Public Procurement (Amendment etc.) (EU Exit) (No. 2) Regulations 2019

Lord Young of Cookham Excerpts

Thursday 14th March 2019 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Regulations laid before the House on 11 February be approved.

[Lord Young of Cookham (Con)]

My Lords, the Government are committed to securing an agreement on the UK’s exit from the EU but we must be prepared for all outcomes, notwithstanding yesterday’s votes. It is for this reason that I am today bringing forward two sets of regulations for approval: the Public Procurement (Amendment etc.) (EU Exit) (No. 2) Regulations and the Public Procurement (Electronic Invoices etc.) Regulations. To be clear, in the event that the UK enters into a withdrawal agreement with the EU, the first of these sets of regulations will not be required.

The amendments in the Public Procurement (Amendment etc.) (EU Exit) (No. 2) Regulations do not amount to a material change in public procurement policy but, to all intents and purposes, maintain the status quo for UK contracting authorities with regard to their obligations towards certain non-UK suppliers. They will ensure that the UK’s procurement system continues to function as intended post-EU exit in the event of no deal, and grant certainty to UK contracting entities that they can continue to procure goods and services in the same way as they do now after exit day. In this way, the Government are ensuring that these entities continue to be able to obtain value for money for UK taxpayers.

As noble Lords will be aware, the UK Government are working to secure continuity agreements with a number of our international trading partners, which will replicate as closely as possible trade agreements to which the UK is currently a party via its EU membership. We have already laid before Parliament agreements with Switzerland, Israel and Chile. All these agreements contain substantial provisions on procurement, which will provide UK businesses with guaranteed access to lucrative procurement markets in those countries. Where the UK has entered into an agreement which contains provisions relating to public procurement, we must ensure that our domestic procurement legislation takes account of the obligations in that agreement.

In their current form the Public Procurement (Amendment etc.) (EU Exit) Regulations 2019, which were approved by this House on 20 February, would amend the existing procurement regulations so as to disapply, from exit day, the duties which UK contracting authorities currently owe towards economic operators from countries with which the EU has a trade agreement containing procurement provisions. Regulation-making powers in Clause 2 of the Trade Bill currently before Parliament would then enable the UK to reinstate these duties in such a way as to reflect the UK’s transitioned continuity agreements, rather than the EU agreements which these replicate and to which of course the UK will no longer be party after exit day.

As noble Lords will be aware, the Trade Bill is yet to complete its parliamentary passage. In the consequent absence of bespoke implementing powers in that Bill, we have had to look at other measures which would enable the UK to demonstrate compliance with the agreements that we have worked hard, and continue to work hard, to conclude. It is the duty of a responsible Government to ensure that, once we have left the EU, we continue to reap the economic benefits that these agreements bring. It is also our duty to uphold our reputation as a valued and respected trading partner, by ensuring that the obligations we have committed to maintaining after our withdrawal from the EU are adhered to.

I am therefore bringing forward this second EU exit instrument, which will amend the first such instrument before it comes into force so that, instead of removing from the procurement regulations the obligations owed by UK contracting authorities and other entities towards non-UK suppliers immediately on exit day, that first SI would preserve these obligations for a period of 18 months after exit day. The need for there to be a second, amending instrument was referred to during debate on the first EU exit instrument in the other place: specifically, during its consideration in the Delegated Legislation Committee on 13 February.

In practical terms, this preservation of obligations will have the effect of ensuring that, for a time-limited period, suppliers from certain non-EU trading partners will be afforded the same guaranteed rights of access to UK procurement markets that they enjoy now. This mirrors a similar provision already contained in the first SI in respect of suppliers from states which are party to the WTO government procurement agreement. That provision has already been approved by this House, but it is being extended so that it aligns with the other provisions in this instrument. By keeping alive the duties owed by contracting authorities as they exist already, the Government are ensuring that the UK can continue to meet its international procurement obligations. In turn, that will help to ensure that UK businesses continue to enjoy access to overseas public procurement opportunities and that UK contracting authorities can continue to obtain the best possible value for money when procuring, through robust supplier competition.

Noble Lords may at this point be wondering why, when the UK is leaving the EU, it is appropriate to preserve obligations arising from EU agreements to which we are no longer party, and whether doing so may produce any adverse effect on British businesses and authorities. The procurement obligations which arise from the UK’s continuity agreements are, in essence, the same as those which have arisen until now from the EU’s trade agreements, meaning that the amendments in this instrument represent a temporary technical solution to complying with the UK’s international procurement obligations until such time as the Trade Bill is enacted.

I reassure noble Lords once again that, in practical terms, the provisions in this instrument amount to a time-limited continuation of the status quo, which will create no additional burdens or costs for UK businesses or contracting authorities. Public sector contracting authorities and other covered entities across the UK will continue to be able to procure competitive goods and services from overseas suppliers as they do currently; and UK businesses will see no change as a result of this instrument in the way they go about bidding for and winning lucrative public contract opportunities, both in the UK and in countries with which the UK has a trade agreement. It is for this reason that it has not been necessary to publish an official impact assessment.

In summary, this instrument will ensure that the UK’s procurement system will continue to function as intended post EU exit in the event of no deal; that the UK can successfully ratify and comply with its international continuity agreements; and that UK suppliers and contracting authorities can continue to operate as they do now for the foreseeable future.

I now turn to the second of the two instruments: the Public Procurement (Electronic Invoices etc.) Regulations 2019. Unlike the other SIs which we have been debating today, we will need this if we secure an agreement—as I hope we will. In the event that the Government enter into a withdrawal agreement with the EU, we will be required, under the terms of this agreement, to continue to comply with EU procurement law during the implementation period. That includes this directive, which concerns electronic invoicing in public procurement. It is a short and simple measure which aims to promote the uptake of electronic invoicing in public procurement by requiring public bodies to accept electronic invoices from their contracted suppliers. Principally, this instrument is to transpose the e-invoicing directive; it also makes a small number of other technical corrections to the public procurement rules. There are numerous different types of e-invoice used across the EU. These varied formats cause unnecessary complexity and high costs for businesses and public bodies.

There are significant benefits to be realised in promoting the uptake of standardised electronic invoicing in public procurement, both in terms of a reduction in costs and administrative burdens for procuring entities and their suppliers and in terms of the environmental impact of a move away from paper-based invoicing. That is why, in 2014, the EU adopted Directive 2014/55 on electronic invoicing. This instrument transposes the e-invoicing directive into domestic law. It does so by amending existing procurement legislation applicable to the award of public contracts and contracts in the utilities sector. The Scottish Government have brought forward their own legislation to give effect to the directive, in similar terms to this instrument.

The directive contains one simple obligation for member states: to take the necessary measures to require public sector buyers and utilities to receive and process electronic invoices that comply with a common standard. Private sector suppliers, other than those privatised utilities remaining subject to public procurement rules, will not be obliged to use the e-invoicing standard unless they wish to do so. We are not imposing additional costs on suppliers. The measures we have introduced would oblige contracting authorities and other procuring entities to include within their contracts an express term requiring them to accept and process electronic invoices that comply with the standard where, of course, there is no dispute as to payment. In the absence of an express provision of the contract dealing with electronic invoicing, a term to that effect is to be implied. In that way, suppliers will be able to enforce their ability to invoice purchasers of goods and services electronically via the terms of the contract itself.

The European Committee for Standardization—CEN—was commissioned to draft the standard and the British Standards Institute was involved in its development. The standard was published in October 2017, following which the UK had 18 months to implement the directive’s requirements. The deadline for implementation is 18 April 2019. This falls after the date on which it is anticipated that the UK may leave the European Union. However, it remains the Government’s aspiration and intention that the UK will secure a deal with the European Union. We would then enter a period of implementation, as provided for in the withdrawal agreement, during which the UK would continue to be bound by most aspects of EU law, including the e-invoicing directive. This instrument is, therefore, expressed to come into force on 18 April 2019.

For sub-central contracting authorities, such as local authorities and utilities, the directive confers on member states the discretion to postpone the application of implementing provisions until 18 April 2020 and we have taken advantage of that derogation. It is right that we allow procuring authorities, other than central government authorities, time to adapt to the change, although there is of course nothing to prevent those authorities from accepting electronic invoices prior to that date. In the event of no deal being reached by 29 March, we are free to implement the European e-invoicing standard and we will consider the options available to us for this instrument. The UK will be free to set its own policy on electronic invoicing.

As set out in further detail in the Explanatory Memorandum, we have also taken the opportunity in this instrument to make minor amendments to the way in which the Public Contract Regulations 2015 and the Concession Contracts Regulations 2016 refer to offences under the Modern Slavery Act 2015. The aim of the amendment to the Public Contract Regulations 2015 is to ensure legal certainty as to which offences under the Modern Slavery Act constitute grounds for mandatory exclusion from award of a contract. More specifically, the amendment omits a duplicate reference to offences under Sections 2 and 4 of the Act. That duplicate reference was included in error in 2016.

For the Concession Contracts Regulations 2016, the amendment is to ensure that offences under Section 1 of the Modern Slavery Act 2015 are included within the mandatory grounds for exclusion from participation in a concession award procedure, and ensure consistency in the grounds for exclusion across the procurement regulations. With this instrument, therefore, we have the opportunity to provide real benefits to both the supplier community and the public sector, and I look forward to seeing it progress through both Houses.

I hope noble Lords will agree that both sets of regulations brought forward today are necessary for the UK to adhere to the commitments it has made, both in its trade continuity agreements and under the terms of the withdrawal agreement. I hope they will also agree that these instruments will provide benefits to the public sector and to UK businesses. I commend them to the House.

[Viscount Waverley (CB)]

I wonder whether the Minister’s notes allow him to comment on the following and, if not, he will agree to write. Currently, all UK public sector opportunities are published on Tenders Electronic Daily—TED—which is the EU service on which all public sector tender opportunities within the European Union are listed and updated, constantly. What might be the plan for UK public sector tender opportunities either to continue to be published on Tenders Electronic Daily or to be published separately? If so, where might they be published?

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[Lord Young of Cookham]

I am grateful to all noble Lords who have taken part in this debate. On the last question, the fast ball which the noble Baroness bowled, I shall have to take advice on the extent to which the Government use electronic invoicing when they invoice. Of course, under the regulations, we will be obliged to process e-invoices if they arrive, but it is a good question and I shall make inquiries on the extent to which we are up to speed on e-invoicing.

As I said, I am grateful to all those who have taken part and will try to go through the questions asked—not necessarily in order. The noble Lord, Lord Beith, asked what would happen if there was an agreement. The answer is that the SI would indeed be suspended, probably by the withdrawal Act. It would be switched off, as with a lot of the other no-deal SIs which have already been passed.

The noble Viscount, Lord Waverley, asked about the plan for the UK public sector and the arrangements for publication of notices on the OJEU TED. The withdrawal agreement provides for publication of notices on that site. If there is no deal, the UK has developed its own UK e-notification that will be ready for exit date if it is needed. This is called the Find a Tender Service—FATS. Details were set out in the Explanatory Memorandum to the first EU exit instrument and published in a procurement publicity notice, the latest of which was published on 7 February.

My noble friend Lady Neville-Rolfe asked what the impact of the SI would be. The basic thrust of the SI is to ensure that there is no change, so, to the extent that there already is a problem, it makes it neither worse nor better: it is neutral. On the issue of public consultation, because the SI imposes no new regulatory burdens on UK businesses and as, as I said, its purpose is to maintain, in so far as possible, existing obligations on contracting authorities as regards suppliers, it has no direct impact on the public sector or the private sector, so it has been unnecessary to undertake consultation with industry. I shall come to my noble friend’s other points in a moment.

The noble Lord, Lord Beith, asked why this will come into force immediately before exit day, whereas everything else comes into effect on exit day. This SI comes into force immediately before exit day because it needs to amend the first SI before that one comes into force at the start of exit day, so we need to cancel the SI to which the noble Baroness referred before it comes into effect. That is why that has to be done the day before, but we hope that none of this will be necessary. The provision will expire after 18 months, after which guaranteed access will cease for suppliers from countries with which we have not made a continuity agreement.

My noble friend Lord Arbuthnot asked about last night’s vote. I hope that the Government will respect the decision of the other place. As my noble friend knows, the legal default in UK and EU law remains that the UK will leave the EU without a deal unless something else is agreed. We are planning for all eventualities with this SI, but I very much hope, as I am sure my noble friend does, that there will be an agreement and we will not need to leave without a deal. As former Members of the other place—as are a number of those who contributed to this debate—I am sure that we hope that the view expressed yesterday there will be respected.

The noble Baroness, Lady Hayter, and other noble Lords raised the issue of EU funds being available to support. As she said, no small business will be obliged to use e-invoicing. I am afraid that I do not have a direct answer to her question. The Government have guaranteed that certain grants paid out by the EU before we leave will be funded by the Government up to a certain date. I do not have the details to hand to say whether that guarantee applies to this particular funding issue but I undertake to write to noble Lords with the details. On whether certain invoices would go further down the queue if they were not e-invoices but paper ones, we have very strict rules about the prompt payment of invoices, whether they are e-invoices or paper ones. Certainly as far as the Government are concerned, there would be no such discrimination.

[Baroness Hayter of Kentish Town]

Does that apply to the Cabinet Office, which I gather has a rather bad record on paying promptly?

[Lord Young of Cookham]

I did not catch the noble Baroness’s last words, but the Cabinet Office sets the targets so I would hope that it would be the first government department to ensure that it met them. If she has a specific invoice in mind, I will certainly make inquiries.

[Baroness Hayter of Kentish Town]

For the record, it was noted in the other place—this may well have been because of a glitch—that the Cabinet Office has one of the worst records on this matter. There were assurances that this would change but it is a bit frightening when the department supposed to be leading on prompt payments is not itself very good.

[Lord Young of Cookham]

I stand rebuked on behalf of my department. I will make further inquiries about our prompt payment record and write to the noble Baroness and noble Lords who took part in the debate.

I was asked what would happen to this SI in the event of Article 50 being extended. I think I answered that. The withdrawal Act confers powers to enable the Article 50 period to be extended pending further negotiations so that the definition of exit day can align with the date and time that the EU treaties cease to apply.

On the 18-month extension, if no deal with the EU is reached and we do not yet have powers enabling us to give effect to the UK’s obligations under its own international agreements, the 18-month extension of rights would begin from the new exit day.

My noble friend Lady Neville-Rolfe made the point that we may be more punctilious in enforcement than other countries, and asked how we can guarantee reciprocal access. As I said, the SI makes no change to the terms of trade she referred to, but we are working with other countries to agree continuity agreements. Many of our discussions are at an advanced stage; some have already been agreed. That will ensure that our access is reciprocated. We will also have guaranteed access to markets in GPA countries, which account for the majority of contract opportunities by value to which the UK currently has access. All our agreements contain provisions relating to remedies for suppliers that have been treated unfairly.

I have just received some in-flight refuelling concerning the serious allegation made by the noble Baroness, Lady Hayter, about prompt payment. She is absolutely right that there was a decline in Cabinet Office prompt payment, which was due to the adoption of a new invoicing system—straight out of “Yes Minister”. That problem is common in other departments. I think I updated either her or another Opposition Member in the House on our progress in that regard a couple of weeks ago. In fact, in recent months, we have come back up to standard in the speed of prompt payments, but I would be happy to write to her to set out those figures in detail.

Turning to whether we will still have access to EU procurement markets if we keep EU obligations, after exit, UK businesses will still enjoy guaranteed access to many of the same procurement opportunities in the EU covered by the WTO’s government procurement agreement through the UK’s GPA membership. This provides access to £1.3 trillion of contract opportunities annually. However, the EU-linked continuity obligations, which we are retaining in this instrument, are obligations towards non-EU countries and so do not have a bearing on UK suppliers’ access to public procurement opportunities in the EU.

The noble Baroness, Lady Hayter, asked when we are expecting formally to accede to the GPA. As I think she knows, the GPA committee formally adopted a decision on the UK’s accession to the GPA in its own right at a meeting in Geneva on 27 February. At the moment we are members through our membership of the EU. The Government intend to deposit their instrument of accession by exit day in a no-deal scenario. Once we have deposited the instrument of accession, there will be a period of 30 days before it takes effect. We are exploring solutions to mitigate the impact of any short gap in the UK’s GPA participation. That is the responsible thing to do and it aims to minimise to the greatest extent any impact on business. In fact, the Government are expecting the short gap in participation to have a minimal impact on UK businesses. In many cases, UK suppliers will have similar rights under the domestic laws of the relevant jurisdiction.

I was asked about the BSI and our continued membership of CEN. CEN is a European institution rather than an EU one. I have a press release from the BSI which states that,

“following the decision taken in the general assemblies of both organizations, BSI will continue to be a full member of CEN and CENELEC regardless of the conditions under which the UK leaves the EU, including in the event that the UK leaves the EU without an agreement”.

I hope that gives the noble Baroness the assurance she seeks.

[Baroness Hayter of Kentish Town]

My Lords, on CEN and CENELEC, I think the one that dealt with this was the standards one. If it is a different one, perhaps the noble Lord would care to write to me. I refer to the European Committee for Standardization as opposed to CEN and CENELEC, which deal with electrical safety. Some clarification by letter would be helpful.

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[Lord Young of Cookham]

My understanding is that the BSI will continue to be involved in any future discussions about e-invoicing and standards, but I will certainly write to the noble Baroness.

I think that I have come to the end of the issues raised by noble Lords, but if by chance I have left any out, I will of course write. I beg to move.

Motion agreed.