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Brexit – consequences for public procurement by John Tizard

Wednesday July 6th, 2016

The narrow majority for Brexit in the recent EU Referendum could have substantial consequences for UK public procurement.

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John Tizard

This may not have been the result that many of us voted for but given the Government feels it must now press ahead to take the UK out of the EU, it is important to take measure of and understand the potential consequences.

Inevitably, in the short and indeed the longer term, the decision will lead to considerable uncertainty, and a potential recession (or at least, a downturn in the UK economy) with the prospect of greater public expenditure pressures. There is also (although we cannot say for certain) a risk to current established employment protection rights, which are based on EU legislation.

Gut instinct tells me that the economic impact of Brexit will lead to ever greater pressure on public sector procurement teams to secure lower and lower prices for services and supplies, regardless of the fact that buying cheapest rarely leads to better goods and services – and, of course, it usually leads to poorer terms and conditions for staff.

The referendum outcome has not changed the fact that political leaders are divided over their wish to remain in the European Single Market. My own view is that leaving this market will have a seriously detrimental economic impact. And further, if the UK Government continues to want to curtail (or even halt) the ‘free movement’ of people across the 28 countries, then I believe that there is every prospect that the remaining 27 EU member states will not allow the UK to have access to the Single Market.

However, assuming for a moment that a deal can be struck for the UK to continue to have access to the Single Market, there will undoubtedly be other conditions beyond ‘free movement’. In particular, I would expect the EU to require the UK to continue to apply EU public procurement regulations and state aid policies – as is currently the case for Norway and Switzerland. In this scenario, UK public procurement rules would not change in the short term; but as the EU evolves and changes its rules, which would then apply to any country accessing the Single Market, the key difference would be that the UK would not be at the Council table to influence and shape these rules. Clearly, in the long term, this is not in the British interest although access to the Single Market very much is. So there we have it – influence and political involvement sacrificed for economic gain.

If the UK decides not (or fails to strike a deal) to remain part of the Single Market, the working assumption must be that we will continue to use our existing public procurement regulations based on EU law – although inevitably, over the longer term, these will gradually evolve.

So how to make the best of where we have ended up?

Looking ahead, I believe that the Government would be well advised to involve suppliers from the business, social and charitable sectors as well as public procurement professionals in a review of public procurement rules and practice, which could well lead to revisions to the existing rules.

I would like to see any such review address:

  • adopting a holistic economic cost benefit analysis of procurement decisions, which would take into account wider public interests and costs – eg if goods or services are to be procured in a different way, what are the potential costs to the local economy and to employment?
  • strengthening the Social Value Act
  • enabling public bodies to take positive decisions to prefer bids from social enterprises, SMEs, the voluntary sector, etc if they wish to and for them to be accountable for such decisions
  • a duty to take factors such as bidders’ tax and remuneration policies and practices into account
  • prescribing employment, governance and environmental standards on suppliers of goods and services and throughout their supply chains, including trade union rights
  • loosening state aid rules to allow public bodies to support the development and sustainability of suppliers, including public sector suppliers, especially when there is an economic and/or social imperative to do this

These are to some extent achievable under existing public procurement rules but there could be more emphasis and clarity re what can and cannot be done.

Any such review could also consider matters such as the future of competitive dialogue (which I strongly support), thresholds for invoking the rules and much more.

My key point is that if there has to be a review because of Brexit, let’s allow (indeed, encourage) the critical stakeholders to consider and input to the most appropriate and optimum UK model.

My key worry is that a combination of a weaker economy and political ideology could see a regression towards public procurement more akin to Compulsory Competitive Tendering (CCT), where lowest price dominates procurement selections and other considerations are squeezed out or even legally excluded. This has to be resisted by progressive companies, trade unions, local government and the wider public sector, charities, social enterprises and the voluntary and community sector. We do not want the EU Referendum to lead to any undermining of quality public services through short-termist, simplistic and expedient but ultimately damaging changes to public procurement rules and practice.

So, I call upon all stakeholders to speak up and engage now – alongside the public procurement profession.

Brexit will have many unintended and undesirable consequences, so let’s have a silver lining in terms of public procurement, even if there may be few other silver linings – or, of course, we may never actually Brexit!

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