Brexit - Procurement, State Aid and General Competition law

Pre-Brexit UK Competition Law, has essentially been the EU Competition Law protecting the EU single market.

This extends to the regulation of public sector contracts, under Public Procurement Law and public sector subsidies, under State Aid Law, to ensure the single market is not distorted by anti-competitive preferential treatment.

These two regimes have had a dramatic effect on the engagement of public benefit organisations in public services, due to the way that market protection principles have been implemented in the UK. Procurement and State Aid law, EU regulation, which is actually purposive, permissive and facilitating, has been viewed as the cause of process-driven restrictions, especially on public benefit creativity and innovation.

The immediate post-Brexit change will be that the market being protected will contract from the EU market to the UK market, subject to any continuation of the EU State Aid regime under the terms of any Free Trade Deal.

Public Procurement: The UK Public Contract Regulations 2015

The UK Public Contract Regulations 2015 transpose EU public procurement regulations ensuring fair competition for contracting opportunities across the EU single market. They will continue, as unchanged UK regulations, with the re-definition of the relevant market, which will, in principle, mean relevant geographical and sector markets will need definition. In practice, however the UK Regulations are now thoroughly incorporated and interpreted as “best value” contracting procedures, although there is a pre-existing UK best value regime under the Local Government Finance Acts.

The fundamental principles of the EU regulations are “equal treatment; non-discrimination; transparency and proportionality” and the criterion for selecting a provider is “Most Economically Advantageous Tender”, meaning the optimum balance of quality, social value and price.  For decades UK public procurement has been characterised by an inflexibility and the risk averse fear of challenge.

Procurement reform, to create a new UK regime, is on the agenda, with a Green Paper due last month and now this. A three-month consultation period is expected.  The rhetoric is the removal of red tape, process simplification, greater transparency and streamlined challenge procedures. The real need is a transformative restoration of a sense of the purpose of procurement, the public values from contractual provision to the public sector and the development of collaboration and partnership principles, alongside the entrenched pro-competitive ideology.

There are also major issues about fair opportunities for small, medium, public benefit and community-based businesses and the need for overly systemic procedures to be applied with active, discriminating and imaginative professional judgment.

State Aid regulation

The general principle of the EU State Aid regime is to prevent member state subsidies distorting the EU single market. If the UK subsidises its car industry, or its international airports, it may anti-competitively undercut non-subsidised equivalent industries in other member states.

This issue has featured prominently among the critical negotiation issues between the UK and the EU, in relation to the Free Trade Agreement negotiations. The EU insists on the same subsidy control system continuing, the UK equates being sovereign with being free of the EU-based regulation, which to the EU is the UK claiming the right, post-Brexit, freely to subsidise UK industry anti-competitively and potentially to flood the EU market with subsidised products.

The World Trade Organisation rules, which will apply in the no deal scenario, contain milder subsidy controls in relation only to goods, not as in the EU regime, which covers services too.

Just like the procurement rules, in relation to public services and public benefit organisation, EU State Aid rules have been applied with misunderstanding and mythologised rigidity in the UK. But far from all subsidies are prohibited State Aid. Any subsidies not into a competitive market do not fulfil the definition of State Aid at all. Services of General Economic Interest are good subsidies, all public authorities have discretion to grant. And there is a general exemption regime for a range of other positive subsidising  interventions, for example training, research and development, investment in SMEs and renewable energy.

If there is no Free Trade Agreement continuation of EU State Aid, there is a question as to what subsidy control might apply within the UK. For example, there may be different policy approaches to subsidy in the four constituent UK nations, which would require some equalisation.

General Competition Law

The principles of general Competition Law are the same at EU and UK level with the different bases of market definition already in place. Thus, without EU level regulation the UK Competition Act 1998 may and almost certainly continue to apply untouched, as it already does to UK markets.

There are, two basic prohibitions. The first prohibition is against anti-competitive agreements and arrangements, such as price-fixing, or dividing-up a market into territories. For example, a group of major independent schools were surprisingly found to have been illegally sharing pricing information, and there is a series of cases about funeral directors agreeing exclusive territories. The second prohibition is against abuse of a dominant position in a market. This has been newsworthy when technology giants, such as Microsoft, have sought to exclude smaller organisations from operating compatible applications within their principle operating systems.

The UK Competition & Markets Authority will continue as the UK regulator of these prohibitions and the Enterprise Act 2002 merger control and anti-cartel rules. 

For several decades now UK competition law has followed EU case law, for example on “vertical restrictions” across different levels of market activity, where, for example, bona fide franchises are legitimate. It may be that post-Brexit this mature, direct alignment of applicable legal principles will start to diverge.

The law and practice referred to in this article or webinar has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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