Procurement Bill [HL]

Written evidence submitted by FREETHS

To the PROCUREMENT BILL Committee (PB20).

Dear Sirs

We are a law firm and act for a number of Utilities in the United Kingdom.  We wish to raise a query about the definition of term "Public Authority" in the Bill.  In particular, whether when interpreting the term it includes public bodies that are not based in the UK, e.g. foreign States or entities that emanate from those States.  We would suggest amending Clause 2 sub-clause 5 to specifically include foreign States and emanations of those States so that they are "excluded authorities" for the purposes of the Bill.

The present position

The key to this issue is the definition of contracting authority.  The wording contained in the Utilities Contract Regulations 2016 ("2016 Regulations")  is ambiguous because defines a "contracting authority" as (see Reg. 4) . " State, regional or local authorities (including the Crown, but not including Her Majesty in her private capacity), bodies governed by public law or associations formed by one or more such authorities or one or more such bodies governed by public law."

This is relevant because an entity will be a Utility for the purposes of the 2016 Regulations if they are a public undertaking (see Reg. 5) and that is defined at (2) as

"…any undertaking over which contracting authorities may exercise directly or indirectly a dominant influence by virtue of-

(a)               their ownership of that undertaking;

(b)               their financial participation in that undertaking; or

(c)                the rules which govern that undertaking.

(3)     For the purposes of paragraph (2), a dominant influence on the part of contracting authorities is presumed in any of the following cases in which those authorities, directly or indirectly-

(a)               hold the majority of the undertaking’s subscribed capital;

(b)               control the majority of the votes attaching to shares issued by the undertaking;

(c)                can appoint more than half of the undertaking’s administrative, management or supervisory body ."

The effect of this wording is that where an entity pursues an activity typically carried out by a Utility, it will be subject to the 2016 Regulations if a foreign contracting authority exercises a dominant influence over the Utility.

The position prior to 2016

This was not the position under the  Utilities Contract Regulations 2006 (2006 Regulations) because those Regulations adopted a narrower definition of "contracting authority".  An approach confirmed by the High Court in the case of Alstom Transport v Eurostar Trains [2012] EWHC 28 (Ch), where it was held that    because Eurostar, in that case, was ultimately owned jointly by public bodies of both the UK and French government, it was held not to be a body governed by public law on the basis of management supervision by a contracting authority since only the involvement of the UK Government could be taken into account for this purpose (representing only a 50% share), the French State not being a contracting authority under the UK regulations.  In effect the stake held by the French State was treated as though it were a private not public interest. 

Proposal

The current wording of the Bill (clause 2) is ambiguous since for the purposes of determining whether an entity is a ‘public authority’ or ‘contracting authority’ is dependent on where the funds come from  or if it subject to  "public authority oversight" .   A helpful clarification would be to make it clear in sub-clause 5 (as is the case with Scotland) that authorities located outside of the UK are excluded authorities for the purposes of this section.  In this way the position would be returned to that as per the 2006 Regulations. When the UK was a Member State of the EU there was a degree of logic in having a definition of "contracting authority" that was applicable across the EU on the basis that the UK belonged to a single market.  In light of Brexit and the fact that the UK is no longer a  Member State of the EU or is within the Single Market there is no obvious reason why foreign ownership /control, on its own, should affect whether an entity is subject, in this instance, to the new Procurement regime as provided for in the Procurement Bill.

I hope I have been able to explain the point succinctly, but if not please contact me and I would be happy to elaborate further.

Yours faithfully

January 2023