Draft Public Procurement (Amendment etc.) (EU Exit) Regulations 2019

Martin Whitfield Excerpts

Wednesday 13th February 2019 General Committees

[Oliver Dowden]

The draft regulations take all the existing EU procurement rules and replace them in the law of the United Kingdom. All the remedies that exist under EU law will exist under these regulations. Such cases can be pursued in court, as was the case previously. There is no change to the law other than to bring these things into UK law, and no change to the remedies—they still exist in the courts as they did previously.

This statutory instrument confers a number of regulation-making powers. They mirror powers that the EU Commission and the European Council have under EU directives and regulations or the treaty on the functioning of the European Union. The current procurement regulations are subject to the derogation in article 346 of the treaty on the functioning of the European Union. That provision enables the UK to take necessary measures to protect essential security interests connected with the production of or trade in armed munitions and war material. That includes overriding the procurement rules or aspects of them.

To ensure that the UK continues to benefit from this important derogation once we have left the EU, we have incorporated the text of article 346 into the procurement regulations, with appropriate modifications. Currently, the arms and munitions that fall within the scope of the derogation are determined by a list drawn up by the Council of Ministers of the European Economic Community as it then was, back in 1958. The list includes portable and automatic firearms, ammunition, guided missiles, military vehicles and so on. The modifications we have made include a power for the Secretary of State for Defence to update that 1958 list, for example to take account of developments in technology. Given the nature of this regulation-making power and its potential to affect the scope of the procurement regulations, its exercise has been made subject to the affirmative procedure.

The other regulation-making powers will be exercised by the Minister for the Cabinet Office. They include the function to revalue the main financial thresholds following a biennial review on the same basis as the European Commission, and to convert thresholds of the agreement on Government procurement directly into equivalent sterling values. Also transferred is the power that the directives confer on the Commission to update the exemptions to the use of electronic means of communication, in the light of technological developments, and to update the technical requirements relating to tools and devices for the electronic receipt of tenders, as well as to take account of technological developments.

The updates would be made through regulations that are subject to the prior consent of Welsh Ministers or Northern Ireland Departments in respect of devolved Welsh or Northern Ireland authorities. The Commission’s power to amend the list of international agreements in the field of environmental, social and labour law, set out in annexes to the directives, has also been conferred on the Minister for the Cabinet Office by means of the Minister’s power to treat the list as though certain international agreements were removed and others not covered were listed. Again, any ensuing regulations are subject to the prior consent of Welsh Ministers or Northern Ireland Departments in respect of Welsh or Northern Ireland devolved authorities.

Finally, the Commission currently has the power to amend the annexes to EU regulation 2195/2002 of the European Parliament and of the Council on the common procurement vocabulary—CPV. That regulation will become retained direct EU legislation on exit day. The Minister for the Cabinet Office is given the same power to amend the annexes to the retained version of the regulation.

[Martin Whitfield (East Lothian) (Lab)]

I want to raise an issue about the drafting of the regulations that sticks in my craw slightly. Regulation 17(2) refers to the Utilities Contracts (Scotland) Regulations 2016. Clearly, the idea of adopting the Scottish Parliament’s statutory instrument to replace the European Union regulations is how the Government want to proceed, which is fine. However, unfortunately, in drafting it, the Government have omitted to make provision for it to be amended. Given that the Minister for the Cabinet Office has powers to increase the amounts when regulations kick in, a similar power rests with the Scottish Parliament and should be reflected in the regulations, so that the correct, updated regulations are referred to for utility companies. This provision is made earlier on in the regulations, so I think it is just a mere omission and if we have to revisit it, it can be done at the appropriate stage.

[Oliver Dowden]

I thank the hon. Gentleman for his intervention. I think he is quite right in that interpretation but I will confirm that.

The annexes set out a sophisticated vocabulary that enables numerical codes to be used to describe different kinds of works, supplies and services in, for example, notices that advertise procurement opportunities and so enable suppliers quickly to identify procurements that are of potential interest to them.

Moving on to the other amendments, the UK is moving forward in its activity to join the WTO agreement on Government procurement in its own right. We have reached the stage where GPA parties have agreed in principle to our market access offer and accession. However, in this instrument, we have taken precautions in case the UK’s accession to GPA has not been fully completed by exit day. One of the amendments ensures continued guaranteed access, rights and remedies on current terms for suppliers from existing GPA countries for a period of eight months from exit day. Without this amendment, suppliers from GPA parties would no longer have the guaranteed access, rights and remedies that they currently enjoy in our public procurement contracts. This will mitigate the risks of a short gap in GPA membership by facilitating continued market access.

Delays in the Trade Bill mean that we have also laid before Parliament for approval a further statutory instrument that would amend the regulations we are now debating, to implement a similar measure for certain bilateral trade agreements between the EU and third countries to which the UK is currently party via its membership of the EU. That will keep alive existing obligations towards suppliers in the countries with which the EU has, before exit day, entered into trade agreements, with provisions relating to public procurement, by which it is bound.

This second amending statutory instrument would also preserve existing duties towards GPA economic operators and amend the time period to 18 months from exit day. This change in the time period bring the GPA provisions in line with those related to the UK’s transitioned international agreements. This SI is also subject to the affirmative procedure.

Section 3 of the withdrawal Act has the effect that any EU legislation in force and applicable on exit day will automatically become part of UK law. The draft regulations modify various EU regulations and decisions that will become retained direct EU legislation. They also revoke for the whole of the UK the Commission’s implementing regulation that establishes standard forms of public procurement. The forms laid out in the Commission’s regulation will not be required for the new UK e-notification service. The service itself will be designed to elicit information in the form and the way it is to be submitted.

In summary, the regulations seeks to ensure that the current public procurement regime will continue to function after our withdrawal from the EU. It does not seek to make major policy changes or introduce new frameworks. Instead, it makes largely technical changes to correct deficiencies that will naturally emerge within our legislation on exit day. Left unamended, the existing regulations would not work as intended and would cause confusion and uncertainty for procurers and suppliers, hampering the public sector’s ability to obtain value for money from procurement. I therefore commend the regulations to the Committee.

[Jo Platt (Leigh) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Sir Henry. I welcome this opportunity to discuss our procurement system and the proposed changes. I thank the Minister for his opening remarks. With just 44 days before our scheduled departure from the European Union, I only wish that this was not happening in such rushed and chaotic circumstances. However, that is what we have come to expect from this Government.

Before I comment on the statutory instrument before us, I must point out, as we in the Labour party have been doing for the last few years, that our procurement system is fundamentally broken. It is a system that works for big business at the expense of our small and medium-sized enterprises and, most importantly, the public. It rewards companies with poor employment practices that do not pay their fair share of tax and, in the cases of Carillion and Interserve, have flawed business models. The explanatory memorandum states that the purpose of these regulations is to transpose into law an “open and competitive” system in which

“suppliers are treated equally and fairly.”

I do not think that is possible without a fundamental shift in Government policy.

We know, for example, that under the current system SMEs receive a declining proportion of Government cloud spending. We also know that the number of businesses receiving late payments from the Cabinet Office has nearly tripled in the past two years, and that many large outsourcers simply do not pay their suppliers on time. Most importantly, a few mega-firms that are too cosy with Government continue to be dominant at the top. Although we accept and recognise that we need to address the statute book deficiencies that result from the UK exiting the EU, if the Government are serious about creating a procurement system that is truly open and fair, they must start at the root and overhaul this broken system.

[Martin Whitfield]

Is it not right that this statutory instrument yet again demonstrates the pressure that the incredibly hard-working civil servants are under to have everything in place for no-deal day? As was mentioned earlier, there are deficiencies that have been identified and not listed. An explanation for that has been given, but I feel that time pressure was probably more of a reason why those deficiencies were not listed. Given the drafting errors that this statutory instrument contains, the pressure pot is about to explode.

[Jo Platt]

I thank my hon. Friend for making that point, and share his concerns that this Government are not prepared for a no-deal exit from the EU. The fact is that the Government could stop this today by taking no deal off the table.

I will raise a number of specific issues with the Minister, on which I would like clarity. The first is the e-notification service that is proposed to replace the Official Journal of the European Union, in which tenders are currently published. We are told that the e-notification service will be ready by 29 March, so will the Minister confirm that that deadline will be met? Given this Government’s record on the delivery of technology, there is no reason for optimism. The gov.uk Verify programme, the national security vetting solution, the common platform programme, the digital services at the border project and the emergency services mobile communications programme are just a few flagship Government IT programmes; they have all been plagued by delays, spiralling costs or outright failure. To put it bluntly, this Government have consistently proven themselves incapable of introducing new technology across the public sector without causing significant disruption. Just this month, we have been discussing the Government’s failure to develop a EU citizen registration programme that works on both Android and Apple phones, so why should we have any confidence that they will deliver on this technological aspect of EU exit?

That e-notification service is particularly important because of the consequences of the system not being fully operational on exit day. The UK awards the most procurement contracts by value of any EU nation. Should that system be non-functional or error-prone as a result of the chaotic circumstances in which it has been created, the economic consequences could be dramatic, and the challenges to the public sector of maintaining procurement could be significant. That is the primary reason why we on the Opposition Benches are perplexed that no impact assessment has been carried out. We are especially concerned about SMEs, which often lack the access to technical expertise that large companies enjoy. If there are problems with the e-notification service, the impacts of those problems will be felt unevenly, and the Government will be further baking into the system the imbalances that already exist in our procurement market.

Turning to the Competition and Markets Authority and its oversight role in enforcing state aid rules, which is noted in the SI, will the Minister please update us on the CMA’s preparedness for exit day and whether it has the staff and resourcing that it needs? As my hon. Friend the Member for East Lothian pointed out earlier, as we know from extensive reporting in the media, the civil service is facing a challenge of historic proportions as it scrambles to prepare for both a no-deal Brexit and a transition Brexit. As the head of Her Majesty’s Revenue and Customs, Jon Thompson, recently said, the civil service is “hamstrung” by this lack of clarity. The Labour party has said that the civil service is incapable of fulfilling its role because of nearly a decade of public sector cuts.

These truly are trying times to be a public servant, and it is in this climate that the Competition and Markets Authority will attempt to enforce a state aid regime the nature of which we do not yet know, and in which the CMA has no experience. In other words, we do not know yet how a significant feature of the procurement market will work.

I seek clarification from the Minister on our GPA membership in the event of no deal, which is absolutely essential if we are to protect the access of UK suppliers across the EU. Although, as the Minister mentioned earlier, we have an agreement in principle, will he assure us that we will definitely be ready for independent GPA membership on exit day?

If the UK leaves the EU without GPA membership, the explanatory memorandum states in paragraph 7.20 that Government policy will be to offer other nations access into our procurement market, seemingly without any assurances that this arrangement would be reciprocated. We could then be in the incredible situation of allowing international suppliers competing with UK firms to fulfil our procurement contracts while UK firms might be prevented from accessing global procurement markets. This policy would be disastrous for UK firms and emphasises the totally chaotic handling of these negotiations. It further adds to the uncertainty that businesses are already facing with Brexit.

Let me reiterate that if our GPA membership is not finalised before exit day, this is yet another area in which we are simply not ready for exiting the European Union next month without a deal. Six pieces of legislation are not in place that would need to be. The Government are seriously behind on the passage of statutory instruments such as this, which are needed if we are to leave without a deal or a transition period. Equally, our Border Force is woefully unprepared, without the staff or IT systems needed for EU exit. We can add GPA membership to the growing list of reasons that we are simply unable to leave next month without serious chaos and disruption.

Finally, I have two quick points of clarification. With reference to the transitional measures set out in the schedule, specifically in paragraph 2, what assurances have we received from the EU that existing contracts with UK suppliers will be honoured? Will the Minister clarify the mechanism that the Government will use to cancel or nullify this SI in the event that the UK does leave the EU with a deal? Will he also confirm that a further SI will then be needed during the transition period to prepare the statute book for our future negotiated relationship?

In closing, I want to reflect on and state our disbelief that there are no impact assessments accompanying this SI. I dedicated my speech to pointing out the enormous changes these regulations will cause to the UK procurement system, from a new IT system to the possibility of UK SMEs being restricted from applying for EU procurement contracts.

Impact assessments should quite clearly have been carried out, especially when the stability of some of our SMEs is at stake. However, the explanatory note states that

“no, or no significant, impact”

on the private or voluntary sector is foreseen. It even goes on to say that the impact on small business is expected to be low. How is that defensible after all that we have heard? It is a disservice to those businesses that assessments have not been completed but, quite frankly, I should not be surprised, as it is characteristic of this Government’s handling of this entire process: “Trust us and we’ll sort it out.”

I take this opportunity to restate our position that no deal must be categorically ruled out by the Government. As these regulations confirm, we are not ready for the chaos it would cause. These regulations, most of all, risk baking in the imbalances our SMEs too often face in the system, and they confirm our belief that the procurement system needs urgent transformation, to put real social value at its heart. If only we had a Government willing to stand up in the interests of the many, and to reform the broken system that, too often, works just for the few.