Wednesday, 4 January 2017

Brexit and procurement: a can of worms

"Amid all the unanswered questions which have followed the June 23 referendum decision to leave the European Union, the issue of what happens to procurement rules has not been the highest profile" says James Brockett.

Presently any contract over a minimum level (currently £345,028 for goods and services and £4.32M for works) must have tender documents and contract notices published in the Official Journal of the European Union – OJEU – with the rules prescribing the timescales for the process and the required procedure for shortlisting and selection. There are separate rules for smaller lots, with one of the considerations being that similar packages of work are not artificially divided to get round the regulations.

The system allows UK companies to bid for EU contracts and vice versa. Though not a high profile aspect of EU membership, it is widely used in the engineering sector and would be missed were we to lose access to such a system.

Andy Clark, Head of Procurement and Contract Management at Yorkshire Water, says that for all the criticism it receives, it is important to remember that OJEU is fulfilling a key function. “If OJEU didn’t exist we’d have to create something reasonably similar to it, because we want to operate in a fair and transparent way and to have that open competition happening,” says Clark. It follows that if we want access to EU contracts then we must reciprocate.

One specific criticism of the rules, says Brockett, is that they encourage water companies and others to package work and supply arrangements into frameworks, to avoid having to repeatedly run a full procurement process; this creates barriers to entry for SMEs and new entrants. If EU regulations were taken out of the equation then direct procurement might become more common in some fields, providing more opportunities for the supply chain and cutting down inefficiency for the client.

This I have seen with my own eyes in the engineering sector whereby the rules effectively mean only the large tier one companies can apply for bids who then subcontract out the various phases. Free market competition it is not.

Rab Bennetts, Founding director, Bennetts Associates has it that in the UK, "it is the lawyers and project managers who have indeed hijacked the process and have interpreted the OJEU regulations in a way that has become particularly unfavourable to smaller, design-led firms. The absence of design advice and judgement at the pre-qualification stages is to blame, not the OJEU system itself. For example, there is no reason in law why design skills and not size of resources should not be at the top of the OJEU selection criteria; it is entirely up to the client to determine what criteria they wish to use provided they do so in a transparent way at the outset".

That much is probably fair but changing corporate behaviour when it favours the incumbents is near on impossible and so if the OJEU system was designed to promote fair competition then it does not work.

Walter Menteth, Founder, Walter Menteth Architects thinks that this is our fault. "It was the UK which introduced into the EU Public Contracts Directive some of its worst absurdities - such as the hugely wasteful competitive dialogue procedure. Yet again the UK has been responsible for embedding new complexity; in the monetarised evaluation of whole-life value, and introduction of the new innovation partnership procedure; to the dismay of other EU nations who don’t see the any beneficial purpose – except that it has capacity to further consolidate our UK oligopoly".

It seems that the large global consultancies, many of them based here in the UK have been keen to exercise the UKs influence in the EU to turn the rules to their advantage. While that has created a number of worthwhile opportunities Menteth is quite correct in that we do have a oligopoly in engineering and energy leading to a hollowing out of these sectors, where procurement of human resources is done on the fly according to immediate need, corners are cut and public procurement turns into a giant pyramid scheme. An unwholesome development over the last decade.

When Brexit takes effect, however, it is unlikely that there will be any significant difference. The current EU law is closely based on the WTO General Procurement Agreement (GPA), which the European Commission took a central part in brokering. The UK is party to that agreement and would remain so after Brexit. Should the UK follow the Efta/EEA route, the GPA is also embedded in the EEA Agreement, which again means that there would be little change to current provisions. It's the usual theme of "double coffin lid" - walk away from the EU and we're still bound, but by international rules.

As I understand it the OJEU system is a good deal more sophisticated than the GPA and if GPA is to progress it will have to follow the evolution as standards whereby the EU system merges to become part of a more sophisticated global multilateral system. The only thing that is clear is that for the time being there is no pulling of the plug. Between all the conventions European and international on contracts and standards, there is a mess to be untangled where we should seek to maximise our global participation while maintaining European level access. The opportunity is in developing that which already exists multilaterally.

This is an area that is going to need sorting in the Brexit negotiations - another complex issue which is going to require both sides to focus, in order to come up with a seam-free transition that gives continuity to the system. Obviously, the situation would be simplified if we adopted the EEA acquis, adding further support to the quest for a "soft" Brexit. Without that, administrative disparities may cause difficulties and the entire GPA architecture may have to be revisited. Another complexity we can do without for now.

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