Defence and Security Public Contracts (Amendment) (EU Exit) Regulations 2020

Baroness Goldie Excerpts

Tuesday 3rd November 2020 Lords Chamber

Moved by

[Baroness Goldie]

That the draft Regulations laid before the House on 7 October be approved.

Relevant document: 31st Report from the Secondary Legislation Scrutiny Committee

[The Minister of State, Ministry of Defence (Baroness Goldie) (Con)]

My Lords, as we look towards 2021, planning for the smooth delivery of defence and security procurement beyond the transition period is absolutely essential. This instrument will ensure that defence suppliers and buyers have the legal certainty they need beyond 31 December. It is a small instrument, but a necessary one.

In the interests of accuracy, I draw attention to a minor error in the heading to Regulation 2 of the instrument, which currently reads “Pre-exit amendments of the Defence and Security Public Contracts Regulations 2011”. Regulation headings are not an operative part of the instrument and Regulation 1(2) explicitly states that Regulation 2 comes into force the day after the day on which these regulations are made. It has been confirmed by the laying offices and the legal counsel to the JCSI that the deletion of “Pre-exit” can and shall be made editorially, prior to signature. In the interests of transparency, it is appropriate to bring that to the attention of your Lordships.

Before we consider the detail of this statutory instrument—which I shall refer to as the 2020 regulations—I highlight that this is the second EU exit amendment to the Defence and Security Public Contracts Regulations 2011. The first amendment was debated in both Houses and signed by the Secretary of State for Defence last year. The 2019 regulations, as amended by the 2020 regulations, will now enter into force on implementation period completion day, which is the end of the transition period.

This instrument ensures that the procurement provisions of the withdrawal agreement and the European Economic Area European Free Trade Association separation agreement are correctly applied to the procurement of those public contracts and framework agreements which have been launched but not finalised under the Defence and Security Public Contracts Regulations before the end of the transition period.

These transitional procurements will be regulated under that version of the Defence and Security Public Contracts Regulations which meets our current European obligations. Businesses, and indeed the MoD and our much-valued security agencies, will continue to have legal certainty beyond transition period completion day. Defence and security procurements will therefore be underpinned by solid legal bedrock.

Reflecting that, Regulations 3 and 4 of the 2019 regulations will now come into effect at the end of the transition period. The 2020 regulations replace references to “exit day” in the 2019 regulations with “implementation period completion day” where necessary. The opportunity has also been taken to update certain references to financial thresholds in the 2019 regulations, which were revised during the transition period. These are small corrections, but they are necessary.

As well as amending the 2019 regulations, the new legislation updates and corrects the original 2011 regulations. Noble Lords will note that these changes are not related to EU exit. In Regulation 12, which covers technical specifications, an outdated reference to “European technical approval” is replaced with “European technical assessment”.

I reassure your Lordships that, when drafting this instrument, care has been taken to ensure that it is as consistent as possible with other government public procurement legislation. This change to Regulation 12 brings defence and security procurement legislation into alignment with the Public Contracts Regulations 2015. It is a straightforward amendment, as the system of European technical approvals is no longer in practice and has been replaced by European technical assessments. The opportunity has also been taken to update the reference to the common military list of 2018 with the common military list of 2020.

Together, the 2019 regulations and this instrument reflect the UK’s new status outside the EU. The 2019 regulations, agreed by this House over 18 months ago, restrict automatic legal access to the UK’s defence procurements to suppliers from the UK and Gibraltar only. However, the framework and principles underlying the procurement regime remain unchanged. As your Lordships are aware, this is in accordance with the powers given to amend retained EU law in the European Union (Withdrawal Act) 2018. That Act does not allow major policy changes or the introduction of new legal frameworks. Amendments to the Defence and Security Public Contracts Regulations made under the powers given by the 2018 Act are limited to dealing with the effect and consequences of EU exit.

More broadly, freedom to consider the reform of our defence and security procurement regulations is one of the consequences of our exit from the EU. So, as we look beyond the transition period, this freedom is being used positively to develop defence and security procurement regulations tailored to better meet the UK’s needs. A comprehensive review of the Defence and Security Public Contracts Regulations is under way with a view to improving the pace and agility of acquisition. This is a significant piece of work which will take some time to complete and will require the introduction of new primary and secondary legislation. In the meantime, the amendments that these regulations make will ensure that public procurement business conducted under the umbrella of the defence and security procurement legislation will continue to flow smoothly and confidently.

I look forward to contributions from your Lordships, not least that from the noble Lord, Lord Dodds, who is making his maiden speech this afternoon. I commend the 2020 regulations to the House and beg to move.

--- Later in debate ---

[Baroness Goldie (Con)]

My Lords, I thank your Lordships very much indeed for their contributions, which have all been helpful and informative. I will deal with them as specifically as I can.

The noble Lord, Lord Thomas of Gresford, and the noble Baronesses, Lady Wheatcroft and Lady Smith of Newnham, raised the issue of complexity, and why we have retained the regulations. There is no denying that they are complex but, at the same time, within industry they are understood, and to that extent they are predictable. That is why it was thought imperative that we maintain that clarity and continuity for the sake of businesses, so that they could understand the background against which they were operating and the solid basis on which they were being asked to proceed.

In common with these points was a further question: what about a more comprehensive review? As I indicated, that is in mind and under way, specifically to improve the pace and agility of acquisitions, but it is a very significant piece of work and cannot be done quickly. What matters is that it is being done; Parliament will receive further information about that in due course.

The noble Lord, Lord Thomas, and the noble Baronesses, Lady Wheatcroft and Lady Smith of Newnham, asked whether I had any idea of how many procedures had been launched but not concluded. I am afraid that I do not have a specific answer to that question. This is to some extent a changing and continuing scene but I shall make inquiries and, if I find something out, I shall certainly bring that to their attention.

The noble Lord, Lord Thomas of Gresford, also raised the issue of companies having access to defence procurement in the EU after the transition period. As a matter of EU law, EU member states will no longer be legally obliged to open their defence and security procurements to UK suppliers as the appropriate directive will no longer apply. However, our UK suppliers are world class; they enjoy interest and demand for their products across the globe and offer incredible experience and expertise in defence. It may well be that EU member states will choose to give UK suppliers access to their competitions to maximise the effectiveness of their procurements, just as the UK might choose to do.

I think it was also the noble Lord, and the noble Baronesses, Lady Wheatcroft and Lady Smith of Newnham, who raised the question of state aid. I imagine that their question was predicated on whether an assessment of state aid influences a potential supplier’s bid. There is no change in the ability of contracting authorities to request that tenderers explain their price or costs where tenders appear to be abnormally low. There will, of course, no longer be an obligation to report to the European Commission where state aid is the reason that a tender was rejected.

It is a great pleasure for me to be able to extend to my noble friend Lord Lancaster a warm and personal welcome to these Benches. He raised the interesting issue of the Dunne report. He is quite right that it has been pivotal, because a stronger, more competitive and sustainable defence industry brings both better value to defence for the customer and greater economic benefit to the UK. That, of course, was recognised in the defence prosperity programme launched in Parliament in March 2019. The programme was informed by Philip Dunne’s excellent report on the subject as well as by the refresh defence industrial policy.

My noble friend also raised the interesting question of sponsored reserves; they are indeed another enabler of military capability. The assurance of contracted services, which was indeed one of their characteristics provided for under the Reserve Forces Act 1996, enables them to continue to use their skills in an operational environment to support the MoD and to deliver the service that their employers have been contracted to provide.

I congratulate the noble Lord, Lord Dodds, on his thoughtful and constructive maiden speech, which had the resonance of authority from his personal experiences. I identified three principal chords in what he had to say: he seeks delivery of Brexit, he wishes the union protected, and he sees the value of upholding defence. I cannot disagree with him on any of those things. I hope that the evidence is before us that the Government are determined to deliver on all those important fronts.

The noble Lord, Lord Browne of Belmont, pointed out, I think helpfully, just how important these regulations are, because they do provide consistency and continuity. Of course, that is at the heart of why we are dealing with this business today, and it is very much in the interests of our defence industry partners that we do that.

The noble Baroness, Lady Wheatcroft, raised the issue of our relationship with the EU. I wish to reassure her that, certainly in relation to defence, that relationship is important. We remain committed to European security, which is synonymous with United Kingdom security, and we will continue to co-operate with our friends and allies on shared threats and challenges. I reassure her that we already enjoy a strong bilateral relationship in relation to defence with a number of European countries, and that these are cordial and constructive. Of course, NATO will be at the heart of our approach to defence. The UK has consistently been and will continue to be a strong proponent of closer NATO-EU co-operation, stressing the need for coherence between the two on a range of challenges where the strengths of both organisations need to be combined.

My noble friend Lord Trenchard raised the issue in general of procurement, and specifically he mentioned the fleet solid support ships. As he will understand, I cannot comment too specifically on that process, other than to say that there was a healthy response to the market intelligence-gathering exercise. I wish to reassure him that we are clear that these ships will be made by British-led teams building on the success of Type 31, and we intend to allow international partners to work with UK firms to bid for this British-led shipbuilding project.

The noble Lord, Lord Bhatia, quite rightly raised the issue of proper tendering processes, and also being very careful to be sure of who we are doing business with. I think that would be met with an echo of agreement throughout the Chamber. Part of this process today is to ensure that there is a clarity and a robustness to the procedures, and the wider review, which I have already referred to, will have very much at heart what the United Kingdom wants to have at the forefront as the singular issues of importance when it is looking at these important procedures.

The noble Baroness, Lady Smith of Newnham, raised issues about equipment and her concerns about the reports from the National Audit Office and the Public Accounts Committee. I acknowledge the existing financial difficulties with the 10-year equipment plan, but I wish to point out to her that we have stayed within budget last year, as we have in the previous two, and we are striving to reduce the future gap. I think all your Lordships will understand that managing these ambitious, complex programmes is challenging, but we have already achieved £7.5 billion of equipment efficiency savings for the next 10 years, and, of course, last year we secured an extra £2.2 billion funding for defence.

The noble Lord, Lord Touhig, raised a number of issues. I think he was concerned that legislative matters in future might cause problems with our approach to these issues today. I say to him that whatever may be negotiated in the future, we always endeavour to ensure consistency and that we align legislation appropriately. He also mentioned the spending review, and I reassure him that the Ministry of Defence is in discussion with the Treasury. He rightly identified important issues, and I would agree with him about these important issues. These discussions are obviously of significance, but I cannot comment further on that just now. He also raised the issue of Covid and the effect of Covid both on the MoD and on our industrial partners. I want to reassure the noble Lord that the MoD has very robust procedures to deal with the incidence of Covid within our Armed Forces, and we also have been engaging closely with our industrial partners to ensure we are doing everything we can to support them.

I am very grateful for the contributions offered this afternoon. I hope I have answered noble Lords’ questions and clarified the implications of the amended legislation, and I trust that your Lordships will feel able to support the statutory instrument which I have already moved.

Motion agreed.