Karolina Grzegorek, Contract Advisory Consultant at Rider Levett Bucknall (RLB UK), discusses the impact and consequences of Brexit on public procurement in the UK.
It is not surprising that since the 23 June 2016 referendum result there has been considerable discussion of the possible consequences of Brexit for public and utilities procurement. UK procurement law is found mainly in the procurement regulations that implement EU procurement law, such as the Public Contracts Regulations 2015 and the Utilities Contracts Regulations 2016, both operational for England, Wales and Northern Ireland.
Will Brexit result in wholesale changes to UK Public Procurement or will it, for all intents and purposes, mean business as usual with minimal changes?
The consequences of Brexit in this area, as in many others, are in fact very difficult to predict; they depend essentially on future political decisions, particularly on the UK’s relationship with the EU. What is clear is that the current procurement regulations will remain as they are during the period of negotiation. This will in practice be for at least two years after the UK has invoked the procedure for leaving under Art.50 of the Treaty on European Union, and potentially longer if the EU Council agrees to extend the negotiations. This means “no change” until at least the end of March 2019. How procurement will be regulated after that, however, is hard to predict.
As the content of the Repeal Bill remains yet to be determined it is early days to say whether there will be an immediate impact on the UK Public Procurement regulations.
However, certain potential practical issues could arise:
- It will no longer be possible for UK authorities to publish notices in the Official Journal (OJEU) which means that existing UK government based publication notifications such as Contracts Finder will have to take over this duty.
- UK case law will continue to be handled by the UK judiciary in line with UK legislation but with no remit for escalation or being answerable to the hierarchy to the Court of Justice of the European Union.
- The application of European case law within the UK will change. Currently EU case law on key issues, such as the level of transparency and disclosure to unsuccessful bidders, what constitutes an abnormally low tender or grave professional misconduct, is binding – in future, this will be dictated by the UK courts.
- Reference to various European Standards and Codes will ultimately cease. Clearly, the UK construction industry will have to actively revert back to British Standards and Codes of Practices.
- Reference to professional indemnity insurance being taken out and maintained by an insurer carrying out business within the European Union may be amended for such insurances being maintained in the UK. This will be dependent on the agreement in the insurance sector as the insurance market operates globally.
It is unclear what will happen to EU bidders as to whether they will be treated in a similar manner with the current non-EU Members. Whatever proposal is put forward will more than likely be replicated by the EU with UK suppliers and hence it will be in the UK’s interest to maintain an element of a level ‘playing field’.
What should be considered now?
During the current intervening period, contracts being procured in compliance with EU Public Procurement will continue. However, organisations will need to be aware, particularly where projects substantially go beyond the Brexit date and with long term frameworks and contracts, of the potential impact and consequences.
With such contracts all contracting parties will be required to carefully consider the added constraints which will inevitably result, such as tariffs and charges on labour goods and materials. The impact of this is currently unquantifiable and hence parties will need to consider in their contracts how best to address this post-Brexit.
In addition, it is accepted that the UK construction industry relies significantly on labour from mainland Europe and if this labour force decides to leave the UK or the situation becomes legally untenable for them to remain, then this will impose a significant pressure on the UK construction market leaving a notable gap in the skilled resources thereby pointing towards a significant rise in the construction costs.
The shortage of labour resources not only presents an issue of affordability and project viability but also, from a contractual point of view on existing contracts, raises a question of how this should be addressed i.e. who should take ownership of this risk or should there be an equitable sharing of this risk between the contracting parties.
There is also consideration of contracts which are dependent on the provision and continuation of European Commission grants and/or State aid which will more than likely continue in the intervening period, but it is unclear what will happen at the point of Brexit. It is inevitable that such grants and funding will cease with uncertainty as to whether the UK government will step in and continue to honour any such agreements / promises on future funding agreements. This could have a profound impact on such projects.
It is clear that the UK will continue to comply with EU Public Procurement legislation until Brexit is implemented. Thereafter, all that can be said with reasonable certainty is that the UK will continue to operate public procurement regulations which possibly will continue in the same format and manner as the current legislation in terms of fairness, transparency and equal treatment but only being applicable to UK contracting organisations. The engagement with EU entities will largely depend on the content of any trade agreements that are negotiated with the EU.
However, it is the consequences of Brexit that will have a significant bearing on the UK construction industry and therefore on procurement of public contracts, not only from the direct impact resulting from added levies but the indirect consequences of the potential shortage of labour. It is important therefore to consider where and how such risks should be addressed on existing and new frameworks and contracts going forward.
Rider Levett Bucknall’s Contract Advisory team includes experts specialising in Public Procurement who can provide further advice and support on any existing or new contracts which may be affected by Brexit.