Public Procurement (International Trade Agreements) (Amendment) Regulations 2022

Wednesday 15th June 2022 Grand Committee

Considered in Grand Committee

16:49

Moved by

[Lord True]

That the Grand Committee do consider the Public Procurement (International Trade Agreements) (Amendment) Regulations 2022.

[The Minister of State, Cabinet Office (Lord True) (Con)]

My Lords, the instrument brought forward today will give legal effect in domestic regulations to the United Kingdom’s procurement obligations under the free trade agreement between the UK and EEA EFTA states of Iceland, Liechtenstein and Norway. The EFTA agreement sought to reflect many of the provisions of the EU-EFTA agreement by which the UK was bound when an EU member state. This is part of the Government’s wider approach to provide continuity, as far as possible, in existing trade and investment relationships with third countries that had an agreement with the EU before we left.

The UK-EFTA agreement was signed on 8 July 2021 and completed its scrutiny period prescribed under the Constitutional Reform and Governance Act in October 2021. This instrument is concerned with implementing the procurement obligations contained in that agreement. The procurement provisions will ensure that UK businesses will continue to be able to access procurement opportunities in these three countries. This coverage is reciprocated by the UK giving businesses from those EFTA states no less favourable treatment when conducting its procurements covered by the agreement.

The UK has an open procurement market underpinned by principles of non-discrimination and equal treatment. However, without this instrument, there is a risk that, in respect of procurements covered by the agreement, relevant EFTA businesses will not be entitled to the legal remedies that the UK has committed to in the agreement. This instrument therefore ensures that we fulfil our obligations.

In terms of the coverage in the agreement, the UK is an independent party to the World Trade Organization’s Agreement on Government Procurement—or GPA, as it is known—along with Iceland, Liechtenstein, Norway and other major world economies. The GPA aims to mutually open global public procurement markets and is worth some £1.3 trillion in guaranteed access to global procurement opportunities for UK firms.

The UK-EFTA agreement incorporates the relevant GPA provisions, and goes further. The procurement coverage is similar to the UK’s coverage under the EU’s agreement with the EEA EFTA states, with some exceptions including in respect of health services.

This instrument is being made using powers set out in Section 2 of the Trade Act 2021. It will add the UK-EFTA agreement to the existing schedules of international trade agreements contained in the various UK and Scottish procurement regulations to ensure that no less favourable treatment is accorded to businesses of Iceland, Liechtenstein and Norway, where the procurement is covered by the terms of the agreement. It will also make explicit in those procurement regulations that contracting authorities can make inquiries as to whether subsidies form part of an abnormally low tender, as provided for in the agreement.

Importantly, these amendments do not add any burdens to the UK’s procurement process, nor do they reduce any of the UK’s procurement standards.

The provisions will be implemented across the United Kingdom. We have consulted officials from the devolved Administrations throughout the process. We have also formally notified each Administration, via ministerial letters, of our intention to lay this instrument. The Scottish and Welsh Governments have formally agreed to our approach and the Northern Ireland Executive Minister responsible for procurement has confirmed that he did not have any objections. I therefore thank each Administration for their engagement and collaboration.

Any amendments to the procurement coverage in the UK-EFTA agreement, or other international trade agreements, will require further legislation to give them legal effect. Any future trade agreements which the UK signs or has signed—for example, with Australia and New Zealand—will be implemented by separate legislation.

I hope that noble Lords will join me in supporting these draft regulations. I commend them to the Committee and beg to move.

[Lord Lansley (Con)]

My Lords, I am very glad to have the opportunity to say a few words about these regulations and I thank my noble friend for introducing them so clearly. As somebody who laboured long and hard on the Trade Act 2021, it is always a pleasure to see the powers being used. There may not be many such further events but it is interesting to see it being used in this case.

I must confess that the reason I looked at these regulations was that, as my noble friend will recall, at Second Reading of the Procurement Bill I raised the interaction between that legislation and the Trade (Australia and New Zealand) Bill, which had, of course, been introduced at the same time in the other place. I looked at this instrument and thought, “How does this relate to the Procurement Bill?” Like the Australia and New Zealand Bill, as far as I can see, the Procurement Bill will supersede these regulations when it becomes law. Schedule 9 to the Procurement Bill incorporates the UK-EFTA agreement into the list of treaty state suppliers. So far, so fairly straightforward: we need these regulations to give effect to the agreement in the intervening period.

However, there is an issue about what these regulations do, because they also amend public contract, concession contract and utilities contract regulations to include the further provision relating to abnormally low tenders. It is a question of whether the price or costs take into account the grant of subsidies. First, I ask: does the preceding EU-EFTA economic area agreement have the same language? It seemed surprising if it did, on the face of it, because existing regulations, which are part of the structure of EU regulation, already take account of whether—to cite Regulation 69 of the Public Contracts Regulations, for example—the abnormally low tender price is because of the possibility of the tenderer obtaining state aid.

I should have thought that, in the EU context, the question of state aid and grant of subsidy were regarded as effectively the same thing. I suspect, therefore, that EFTA countries are saying that the words “state aid” do not necessarily have the same meaning in United Kingdom in future as “state aid” did in the EU in the past. I may be wrong about that, but I should be interested to know whether that is the case.

Anyway, this additional provision in the regulations changes, for example, Regulation 69 of the Public Contracts Regulations, which relates to abnormally low tenders. I thought, “Let’s see how this is incorporated into the Procurement Bill”, but I cannot find it. So, my other question is: how will that Bill incorporate the provisions of, for example, Regulation 69 relating to abnormally low tenders into the structure of our regulation in future? I am happy to be guided by my noble friend on that, not least because it will no doubt give us an opportunity to learn a bit more about how the Procurement Bill itself will work in future. Subject to those questions, I am glad to take the opportunity to welcome the regulations and support my noble friend.

[Baroness McIntosh of Pickering (Con)]

I, too, am pleased to speak to some of the issues before us this afternoon and thank and congratulate my noble friend on bringing forward the regulations. My noble friend Lord Lansley has eloquently addressed a number of issues on the relationship between this instrument and the public procurement Bill. But there is also the broader context of our new relationships with the EU and, now, with the three countries before us this afternoon. What is generally understood by “state aid” and has our policy towards them changed in that regard?

Perhaps the thing that concerns me most is this. My noble friend spoke about the GPA, the global procurement agreement to which we have signed up, and mentioned that it is worth £1.3 trillion to the UK economy. When the Trade Bill was passing through—I also took an interest in that at the time, and my noble friend Lord Grimstone spent hours trying to allay our concerns in this regard—it was curious that any public service was obliged to declare a contract worth, I think, €130,000 and to put it out for tender.

17:00

I thought that one of the biggest dividends of leaving the European Union might be that our schools, colleges, hospitals, Army, Parliament—all public bodies that were putting out a public contract for tender for, say, food—could be opened up to local suppliers. I was told by my noble friend Lord Grimstone that that was not the case and that any contract worth more than $130,000—I think that is the figure now—is covered by the GPA. If that is the case, we have not benefited from leaving the European Union but are bound by the GPA, which—I accept—brings trillions of pounds of value to this country.

The Government Food Strategy launched and published on Monday clearly states that we want:

“Public procurement leading by example”.

I will read out paragraph 2.4.2:

“To deliver this vision, we are consulting on public sector food and catering policy, including the Government Buying Standards for Food and Catering Services ... We will consider widening the scope of the policy to be mandatory across the whole public sector. Within the consultation we will propose that the public sector reports on progress towards an aspiration that 50% of its food expenditure is on food produced locally or to higher environmental production standards such as organic, Linking Environment and Farming (LEAF) Marque or equivalent, while maintaining value for money for taxpayers.”

There are two issues here. First, I absolutely welcome the fact that it will be produced to our UK standards. It was in the Conservative Party manifesto on two separate occasions that any food we eat, whether imported or home produced, would be produced to the same high standard. That is absolutely super. But there is something I am failing to understand. I have always wanted to have the local farmer, or grower if it is fruit and vegetables, produce for the prisons, schools and hospitals locally, but my understanding—I would be most grateful if my noble friend the Minister would clarify this—is that that can apply only to contracts for tender of less than $130,000, which I presume is about £100,000 or £110,000.

I am trying to square the circle between what was announced in the food strategy—which I have always wanted to do and was told we could not do when we were part of the European Union—and, our having left the European Union, being told that we could not do it because we are still bound by the GPA. If that is the case, presumably the public procurement leading by example is only for government buying standards for contracts of less than $130,000. They are quite meaningful, but smaller contracts than would otherwise be the case.

To return to the instrument before us, I would love to know how many instances my noble friend and his department might expect of contracts under the EEA EFTA agreement that would be deemed to be “abnormally low tenders”, as in paragraph 7.5 of the Explanatory Memorandum. I have never visited Liechtenstein, but I am reasonably familiar with Iceland and Norway and I would have thought that their contracts are quite expensive, so I would like to know in how many instances my noble friend thinks they might be faced with “abnormally low tenders”.

With those few remarks, I welcome the regulations before us but seek clarification on the public procurement aspects.

[Lord Collins of Highbury (Lab)]

My Lords, I am grateful to the Minister for introducing these regulations. As he and others have stated, they are basically a continuity agreement while we process the much bigger piece of legislation to which the noble Lord, Lord Lansley, referred, the Procurement Bill. One of the things I open with is to repeat the mantra that the Minister often does about how this House conducts its role in scrutiny of legislation. When I read Hansard from the other end, I thought I would get some useful questions from the Opposition—and of course there was none, so I am grateful for noble Lords here today who have prompted an interesting debate. I suspect that most of the questions will be answered on the general legislation on procurement—the Procurement Bill—including some of the issues that we will address in amendments, not least defence and security, which are critical issues.

I do not want to repeat the points made by the noble Lord, Lord Lansley. I will be interested to hear the Minister’s response, but the Opposition support the instrument and are happy that it provides the continuity necessary before other legislation takes over. I should add that I am not formally becoming a shadow Cabinet Office Minister; I am simply standing in for my leader, who covers these issues—and as deputy leader I of course do as I am told. I have at least been able to speak for a short time in support of the instrument. I echo some of the comments already made and I look forward to the Minister’s response.

[Lord True (Con)]

My Lords, I thank those who have spoken, including the noble Lord opposite; I nearly always say “my noble friend opposite”. I also looked at the proceedings in another place, but I will tread no closer to that than he did.

I am grateful for the general welcome for these provisions. I was asked a couple of points. I am not sure I can answer every one, but if I do not I am sure we will pick them up. On the question of whether state subsidy is defined in the regulations, it is not defined in this SI. It was also not defined in the UK-EFTA agreement procurement chapter from which this follows.

I was asked about abnormally low tenders and subsidies going more widely than the definitional point. Article 6.9 of the UK-EFTA agreement provides that, where a tender appears to be abnormally low, the contracting authority may ask a supplier whether the price in a tender takes subsidies into account. That was the point to which my noble friend acutely referred. The instrument makes this explicit—it is on the face of the procurement regulations. Prior to the UK leaving the EU, contracting authorities and utilities receiving an abnormally low tender could investigate whether the supplier had obtained state aid and, if that was not compatible with Article 107 of the Treaty on the Functioning of the European Union, it could reject the tender. These provisions were removed from the public procurement regulations through EU exit legislation.

The current procurement regulations are largely transposed from the EU directives, which include a number of permissive provisions. For this reason, it makes sense to make explicit mention of the fact that, when investigating abnormally low tenders, contracting authorities are able to make inquiries as to whether the bid includes subsidies. However, overall the Procurement Bill will aim to deliver a simpler regulatory framework and increased flexibility and does not include every possible action that a contracting authority might take. Therefore, there has not been such an impetus to make explicit this provision in the new Bill.

So far as the relationship is concerned between the Bill and where we are now—and both my noble friends referred to the period between now and the coming into being of the Procurement Act, if your Lordships so please; I am never daring enough to take that for granted—we need to bring forward this statutory instrument now to amend existing procurement regulations to enable the procurement provisions of the UK-EFTA agreement to come into force as soon as possible. When the Procurement Bill has received Royal Assent, during its implementation period it will repeal certain UK procurement regulations, including the UK public contracts regulations; the UK utilities contracts regulations; and the UK concession contracts regulations, to which the UK-EFTA agreement is being added. However, this is not expected until at least six months after Royal Assent.

The UK-EFTA agreement is included in Schedule 9 to the Procurement Bill, along with all other relevant international trade agreements, which ensures that the procurement obligations regarding EFTA suppliers will be carried forward seamlessly into the new regime. The amendments made by these regulations also add, as I said in my opening remarks, the UK-EFTA agreement to the corresponding Scottish procurement regulations, which will not be affected by the Procurement Bill.

I assure my noble friend Lady McIntosh, as again I said in my opening remarks, that nothing in this SI or, indeed, in the UK-EFTA arrangements overall, reduces any standards. We remain committed to holding up high environmental product and labour standards, and I can certainly give that assurance.

On the question of the lower thresholds in legislation, there are provisions—and I am happy to correspond or at least send advice to my noble friend before we reach the Procurement Bill. As she will see, there is a whole section relating to the level below which there are exemptions. We must abide by our international obligations in relation to trade under the GPA; that is, to give fair access to both sides of the agreement, which is reflected in these regulations.

We have enjoyed a strong trading relationship with Iceland, Liechtenstein and Norway for many years, as some noble Lords were kind enough to refer to. Indeed, I think that Norway is in the top 10—perhaps our 10th most important trading partner. By implementing UK-EFTA procurement commitments, this instrument will, we hope, help to continue and build on this prosperous and friendly relationship between our four countries.

I hope that colleagues will join me in supporting these regulations. I am grateful for the general tenor of the debate. I commend the regulations to the Committee.

Motion agreed.

Committee adjourned at 5.14 pm.