategy, and welcomes the proposal for a voluntary ex-ante assessment of procurement aspects of large-scale infrastructure projects and the benefits that it will bring.

5.5The Government does not provide any comment on the implications of leaving the European Union for UK-EU public procurement. This needs to be addressed as cross-border public procurement is economically significant: one academic calculates that bilateral UK-EU procurement-related trade represents 15% of the total value of all UK procurement, amounting to approximately 2.5% of GDP.49

5.6UK businesses are currently able to secure contracts through procurement launched in other EU Member States on the basis the EU procurement rules. EU public procurement law ensures that UK businesses have full access to the public sector markets of all other EU Member States, and that EU businesses have full access to UK public sector markets.

5.7The WTO procurement regime is known as the Agreement on Government Procurement (GPA).50 While there are significant overlaps between the GPA and the EU procurement regime in terms of content, the extent to which the GPA would provide an adequate substitute for current levels of access to EU27 procurement markets is unclear: one commentator has noted that the WTO GPA does not cover private utilities, defence procurement or concessions.51

5.8The UK currently participates in the WTO GPA through the EU Schedule, which will no longer apply post-withdrawal since the UK will no longer be part of the EU. On 11 October 2017 the UK Government and the EU jointly wrote to the WTO membership to propose that the UK adopts a Schedule that is identical to that of the EU.52

5.9We note the Commission’s procurement package and the Government’s support for the proposed reforms. We regret that the Government has not provided any substantive analysis of the implications for cross-border UK-EU procurement in the context of the UK’s withdrawal from the EU. This issue requires close scrutiny as, despite the limitations of the available data, we understand that bilateral UK-EU cross-border trade in procurement represents around 15% of the total value of all UK public procurement—close to 2.5% of UK GDP—and affects a wide range of sectors.

5.10EU public procurement law ensures that UK businesses have full access to the public sector markets in all EU Member States, and vice versa. This ensures free trade in the context of public procurement under conditions of transparency, equal treatment and non-discrimination. This arrangement is based on the UK’s membership of the Single Market, which the Government has determined to leave.53 In parallel, the Government and the European Commission have written to the membership of the WTO with the intention of creating a UK-specific Schedule to the WTO Agreement on Government Procurement (GPA).54

5.11The extent to which current levels of access to procurement markets will be reduced when the UK leaves the EU depends on the nature of the future relationship. EFTA countries that are signatories to the European Economic Area (EEA) Agreement participate fully in the Single Market for public procurement, but the Government has ruled out this option. There is some precedent for non-EFTA countries acquiring high levels of access to the EU procurement market: the recent EU-Ukraine Deep and Comprehensive Free Trade Area (DCFTA)55 provides such access as part of a wider Association Agreement, which would require compliance with EU procurement rules. The WTO GPA will provide some access to the procurement markets of the EU27 and other participants, although this requires further clarification.

5.12We ask the Government to respond to the following questions:

What is the Government’s best estimate of procurement trade flows and the balance of trade between the UK and the EU (including direct and indirect trade)?
In which sectors is cross-border UK-EU27 procurement most significant?
Bird & Bird suggest that there has already been a closing off to UK bidders of certain European Union-led projects, particularly those which require an ongoing EU presence, or for projects that are strategically significant.56 Does the Government recognise this phenomenon? Does the Government have any data about the total value of EU-led procurement project contracts which UK businesses have secured?

5.13We ask for responses to the following questions about the implications of the different models for retaining access to the Single Market for procurement:

What would be the effect on levels of UK access to EU27 procurement markets of a shift from the status quo to accessing these markets exclusively on the basis of the WTO Agreement on Government Procurement (GPA)? Is discrimination (e.g. on the basis of nationality / country of establishment) permitted in the context of the GPA? Would direct and indirect procurement trade be differently affected?
Has the Government received any feedback concerning the procurement aspect of its proposal to adopt a WTO Schedule identical to that of the EU?57 Does the Government intend to retain EU procurement rules in domestic law in order to demonstrate the UK’s continuing compliance with the GPA?
In terms of access to Government procurement markets, how do the access commitments that Canada must make to the EU, as part of CETA,58 compare to those the UK currently makes as a Member State? What level of access to the EU procurement market does Canada receive in return, relative to that of EU Member States?
In addition to the EU-Ukraine agreement, what precedents are there for non-signatories of the EEA Agreement securing full access to the EU procurement market? Could the Deep and Comprehensive Free Trade Area (DCFTA) which forms part of the Ukraine agreement provide a basis for the “deep and special partnership” that the Government envisages, or can an agreement of this kind be ruled out?

5.14We ask the Government to respond to these questions by 7 February 2017. In the meantime, we retain document (a) (Making Public Procurement work in and for Europe) under scrutiny, while clearing documents (b) and (c). We draw this chapter to the attention of the Committees for Exiting the European Union and for Business, Energy and Industrial Strategy.

Full details of the documents

(a) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Making Public Procurement work in and for Europe: (39116), 13286/17, COM (17) 572; (b) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Helping investment through a voluntary ex-ante assessment of the procurement aspects for large infrastructure projects: (39088), 12977/17, COM(17) 573; (c) Commission Recommendation on the professionalisation of public procurement Building an architecture for the professionalisation of public procurement: (39101), 12977/17+ ADD 1, COM(17) 573.

Background

EU procurement acquis

5.15EU law sets out minimum harmonisation public procurement rules. EU directives on public procurement cover tenders that are expected to be worth more than a given threshold. These rules organise the way public authorities and certain public utility operators purchase goods, works and services. They are transposed into national legislation. The core principles of these directives are transparency, equal treatment, open competition, and sound procedural management. They are designed to achieve a procurement market that is competitive, open, and well regulated. For tenders of lower value, national rules apply. Nevertheless, these national rules also have to respect the general principles of EU law.

5.16By 18 April 2016, EU countries had to transpose the following four directives into national law:

Directive 2014/24/EU on public procurement;59
Directive 2014/25/EU on procurement by entities in the water, energy, transport and postal services sectors;60 and
Directive 2014/23/EU on the award of concession contracts.61

5.17Dr Albert Sanchez-Graells (Bristol University), states that, taken as a whole, EU public procurement law “ensures that UK businesses have full access to the public sector markets of all other EU Member States, and that EU businesses have full access to the UK public sector markets. This ensures free trade in services in the context of public procurement under conditions of transparency, equal treatment and non-discrimination. No tariff or non-tariff measures are allowed.”62

WTO Agreement on Government Procurement (GPA)

5.18The GPA is a plurilateral agreement within the framework of the WTO, meaning that not all WTO members are parties to the Agreement. At present, the Agreement has 19 parties comprising 47 WTO members. Another 31 WTO members participate in the GPA Committee as observers. Out of these, ten members are in the process of acceding to the Agreement.

5.19The fundamental aim of the GPA is to mutually open government procurement markets among its parties. As a result of several rounds of negotiations, the GPA parties have opened procurement activities worth an estimated US $ 1.7 trillion annually (globally) to international competition (i.e. to suppliers from GPA parties offering goods, services or construction services).

5.20The GPA is composed mainly of two parts: the text of the Agreement63 and parties’ market access Schedules of commitments.64

5.21The text of the Agreement establishes rules requiring that open, fair and transparent conditions of competition be ensured in government procurement. However, these rules do not automatically apply to all procurement activities of each party. Rather, the coverage Schedules play a critical role in determining whether a procurement activity is covered by the Agreement or not. Only those procurement activities that are carried out by covered entities purchasing listed goods, services or construction services of a value exceeding specified threshold values are covered by the Agreement.

5.22As a binding international treaty, the GPA is administered by the Committee on Government Procurement which is composed of representatives of all its parties. The enforcement of the Agreement is realized through two mechanisms: the domestic review mechanism at the national level and the WTO dispute settlement mechanism at the international level.

5.23Dr Albert Sanchez-Graells (Bristol University) explains that EU public procurement rules are coordinated with the EU’s international obligations under the WTO GPA, and compliance with EU law therefore allows its Member States to benefit from the advantages of the WTO GPA.65 Therefore, through compliance with the EU public procurement acquis, the UK benefits from access to the EU internal market and to the public procurement markets of WTO GPA signatories.

5.24The UK and the EU wrote to the WTO membership on 11 October outlining the UK and the EU’s desire to retain their membership of the WTO Agreement on Government Procurement (GPA) on the same terms:

“The UK and EU will work together on the UK’s objective of remaining, upon leaving the EU, subject to the rights and obligations it currently has under the Agreement on Government Procurement as an EU Member State on the basis of the commitments currently contained in the EU schedule of commitments.”66

The proposal

5.25On 3 October 2017, in line with a previous Communication on the Single Market Strategy,67 the Commission adopted a package of non-legislative measures on public procurement. The package is comprised of three main elements:

i)A communication which identifies priority areas for improvement68—Member States are encouraged to develop a strategic approach to procurement policies, focusing on six priorities: greater uptake of innovative, green and social criteria in awarding public contracts; professionalisation of public buyers; improving access by SMEs to procurement markets in the EU and by EU companies in third countries; increasing transparency, integrity and quality of procurement data; digitisation of procurement processes; and more cooperation among public buyers across the EU.

ii)A communication on the voluntary ex-ante assessment of large infrastructure projects69 –The Communication introduces a new, three-pronged, voluntary scheme proposed by the Commission to help public authorities assess whether a project is compatible with the EU regulatory framework before taking further steps.

A helpdesk will be available to national authorities and contracting authorities/entities to provide guidance, answer questions, and clarify specific public procurement issues at an early stage in preparing public procurement decisions. The helpdesk will be available for projects whose total estimated value is at least EUR 250 million.

A notification mechanism will be created which will allow public authorities to notify the Commission about overall procurement plans for infrastructure projects whose total estimated value exceeds EUR 500 million. The Commission will then provide an assessment of whether the procurement plan complies with EU procurement rules. The mechanism is voluntary, the Commission’s advice is nonbinding, and information will be handled subject to strict confidentiality requirements.

An information exchange mechanism will provide a widely accessible database containing all document types relevant to the procurement process of large infrastructure projects, managed by the Commission and subject to the agreement of authorities involved. An IT platform for professionals involved in developing large infrastructure projects in the EU will also exchange views and information.

iii)A recommendation on professionalisation of public buyers70—The Commission recommends steps to be taken by Member States to ensure that public buyers have the business skills, technical knowledge and procedural understanding needed to comply with the rules and make sure that taxpayers get the best goods and services for their money. The Commission will facilitate the exchange of good practices and innovative approaches.

The Government’s view

5.26On 10 November 2017 the Minister for Government Resilience and Efficiency at the Cabinet Office (Caroline Nokes MP) submitted explanatory memoranda in relation to the three documents that comprise the procurement package.

5.27In relation to the communication (Making public procurement work in and for Europe)71 the Minister states that the Government “supports the strategy and welcomes the Commission’s focus on making public procurement more strategic”.72 She also noted that the UK has a number of existing programmes in place that are aligned with these priorities.

5.28Of the Commission’s communication on the voluntary ex-ante assessment of large infrastructure projects73 the Minister states that the Government welcomes the new system and will engage with the Commission to influence its elements as they develop.74 She adds that the Government supports other Member States developing best practice in less developed procurement markets through the offer of an ex ante assessment of procurement projects, and that the proposals could improve opportunities for UK firms seeking to enter other Member States’ procurement markets.

5.29The Minister does not provide any comment on the policy implications of the Commission’s recommendation on the professionalisation of public buyers.75

Brexit implications

5.30The Government provides no substantive analysis of the implications of the UK’s withdrawal from the European Union for public procurement. Each of the three explanatory memoranda from the Government, on the three Commission documents, contains the standard paragraph about exiting the European Union:

“On 23 June 2016, the EU referendum was held and the people of the United Kingdom voted to leave the European Union. The Government respected the result and, on 29 March 2017, in accordance with Article 50 (2) of the Treaty on European Union, notified its intention to withdraw from the European Union. Until exit, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force. During this period the Government will also continue to implement and comply with EU law.”

Brexit implications for UK-EU procurement

5.31Possibly the most substantive account to date of the implications of Brexit for UK-EU procurement, from an economic and trade, as well as a purely legal, perspective, has been produced by Dr Albert Sanchez-Graells (Bristol University). In written evidence submitted to the House of Lords EU Internal Market Sub-Committee,76 Dr Sanchez made the following points:

Bilateral UK-EU procurement-related trade can be estimated at around 15% of the total value of procurement, or close to 2.5% of GDP. This includes both direct and indirect cross-border procurement-related trade;
The UK’s exposure to public procurement-related trade in services in the EU is particularly relevant; the UK alone accounts for 84 % of the total value procured at EU level in awards of more than 100 million euros (approx. £85 million);
Losing the possibility of this cross-border trade would be detrimental to the UK public sector; UK businesses would also be negatively affected if they lost the option of direct and indirect trade in services to the EU;
EU public procurement law ensures that UK businesses have full access to the public sector markets of all other EU Member States, and that EU businesses have full access to the UK public sector markets. This ensures free trade in services in the context of public procurement under conditions of transparency, equal treatment and non-discrimination. These advantages would be limited or lost if the UK were to lose access to the EU internal market;
The extent of that restriction or loss of free public procurement-related trade in services would depend on the future relationship between the UK and the EU, as well as its impact on the UK’s status under the WTO Agreement on Government Procurement (GPA);
EEA membership would require full compliance with the EU public procurement acquis and would entail no changes in access to EU and GPA procurement markets. A tailor-made Free Trade Agreement (FTA) like the recent EU-Ukraine Deep and Comprehensive Free Trade Area (DCFTA), would also require full compliance with the EU public procurement acquis;
If the UK sought to rely on the WTO GPA only, it would need to clarify whether it can retain its status as a party in its own right or, having lost derived membership linked to EU membership, seek fresh accession; and
If the UK sought to reach a solution similar to CETA, it could be at risk of having to provide more stringent access commitments to the EU than currently. This has been the case of CETA, which is based on the WTO GPA mechanism, and where only Canada made additional coverage concessions to the benefit of EU (including UK) businesses.

5.32Victoria Moorcroft, an associate of law firm Bird & Bird, has also produced an analysis of the implications of Brexit for UK-EU procurement,77 post-withdrawal, which includes the following points:

Post-withdrawal, it may no longer be possible for UK authorities to publish notices in the Official Journal (OJEU), meaning that the procedures for contract notices, contract award notices, etc. become difficult practically to comply with;
The WTO GPA does not cover private utilities, defence procurement or concessions; the GPA requires the implementation of a remedies regime but does not go into the same detail as the EU rules;
One area where there has been an immediate effect is in a closing off to UK bidders of certain European Union-led projects, particularly those which require an ongoing EU presence, for example, or for projects that are strategically significant; and
If it starts to become clearer that the UK will not remain part of some form of free trade arrangement with the EU, UK companies may need to consider setting up an entity within the EU to ensure that they continue to benefit from access to those markets, whilst they still have the unrestricted freedom to do so.

Previous Committee Reports

None.

44 European Commission, Increasing the impact of public investment through efficient and professional procurement (3 October 2017).

45 Communication from the Commission to the Institutions: Making Public Procurement work in and for Europe COM (2017) 572.

46 Commission Recommendation on the professionalisation of public procurement: Building an architecture for the professionalisation of public procurement C(2017) 6654.

47 Communication from the Commission to the Institutions: Helping investment through a voluntary ex-ante assessment of the procurement aspects for large infrastructure projects COM(2017) 573 .

48 Explanatory Memorandum on Making Public Procurement work in and for Europe submitted by the Cabinet Office (10 November 2017) EM 13286/17.
Explanatory Memorandum on the professionalisation of public procurement submitted by the Cabinet Office (10 November 2017) EM 12941/17.
Explanatory Memorandum on a voluntary ex-ante assessment of the procurement aspects for large infrastructure projects submitted by the Cabinet Office (10 November 2017).

49 Dr Albert Sanchez-Graells, Bristol University- Written evidence submitted to the House of Lords EU Internal Market Sub-Committee (TAS0083) (December 2016).

50 WTO, Agreement on Government Procurement https://www.wto.org/english/tratop_e/gproc_e/gp_gpa_e.htm.

51 Victoria Moorcroft, Brexit: the end of public procurement rules or business as usual? (26 September 2017) .

52 Letter from the the UK and the European Commission have written to the WTO membership (11 October 2017).

53 Joint report from the negotiators of the European Union and the United Kingdom Government on progress during phase 1 of negotiations under Article 50 TEU on the United Kingdom’s orderly withdrawal from the European Union (8 December 2017) .

54 Letter from the the UK and the European Commission have written to the WTO membership (11 October 2017) https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/651033/Letter_from_EU_and_UK_Permanent_Representatives.pdf.

55 European External Action Service, EU-Ukraine Deep and Comprehensive Free Trade Area (reading guide) .

56 Victoria Moorcroft, Brexit: the end of public procurement rules or business as usual? (26 September 2017) .

57 Letter from the the UK and the European Commission have written to the WTO membership (11 October 2017).

58 European Commission, CETA explained (accessed 11 December 2017).

59 Directive 2014/24/EU on public procurement .

60 Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors.

61 Directive 2014/23/EU on the award of concession contracts.

62 Dr Albert Sanchez-Graells, Bristol University- Written evidence submitted to the House of Lords EU Internal Market Sub-Committee (TAS0083) (December 2016)..

63 WTO, Agreement on Government Procurement—text of the agreement.

64 WTO, Agreement on Government Procurement—coverage schedules.

65 Dr Albert Sanchez-Graells, Bristol University- Written evidence submitted to the House of Lords EU Internal Market Sub-Committee (TAS0083) (December 2016).

66 Letter from the the UK and the European Commission have written to the WTO membership (11 October 2017)

67 European Commission, Communication: Upgrading the Single Market: more opportunities for people and business COM/2015/0550 final.

68 Communication from the Commission to the Institutions: Making Public Procurement work in and for Europe COM (2017) 572.

69 Communication from the Commission to the Institutions: Helping investment through a voluntary ex-ante assessment of the procurement aspects for large infrastructure projects COM(2017) 573.

70 Commission Recommendation on the professionalisation of public procurement: Building an architecture for the professionalisation of public procurement C(2017) 6654.

71 Communication from the Commission to the Institutions: Making Public Procurement work in and for Europe COM (2017) 572.

72 Explanatory Memorandum on Making Public Procurement work in and for Europe submitted by the Cabinet Office (10 November 2017) EM 13286/17.

73 Communication from the Commission to the Institutions: Helping investment through a voluntary ex-ante assessment of the procurement aspects for large infrastructure projects COM(2017) 573.

74 Explanatory Memorandum on a voluntary ex-ante assessment of the procurement aspects for large infrastructure projects submitted by the Cabinet Office (10 November 2017).

75 Explanatory Memorandum on the professionalisation of public procurement submitted by the Cabinet Office (10 November 2017) EM 12941/17 .

76 Dr Albert Sanchez-Graells, Bristol University- Written evidence submitted to the House of Lords EU Internal Market Sub-Committee (TAS0083) (December 2016).

77 Victoria Moorcroft, Brexit: the end of public procurement rules or business as usual? (26 September 2017).

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