Does Brexit mean a 'buy-Welsh' policy can now be put in place?

15 July 2016

Iestyn Gruffudd, a procurement advisor with Mabis, part of an independent Welsh economic development company, explores the impact that the Brexit result could have on public sector procurement across the UK.

Following the UK’s decision to sever ties with the EU, it is inevitable that there will be far-reaching changes to many UK laws, particularly those that are derived from EU legislation.  Among the questions being asked by many business leaders now is whether a revamped UK Government will seize the opportunity to remove or amend the procurement processes that are often perceived to be “inflexible, complex and a barrier to innovation”, and focus on giving local contracts to local businesses.

Any changes will be slow

The referendum result has so far opened up a lot of questions and a lot of unknowns. This fact, coupled with the two or more years that will be required for negotiation once Article 50 has been triggered, means that the current procurement regulations are likely to stay exactly as they are in the short to medium term. It is also highly unlikely to be one of the immediate priorities of policy makers either, as they face the daunting task of reviewing and reforming the hundreds of laws that have been formed over the last forty years.

UK legislation is already in place

While the overarching EU Treaty and EU Procurement Directive will no longer apply to the UK once the UK fully exits, the fundamental requirements of the EU procurement regulations have already been transposed into UK law since the 26th of February 2015, and will remain legally binding. Even if changes were to eventually be enforced, they would likely be overall very similar to the existing regime.

Looking back to the days before the EU procurement regulations were originally put in place, the UK had already introduced measures such as requiring compulsory competitive tendering for local authorities. The EU regulations over the years have also addressed weaknesses in the system, such as ensuring that a more consistent approach is taken across public sector bodies. It is also worth highlighting that the UK government has in fact gone beyond the minimum requirements imposed by the parent directives when putting the latest Public Contract Regulations (2015) in place, suggesting a clear intent and an appetite to continue regulating this field closely.

Value for money and due diligence

It is worth bearing in mind why these rules are set in the first place. It is about ensuring that those responsible for spending taxpayers’ money are doing so in an objective, accountable and transparent way, and are receiving the best possible value for money. Even if the current legislation was scrapped or severely cut back, it is arguable that the principles have become so deeply ingrained in the public sector that they would be unlikely to adapt to an unregulated or under-regulated approach.

It is therefore crucial that businesses continue to focus on producing compelling bids and tenders that clearly outline their suitability, strengths and abilities, rather than expecting to be awarded work by virtue of being the locally based provider.

If we want to trade with the EU, we’ll have to reciprocate

Among the chaos since the referendum result, numerous suggestions have been made that the UK will seek to continue as part of the EEA (European Economic Area), in a similar arrangement to the Norwegians. Under such arrangements, it is argued that the UK will still be able to gain from the free movement of persons, goods and services within the internal market of the European Union, without the burdens that come with full membership. The reality however, is that in order to participate in the EEA, the UK would be still be obliged to follow EU procurement rules. The only difference in such an arrangement is that UK would no longer have a voice or leverage in influencing and shaping the core EU procurement regulations they are required to abide by.

Procurement should support the local economy

While it is true that the EU rules focus on ensuring a single market across Europe, and therefore do not allow a “buy Welsh” policy, it is not true to say that there are not ways of favouring national producers. For example, EU law makes clear allowances for matters such as job creation, training, fighting unemployment and supporting disadvantaged groups as being legitimate issues to consider as added value within procurement decisions. The main difference is how these aspects of the laws have been interpreted, and there is a case to argue that Welsh and Scottish Governments have been more proactive in taking wider economic issues into account through their procurement activities than the UK Government. For example, the Welsh Government has set expectations for all Welsh public sector organisations to approach procurement in a proportionate way to ensure that contract opportunities are broken up into chunks that ensure smaller and local suppliers are not precluded from winning contracts individually. There is also an expectation to apply Community Benefits on all procurement activities, irrespective of value, with a more stringent reporting methodology required on expenditure of £1 million and above. This is to help ensure that social values such as supply chain opportunities for subcontractors or apprenticeship schemes are operated to the benefit of surrounding communities.

While there is a clear intention in the above, the execution is a different matter, as evidence suggests that an inconsistent approach is still being applied across Wales. This is largely due to the principles themselves not being statutory, resulting in them being ignored or under-applied. Procurement, if used correctly, can be used as a way of supporting small and medium sized businesses, however it is evident that Wales needs to use the powers that are already in place to introduce robust legislation that has the necessary teeth to make sure it happens.

Iestyn Gruffudd manages the tendering team at Mabis, who offer business support services including tendering advice and support, translation services and HR Solutions. Iestyn can be contacted on 02920 467 412, or @mabistendro.

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