Michael Bowsher's Mostly Procurement Bulletin

Happy New Year - Public Procurement Reform Starts to Bite in England, and to a lesser extent in Wales and Scotland

So are we ready for all the change that 2024 is going to bring to UK procurement law?  There are still quite a few blanks to be filled in before we can really understand how the law will work as a coherent whole.  I have spent some time reviewing the wealth of comment on the new regime (and participated a little to it as well).  There are a diverse range of views as to just how revolutionary this will all be, and I am still reflecting on what I think about the overall impact of the range of changes.

An immediate practical problem that intrigues me is how the launch of the new legislation for October this year is going to work if that date happens to be in the middle of a general election campaign.  I suppose the rules of pre-election sensitivity (which are sometimes called something else) do not prevent this, but given the planning involved it seems to me at least interesting timing.  Any thoughts anyone?

Of course the great procurement reform of 2024 is already well underway.  While the Procurement Act 2023 brings together much of the current suite of regulations, two key separate areas of legislation have come into force in the last week.  On 25 December 2023 the new Public Service Obligations in Transport Regulations 2023 came into force in Great Britain (but not Northern Ireland).  (Why then?  Because there’s no public transport on Christmas Day?).   It is slightly odd that the first step in exploiting our new Brexit freedoms involves retaining the rather weird anomaly that a regime that functions as procurement regulation in public transport.   It is notable that no full impact assessment was conducted for these Regulations so it is difficult to tell whether the practical reasons keeping the regime separate from the new procurement legislation warranted the retention of this EU-derived architecture.  Perhaps this had to be done this way to respect the different needs of different nations of the UK.

And yesterday, in England, we had the Health Care Services (Provider Selection Regime) Regulations 2023 come into force.   This looks to be a very significant change to the operation of the health sector, although again there is something of a lack of transparency in understanding how we have reached the final landing place.  There was alot published when the system was first under review a few years ago, but not alot to explain the substantial changes that were made.  There is much to consider here, but I am particularly interested in the new remedies system under the regime which introduces the Provider Selection Regime Revew Panel.  This looks to have the potential to create an interesting new model for procurement remedies.

The 2024 reforms all take place at an interesting time for the broader thinking about procurement law and regulation.  Although the Procurement Act 2023 makes a number of important changes to the law, its roots in the existing EU-derived regulations are pretty clear.  Our current legislation still has much in common with the 2014 EU directives.  It is relevant to note that the European Court of Auditors concluded in its report in December (https://www.eca.europa.eu/ECAPublications/SR-2023-28/SR-2023-28_EN.pdf) that those directives had no demonstrable effect on the EU single market, and that level of competition for public contracts had diminished over the past 10 years in the EU.  It is not clear whether this has had an impact on the cost or quality of the procured goods, services or works.  The European Commission’s response to that report is a little vague, but does recognise that some legislative change may be necessary although there seems to be no enthusiasm for major reform.  In any event that would have to be a matter for the new institutions after the European Parliament elections in May.

In the UK, the report of the House of Commons Public Accounts Committee into “Competition in public procurement” is hardly more enthusiastic (see https://committees.parliament.uk/publications/42520/documents/211431/default/ ).  The importance of the Procurement Act 2023 is acknowledged but a number of other matters are referred to as needing change.

It seems that in both the EU and UK there is the potential for some serious reflection as to whether the current form of procurement law is really suitable to support effective public procurement.  It might be that this leads to a much more radical range of changes and the Procurement Act 2023 might end up being seen not as a radical new change, but rather the last iteration of a model for procurement law that has effectively captured much of international procurement debate, but now needs a radical rethink.

 

And talking of "crowded frontiers", the new world of UK procurement law is now about to be overwhelmed with new material.
- The Procurement Bill awaits Royal Assent in the next few days; and of course the flood of new secondary legislation and guidance comes with it.
- The proposed new system for procuring health care services in the NHS is set out in the recently published Draft Health Care Services (Provider Selection Regime) Regulations 2023.
- The proposed new system for awarding Public Service Obligation contracts for rail, bus and tram services is set out in the recently published in the draft of The Public Service Obligations in Transport Regulations.
- And amendment/replacement of section 17 of the Local Government Act 1988 is being debated in the context of the Economic Activity of Public Bodies (Overseas Matters) Bill 2022-23.
Procurement Law used to be a quiet area! Well we shouldn't complain as we'll have lots to talk about. I will try to keep up.

Space, the Crowded Frontier – as it might be seen from England

My colleague Jenn Lawrence and I have been working on various space-related matters.  In the course of our discussions we got to talking about this case about the legal regime for managing satellite orbits that might encroach on others in the context of a recent case.  Jenn has jotted down some notes on where such a case might go in the UK context and where things may go in due course.  I have made some contributions along the way.

The Viasat case

The Earth’s orbit is increasingly crowded with satellites. This gives rise to questions concerning how to navigate the inevitable territorial disputes between satellite operators. For example, if one operator believes that another operator’s satellites are encroaching on its own satellites’ space, does it have a legal remedy?

This issue recently came before the U.S. Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit”) in Viasat.[1] The background to that case can be summarised as follows.[2]

Space Exploration Holdings, LLC (which goes by “SpaceX”) maintains a constellation of thousands of communication satellites in low Earth orbit (“LEO”). Typically, communication satellites circle Earth in a geostationary orbit (“GSO”), moving at the same speed as the Earth’s rotation, so they appear fixed in the sky. A single GSO satellite has a continuous sight line to users within its coverage area – and thus can provide them with continuous service. SpaceX’s satellites, by contrast, move at lower altitudes in a non-geostationary orbit in LEO. The lower altitude reduces transmission latency, making SpaceX’s satellites better suited to provide high-speed services. But, these satellites do not synchronise with the Earth’s spin, so a single satellite cannot maintain a sight line with any given user. SpaceX solved this problem by deploying multiple satellites that move and communicate as a constellation. When one moves out of view of a user’s antenna, it transfers the signal to the next satellite in line.

SpaceX sought approval from the Federal Communications Commission (the “FCC”) to deploy its satellites at an even lower altitude to improve service quality. The FCC approved its request. This triggered two of SpaceX’s competitors (DISH Network Corporation and Viasat, Inc.) and an environmental research and advocacy organisation (the Balance Group) to appeal the FCC’s decision – first, to the FCC itself, and second, when that failed, to the D.C. Circuit.

DISH argued, before the D.C. Circuit, that the proposed changes would interfere with its GSO satellite television service. It alleged primarily that the FCC’s decision had violated the Administrative Procedure Act (the “APA”) and the Communications Act. The D.C. Circuit dismissed DISH’s arguments on the merits.

Viasat and the Balance Group argued that the FCC had violated the National Environmental Policy Act (the “NEPA”) by “allowing SpaceX to [deploy its satellites at lower altitude] without first preparing an environmental assessment”.  The D.C. Circuit noted that, in order to bring a case in U.S. federal court, a party must establish standing by showing that it has suffered an injury that is “actual, imminent or certainly impending” (i.e. a “speculative possibility of future injury” does not suffice). Further, it noted that to pursue NEPA claims under the APA, a party must show that its injury is “to the interests of the sort protected by NEPA”. It ultimately dismissed both Viasat and the Balance Group’s arguments before reaching the merits of their claims on the ground that neither party met both requirements.

Thought experiment: what would happen in the U.K.?

Viasat is, of course a U.S. case. However, the issues to which it gives rise apply more broadly. It is not difficult to envisage a comparable set of facts arising in the U.K. in the context of the new domestic space regime.[3] To propose a thought experiment: say Company A (akin to SpaceX in Viasat) operates satellites from the U.K. at a certain altitude above Earth and wishes to move them to a lower altitude. However, Company B is concerned that this will negatively affect its own satellites operated from the U.K. and wishes to prevent Company A from doing so. Does Company B have a legal remedy?

The U.K.’s space regime is in its infancy, and challenges of this sort are yet to come before the courts. However, to entertain the thought experiment for a moment longer, we might consider possible legal avenues available to Company B.

The statutory licensing framework

Turning, first, to the statutory licensing framework.

In July 2021, the Civil Aviation Authority (the “CAA”) became the U.K.’s space regulator. The CAA licences space companies and their activities under both the Outer Space Act 1986 (the “OSA”) and the Space Industry Act 2018 (the “SIA”). The OSA governs space activities carried out by U.K. entities overseas. The SIA (and the Regulations and Rules made thereunder) governs space activities carried out in the U.K. It is, therefore, the latter with which our thought experiment is concerned.

The SIA imposes various duties on the CAA. These include the following.

• Under section 2(1) of the SIA, the CAA must exercise its functions regarding spaceflight activities[4] to secure public safety.
• In exercising its functions, the CAA must take into account the factors set out in section 2(2) of the SIA, which include: (a) the interests of the persons carried by spacecraft or carrier aircraft; (b) the requirements of persons carrying out spaceflight activities; (c) the interests of any other persons about the use of land, sea and airspace; (d) the requirements of persons with interests in property carried by spacecraft; (e) any environmental objectives set by the Secretary of State; (f) the interests of national security; (g) any international obligations of the U.K.; and (h) any space debris mitigation guidelines issued by an international organisation in which the government of the U.K. is represented.
• Under section 2(3) of the SIA, if there is a conflict in applying the subsection (2) provisions, the CAA must apply them in whatever way it thinks reasonable.

Sections 8 to 15 of the SIA empower the CAA to grant operator licences authorising the licensees to carry out any spaceflight activities specified, subject to such conditions the CAA considers appropriate. When a condition is imposed, it is an offence for a licensee to fail to comply with that condition. Under section 15(3) of the SIA, the CAA is empowered to vary a licence, inter alia, with the licensee’s consent.

Turning back to our thought experiment: Company A would have a licence from the CAA, which would likely impose obligations concerning the altitude(s) at which it was permitted to fly its satellites. If Company A wished to vary its licence, it could ask the CAA to do so (which the CAA could then do, following a mandatory consultation with the Secretary of State). In making that decision, the CAA would be required to take into account the factor set out in section 2(2)(c) of the SIA – namely, “the interests of any other persons in relation to the use of land, sea and airspace” which would include the interests of Company B. However, if the CAA was still minded to grant Company A’s request, what could Company B do about it?

Very little, it would appear. Under section 3 of Schedule 10 to the SIA, an appeal against a decision of the CAA or Secretary of State to vary, or refuse to vary, a licence may be brought “only by the holder of the licence” – meaning only by Company A. There is no remedy in the statute for Company B. Interestingly, this differs from the position under the Civil Aviation Act 2012 (“CAA12”), which regulates operators of dominant airports (such as Heathrow). Section 25(2) of the CAA12 allows an appeal against a decision of the CAA to modify a licence condition to be brought by either “the holder of the licence” or “a provider of air transport services whose interests are materially affected by the decision”.

It is unclear why the right to appeal under the SIA was not drafted in similar terms. At a high level, Parliament appears to have considered judicial review to be a sufficient remedy for third party non-licence-holders affected by licence variations by the CAA under the SIA.

Judicial review

We move on, then, to judicial review. In order to bring an application for judicial review against the CAA’s decision to allow Company A to lower its satellites, Company B would need to demonstrate “sufficient interest” in the matter to which the judicial review related.[5] The courts have avoided defining exactly what amounts to a sufficient interest. However, they have tended to interpret the concept flexibly having regard to the nature of the case.  Flexibly does not always, though, mean broadly.  Ultimately, whether Company B had standing would depend on the particular facts of the case.

It is possible to imagine a situation where the CAA’s decision to allow Company A to fly its satellites at a lower altitude would directly impact Company B in a demonstrable manner. Notably, this wasn’t the case in Viasat, where Viasat had argued that it faced imminent injury on the ground that lowering SpaceX’s satellites could potentially cause an indirect collision with its own satellites. According to Viasat, first, one of SpaceX’s satellites could collide with a piece of space debris, thereby creating more space debris and, in the process, increasing the chance of a collision with one of Viasat’s satellites.[6] The D.C. Circuit found Viasat’s theory of injury “much too speculative”. It is possible that a U.K. court would find the same.

In any event, it is essential to bear in mind that standing is only the first hurdle. Even if standing were established, Company B would need to establish that the CAA acted unlawfully in deciding to vary Company A’s licence on traditional public law grounds. It is impossible to elaborate further on the likely success of any such arguments in the abstract.

Final thoughts: managing future space relationships

To sum up the outcome of our thought experiment, it is unclear whether Company B would have a legal remedy against the CAA and/or Company A in the U.K. The statutory right to appeal in the SIA would not assist Company B. However, Company B might be able to bring a successful claim in judicial review against the CAA if it could establish standing. The answer would ultimately depend on the specific facts of the case.

This thought experiment has proceeded on the assumption that both Companies A and B were operating satellites from the U.K. But what if we were to turn the lens outwards? What if Company A was based in the E.U.? Or what if Company A acted as agent of the European Space Agency – an inter-governmental organisation of which the U.K. is a member state?  It is an artefact of the history of space exploration that these matters that will have a greater and greater international component are still matters for national regulation.  And the underlying substantive issues are likely to arise again in real disputes.  Given the rate at which Earth’s orbit continues to grow more crowded and commercialised, it is likely that real legal solutions to this sort of issue will have to be found.

[1] Viasat, Inc. v. Federal Communications Commission, 47 F.4th 769 (D.C. Cir. 2022).

[2] See summary in case.

[3] For which see https://www.gov.uk/guidance/spaceflight-legislation-and-guidance.

[4] Broadly defined in section 1(4) SIA. Insofar as our thought experiment is concerned, they include “operating a space object”.

[5] Section 31(3), Senior Courts Act 1981.

[6] This theory appears to have been based on the Kessler Syndrome – recently defined in the European Space Agency’s 2022 Space Environmentreport as “the situation in which the density of objects in orbit is high enough that collisions between objects and debris create a cascade effect, each crash generating debris that then increases the likelihood of further collisions”. https://www.esa.int/Space_Safety/Space_Debris/ESA_s_Space_Environment_Report_2022.

And Now for Something Completely Different

On at least one occasion on this blog I have referred to the UK’s trade agreements with individual US states.  I have not always taken them seriously. 

Fortunately, Jean Heilman Grier has provided a much more adult analysis at https://trade.djaghe.com/?p=7588  under the heading “United Kingdom’s Mini-State Pacts”.  Even after looking at these agreements with a straight face, I’m still not sure I can take them seriously.

Get Ready Now to Participate in Major EU Public Procurements from October 2023

This note is a joint effort with my friend and colleague, Jay Modrall.  He is now Senior Counsel at Norton Rose Fulbright and has given a lot of time and thought over recent months to the subject matter of this blog.  He has been looking particularly at the merger control aspects of it.  He has been prodding me to look again at the detail of this measure which I had last looked at a couple of years ago with colleagues Professor Chris Yukins of GWU and Professor Andrea Biondi at King’s College London.  Jay’s insights and corrections are much appreciated.  

Of course, anything in this Blog is all my own responsibility and of course, as usual, none of this is to be taken to be legal advice or attributed to any of the numerous organisations to which I have some professional association.  If you need legal advice, you know where I am, or can find out in any of a number of ways.

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EU Regulation 2022/2560 on Foreign Subsidies distorting the Internal Market (OJ L 330, 23 December 2022 p.1) ("FSR") will have a substantial impact upon Public Procurement in the EU.  This note covers some introductory ground but focuses specifically upon Public Procurement and particularly the work which needs to be started now by anyone considering bidding for a procurement in the EU (or participating as a significant suppliers or sub-contractor) after 12 October 2023.

There is a lot to discuss concerning substantive and policy issues around this legislation.  This note focusses on these information gathering issues.  It may be that the draft notification forms and other implementing measures will be published by the Commission today, but as they will take some time to process I am putting out this blog today as "the story so far".  

Although these notification forms will not be finalized until July 2023, the drafts indicate that notifications will require substantial information.  Prospective bidders will need to collect information on all financial contributions received from any non-EU government or government-affiliated entities over the prior three years and ensure that their proposed main subcontractors and suppliers also have such information ready.  If they don’t, prospective bidders may need to replace the subcontractors and suppliers on whom they would normally rely.   It is important to note that any entity bidding within the EU, including EU-based entities, will be subject to this regime.  Financial contributions must be notified regardless of whether they include an element of subsidy, but the Commission can be expected to pay especially close attention to significant subsidies granted from, say China, the U.S. or the UK in response to global crises such as the Covid-19 pandemic and Russia’s invasion of Ukraine, or major policy initiatives such as the U.S. Inflation Reduction Act.

Given that this will impose a significant administrative burden upon EU and non-EU bidders and their supply chain, one may wonder what impact it might have upon any agenda to promote the involvement of SMEs in the public sector supply chain.

There are a number of concepts new to this Regulation. For the purposes of this note, we use a shorthand concept, a “bidding group” defined further below.  We also refer to any purchaser covered as a contracting authority even though other terms might be more accurate under the particular Directive in question.

The Target of the Regulation

The premise of the Public Procurement component of the Regulation is that any entity that engages financially or commercially with a non-EU government might be receiving foreign subsidies which it can use to submit a tender “that is unduly advantageous in relation to the works, supplies or services concerned,” potentially distorting the internal market.  However, the Regulation’s notification obligations are based on the much broader concept of non-EU “financial contributions,” a new concept in EU law; the Commission will review the bidding group’s financial contributions to identify those that may qualify as distortive foreign subsidies.

The term “unduly advantageous tender” is also a novelty in EU public procurement law.  It is plain from other references that this is not just equivalent to the term “abnormally low tender” used in existing Directives.   While the concept of distortion of the internal market is understood in competition and state aid law, it is not yet clear how it will apply here.   This may be explained by the guidance which is due to be published.

The Application of the Regulation to Public Procurement: the Basics

The Regulation applies to procurements above the relevant thresholds and governed by any of the four basic procurement Directives (public sector, utilities, concessions).  Notification obligations do not apply to procurements covered by the Defence Procurement Directive or emergency procurements.   Article 346TFEU will completely exclude some procurements.  (It is worth recalling that not all purchases by defence departments are covered by the Defence Procurement Directive, and while this is not a point that has been much explored in the cases, but this may be where that definition comes into focus.)

The Regulation applies to any entity defined as an economic operator in one of the Directives and bidding in an applicable procurement.

The regime applies to procurements valued (in accordance with the usual rules) at more than 250 million euros, or where the overall procurement is worth above 250 million euros and the lot or lots in question which bidder bids for are worth more than 125 million euros.  This obviously limits the procurement to very large procurements, but this is still a significant number of procurements.  A search on Tenders European Daily indicates more than 50 such procurements were advertised in January 2023.  Many are, as one might expect, procurements for large engineering or IT projects.  Quite a few, though, are aggregated procurements for medical equipment and supplies and other sundries.  For instance, every few years there is a notice for an Italian government procurement for over 250 million euros worth of coat hangers.  It is likely that such procurements are broken into lots, so that the Regulation’s applicability will turn on the aggregate value of the lots for which the particular entity bids.  In short, this Regulation will affect many bidders in a number of sectors.

Further, the Regulation only applies where the entity’s bidding group in the particular public procurement procedure was granted aggregate contributions in the three previous years equal to or over 4 million euros per third country.  The term “bidding group” is used in this note to cover the bidding entity, its subsidiary companies without commercial autonomy, its holding companies and its main subcontractors and suppliers “where applicable”.  The reference to subcontractors and suppliers seems problematic.  The identity of subcontractors and suppliers can often be fluid, particularly in large privately financed bids where the content and makeup of the finance package often has to be negotiated during the procedure.  Given that a number of the procurements of the scale covered by this Regulation are likely to be highly complex, it will not always be easy to identify who is or is not in the bidding group at the relevant time.  (This fluidity is recognised in recital 54 to the Regulation.)

Summary of the Key Procedures

Whenever a contracting authority publishes a notice for a procurement covered by the Regulation, it shall state in the notice that this Regulation applies.

For all such procurements, any entity bidding in that procurement must notify the contracting authority of all foreign financial contributions received.  They must state whether financial  contributions to bidding group exceed the relevant 4 million euro threshold, but given the broad definition of “financial contribution” this threshold will almost always be met.  This notification must be submitted at prequalification and at the time of bidding.  The Regulation is potentially ambiguous here, as it refers to the submitted tender or final tender, but that could obviously occur at different times in, say, a competitive dialogue.  It is not clear whether that might lead to the need for multiple notifications.

Bids submitted without necessary notification or declaration shall be treated as irregular tenders and shall be rejected.

All notifications received are to be transferred to the EU Commission for consideration.  Contracting authorities may also inform the Commission if they have suspicions about the presence of non-notified foreign subsidies.  Where the abnormally low tender procedures under each Directive might usually be engaged by reference to such foreign subsidy, the matter is to be referred to the Commission and not dealt with by the authority. 

There is also an even more involved procedure for the Commission to initiate its own investigations into a particular subsidy or procedure.

However the matter reaches the EU Commission, it will undertake a review to assess whether any of the bidding group’s financial contributions qualify as foreign subsidies, and if so whether they distort the internal market.  If so, the tender will be rejected, unless the Commission determines that the negative effects of the foreign subsidy are outweighed by positive effects of that subsidy on the development of the relevant subsidised activity on the internal market, while considering also other broader positive effects on the Union’s policies.

While the Commission undertakes its review, the procurement can continue, but no award can be made.  The contract can then be awarded to the winning bidder if the Commission reaches a decision clearing the bid (or the process is timed out).  If the bid is not cleared, then the authority may award the contract to the entity which has submitted the next best tender without being adversely affected by foreign subsidies.  This presumably leads to the need for successive investigations until a “clean bid” is identified.  This raises the prospect of quite significant delay.

There are lengthy provisions regarding the conduct of the Commission’s review, the gathering of evidence and discussions with EU and non-EU states.

What Counts as a Foreign Subsidies and Distortions of the Internal Market?

A Foreign Subsidy offending this Regulation exists where a direct or indirect financial contribution has been made to an undertaking engaging in an economic activity in the internal market, and which is limited, in law or in fact to one or more undertakings or industries.  

Non-EU financial contributions include a wide range of interactions between a bidding group and a third party state or any private or public body whose actions may be attributed to such a state.  A contribution involves funding, including debt forgiveness or foregoing of revenue, tax or fees, or provision or purchase of goods or services.  The definition would presumably include the “classic” state aid scenario in which a state entity overpays for delivery of services, but also includes many activities with no state aid element, such as the procurement of services of general economic interest (utilities, postage, etc.) or payments into local healthcare systems, as well as contracts for the bidding group’s provision of goods or services, whether or not pursuant to competitive tender.  (Article 3)

A distortion in the internal market exists where a foreign subsidy is liable to improve the competitive position of the bidder in the internal market, and that subsidy actually or potentially has a negative impact on competition.  A list of indicators are set out in the Regulation.  (Article 4)    The Regulation lists categories of subsidies considered most likely to distort the internal market in Article 5, including those enabling the entity to submit an unduly advantageous tender on the basis of which the entity could be awarded the relevant contract.  This leads us back to the undefined concept of an unduly advantageous tender.

The Substantive Analysis

As will have become apparent, there are numerous points of uncertainty which will need further consideration, and it is to be hoped that some of the guidance produced under the Regulation will provide some assistance.  For instance, as experience with the regime develops, it will no doubt become clearer as to what financial contributions are or are not foreign subsidies, when subcontractors and the like are to be caught in the bidding group and how the Commission will determine whether a subsidy outside the EU is likely to distort the EU internal market.  One of the Commission’s greatest challenges may be to identify the counterfactual in situations where multiple bidding groups all benefit from foreign subsidies.

Need for Urgent Preparation: Steps to Consider Now

Anyone considering a bid in the EU to which the Regulation applies will need to start gathering the information that will have to be notified well in advance, since the sort of information required will take some time to gather.  As mentioned, financial contributions are broadly defined to include a wide range of interactions between bidding groups and non-EU governments or entities attributable to non-EU governments.  While some relevant information will be available from existing financial, tax, supplier and customer databases, a gap analysis will be required to determine whether modifications are required.  Even where information can be drawn from existing systems, significant “manual” work will be required to complete a new financial contribution reporting system and to populate it retroactively for three years. 

The process starts with the question, “What financial contributions do I and my group members receive from third countries and public and private entities attributable to third countries?” 

The indicative list of financial contributions from Article 3(2) of the Regulation is worth repeating here.

• The transfer of funds or liabilities, such as capital injections, grants, loans, loan guarantees, fiscal incentives, the setting off of operating losses, compensation for financial burdens imposed any public authorities, debt forgiveness, debt to equity swaps or rescheduling;
• The foregoing of revenue that is otherwise due, such as tax exemptions or the granting of special or exclusive rights without remuneration; or
• The provision of goods or services or the purchase of goods or services.

Contributions must be notified or declared if they were granted within three years before the notification to the contracting authority. There may be issues as to when a financial contribution is said to be granted or the allocation of the relevant value between financial years.

Alot of effort will have to be put into the preparation of a notification of all transactions that might qualify as financial contributions between any third country entity and any entity within the bidding group as defined above over the last three years.  By its nature, the information will be broadly spread across the globe and in different entities.  As it may be argued that a contribution is granted after the day of the relevant agreement that provided for it, the search period should probably not be confined to three years before the date the Regulation comes into force or the date a bid is likely to be submitted.  Once all the data has been gathered, judgments can be made as to whether a particular contribution falls in or out of the three year catchment period.

Given that the database must be compiled on a worldwide basis, and then kept up to date on a rolling basis by any company with a continuing interest in bidding for large public contracts in the EU, it is suggested that internal planning and information gathering needs to start soon.  We are, naturally, available to assist.

Apart from creating new financial contribution monitoring systems, planning for specific tenders will need to incorporate the FSR notification and review process,  The starting point is probably to consider which future bids are likely to be affected.  Bidders will be well familiar with looking at www.ted.europa.eu to view forthcoming opportunities, and it is easy enough to search notices for forthcoming opportunities by value.  Of course, other notification facilities exist and these may also be useful.

If the value of the contract or contracts is such that the Regulation is engaged, the bidder must inform the contracting authority of all foreign financial contributions and provide other information required by the notification form to allow the Commission to identify potential distortive foreign subsidies.  If the contributions do not exceed in aggregate 4 million euros per third country in the last three years, these must be listed and a declaration made to that effect.  As mentioned, however, given the broad definition of financial contribution, bidding groups able to participate in such large tenders very likely meet the 4 million euro threshold.    

So any entity thinking of bidding in a few months’ time for one these larger contracts must consider what information is required for the notification beyond the basic financial contribution data referred to above.  Any company that has not already launched information gathering efforts will need to do so as a matter of urgency in parallel with preparation of its bid and qualification of subcontractors and suppliers.  As mentioned, the subcontractors and suppliers bidders traditionally work with may need to be requalified based on their financial contribution information.  Qualification procedures, transaction timelines and transaction documents will all need to be revised.

A number of serious practical matters have not been addressed in the FSR.  By way of example, there is nothing to assist a bidding group in understanding how to deal with the notification of transactions which are subject to existing confidentiality obligations.  Many entities will be subject to non-disclosure or national security obligations in regard to some of their government contracts, and when those same entities make a bid covered by FSR it would seem that there will be a clash between existing obligations and the notification requirements.

There will no doubt be much more to say about further materials as they are produced.

 

"When most people hear the word "procurement" they switch off, but I cannot get enough of it."

I couldn't resist this quotation as a title for a blog.  This was said by Angela Rayner MP, the deputy Leader of the Opposition in the first parliamentary debate of 2023 on the Procurement Bill passing through the Houses of Parliament.  I am not going to comment on the entire debate, but a couple of interesting points arise. 

    For those interested, the link to the full debate on the Second Reading on 9 January 2023 is at

    https://hansard.parliament.uk/Commons/2023-01-09/debates/2936011F-A818-40FC-941B-D53E05672870/ProcurementBill(Lords).

    This is the latest stage in the ongoing discussions regarding the forthcoming new procurement legislation.  An excellent summary of the progress of the legislation is provided in the     House of Commons library briefing no. 9402, "Procurement Bill 2022-23" at https://commonslibrary.parliament.uk/research-briefings/cbp-9402".  Other recent briefings on     reform of defence procurement and single source procurement are also relevant.

In this blog I pick up a few points from the debate.

First, a general observation about political debates concerning any new procurement legislation.  Just as each round of revision of EU procurement directives sought to simplify the regime but only ended up being longer each time, so we can see the same problem emerging here.  The power of public procurement is sometimes confused with Public Procurement law and reform of the law becomes the great hope of so many political dreams - revival of SMEs, a range of social policies, enforcement of standards about slavery etc, and so on and so on.  And as each policy gets packed in, it becomes ever harder to discern with clarity what the legislation actually aims to achieve.  This will inevitably increase the cost and complexity of the procurement process for all concerned.

A broad array of points were raised in the debate in the House of Commons but there were two recurring themes around the role of small and medium sized enterprises in procurement, and the need to achieve social value.

Taking the role of SMEs, this seems to be raised rather disingenuously as some new discovery with which this post-Brexit government is able to liberate Britain from the shackles of a repressive big business regime.  This certainly seems to be the point made in Cabinet Office publicity puffs for the Bill produced this month.  Unfortunately this rhetorical flourish does no service to all the hard work done by those preparing this legislation, because this is a topic which the EU was closely concerned with in the 2014 directives and which the UK government has been keen to build on in various policies over the last decade or so.  The Cabinet Office itself produced a Procurement Policy Note on the subject in 2015 (PPN 03/15) after having looked in detail at the role of small business in public procurement in the UK and beyond.  It might have been conducive to better legislation to note that this was not something which EU legislation prevented anyone from doing, but rather that there are real difficulties here and that it might be interesting to know why Cabinet Office must think its efforts for the last 8 years amount to failure before blaming everything on the constraints of the EU regime.

As to social value, it is interesting that the need to ensure that social value is obtained from public contracts seems no longer to be popular in government.  Despite pressure in the House of Lords and in this debate, it is to be relegated to a consideration in the National Procurement Policy Statement provided for under the future Act.  This is odd, first because the notion of incorporating social value as a goal of public procurement was of course a Conservative initiative in 2012.   The government produced its own Social Value Model for procurement at the end of 2020.  Further a frequent criticism of its role in UK procurement has been that it can be used as a cover for local or national preference.  Given the government's apparent interest in using any opportunity to achieve this, its coyness here might be thought to be surprising.  The National Procurement Policy Statement leaves some scope for development here and given the need to comply with requirements of that Statement in procurement it may be that there will be little change here.  A clearer more transparent explanation on this would nonetheless be very helpful at this stage.

Finally, it may be trivial but the rhetoric around this legislation is desperate.  This is a pity because, unlike some post-Brexit efforts, it is the product of alot of hard work by officials.  It was again stated in debate that the Bill tears up 350 Regulations.  This is infantile.  Yes, four sets of Regulations are consolidated so that what was probably alot more than 350 Regulations will become 124 sections in the current draft of the Bill. But there are also 11 detailed schedules with dozens of paragraphs.  And so much is left for later elaboration in secondary legislation there must be a fair chance the cumulative number of provisions will sail past 350 by the time the whole measure is in place.  Does this matter?  It's a silly measure of legislative quality anyway.

Well, I return to my last post.  It is important to note where a democratic regime is captive to its own lies.  While here, this is a silly and technical point, it is a pretty flagrant attempt to misrepresent the truth of this legislation.  It is important to note where a government feels it necessary to perpetuate such silliness as it is one step on a slippery slope.

But let's take the good news.  Over 20 years after the first EU-derived procurement regulations we finally have a debate about new procurement legislation on the floor of the House of Commons.  It is good to see that some leading politicians cannot get enough of procurement.  Readers of this blog won't need telling how important and exciting this subject is and it is exciting to see that we have at least one convert.

As usual, if anything in this blog looks like a view, it's mine and not that of any organisation I'm associated with.  And I have to make the boring remark that none of any of this is to be taken to be legal advice.  If you want advice, you know where to reach me!

Things to Think about for 2023

Perhaps a bit late for Happy New Year, but nonetheless I hope not too late to anticipate some of this year's challenges and how I hope to reflect some of them in this blog.  

In procurement law in the United Kingdom we can expect that 2023 will be the year in which a lot of the ongoing changes will land in a Procurement Act, revision to defence procurement, and new provider selection arrangements for the NHS.  I don’t plan to comment too much on the ongoing process to those new norms but anticipate that there will be plenty to talk about as the changes are finalised and brought into force.  In the meantime, for snapshots on the current discussions there have been some excellent recent briefings published by the House of Commons library at https://commonslibrary.parliament.uk/type/research-briefing/.  

As I noted on 30 November I now have an additional role as leader of the European Circuit of the Bar of England & Wales which will take me into a much broader range of topics involving aspects of the EU-UK relationship and I may take advantage of "mostly" in the title to the blog to cover some of them here.  

Many such practical challenges will be raised by the ongoing discussions regarding the Northern Ireland Protocol, its potential repeal, and the stuttering progress of the Retained EU Law (Revocation and Reform) Bill.  The Bar Council has done a great deal of work in explaining to government and legislatures the practical challenges of the current proposals.  I anticipate that through the Circuit we will seek to develop discussion about the challenges of dealing with cross-border legal problems in almost any area of law.

The circuit has an additional focus as a grouping of litigators and the like based across Europe, particularly in Ireland but also in a number of other EU and EEA states.  We plan to expand our contribution to the profession and the discussion amongst lawyers from different jurisdictions.

The development of a functioning relationship between the UK and EU may be much the least of the concerns for most of the EU now, but I hope that we can contribute to the dialogue regarding the continent's serious challenges including security, climate, biodiversity, health, and long term demographic change. 

Instead of thinking about all these matters over the break, I watched alot of television but even there I could not avoid more serious reflection on some of this issues.  In the recent series of documentaries “The History of Now” (available on BBC iPlayer for those who can access it)  Simon Schama particularly underlined a particular text from Vaclav Havel’s ‘The Power of the Powerless’:

“Because the regime is captive to its own lies, it must falsify everything.  It falsifies the past.  It falsifies the present, and it falsifies the future.  It falsifies statistics…It pretends to respect human rights.  It pretends to persecute no one.  It pretends to fear nothing.  It pretends to pretend nothing.”

It would be presumptuous to refer that thought to a system outside the United Kingdom, but if the last few years has shown anything it is that a system can succumb all to easily to these risks, or temptations as part of the process of seeking political advantage.  I hope that the European Circuit can do its part in preventing the drift towards a regime based on pretence.  As I explore areas out of my professional comfort zone with the Circuit over the next few months, I  hope to contribute occasionally to that on this blog. 

More Free Trade with Somewhere!

Readers will recall my comments during the summer about some of the problems with the procurement provisions of the bilateral FTAs the UK has been negotiating.   I would be interested to know from anyone whether any of those provisions have had real practical effect.  Recent comments by at least one former minister, George Eustice, has suggested that other parts of the agreements may have represented a bad deal for the UK, so perhaps the trade off came somewhere else?

The new Secretary of State for International Trade , Kemi Badenoch, has told the House of Commons trade committee yesterday that her department will be shifting away from FTAs towards practical trade facilitation measures.  One topic which she will soon have to focus on is the suite of procurement related measures which will place considerable burdens on some UK entities seeking to bid for public contracts in the EU.  I will come back to this.

Despite this shift, the strategy of concluding non-binding trade MoUs with US states continues.  As previously noted, the first was with Indiana and North Carolina followed.  Apparently a third will soon be signed, with an as yet unnamed state.  Any guesses which one?

The European Circuit 2023 - Do Come Join Us!

Last night I was elected Leader of the European Circuit.  The European Circuit is an association of litigators, barristers and advocates across Europe.  It provides a vehicle for litigators, barristers and advocates to share experience and education.  It is also has a strong social component with events across the Continent.

The European Circuit operates in three overlapping ways.  First, it is one of the circuits of the Bar of England & Wales.  The Bar in England & Wales, and in Ireland has for centuries been organised around Circuits on a regional basis.  These circuits continue to provide a lively focus for life at the Bar and the European Circuit was established to provide a focus for those whose "regional" focus has looked beyond the British Isles.  

Second, the European Circuit has provided an important means for amity and collaboration between the Bars of Ireland, Northern Ireland, Scotland and England & Wales.  There are many other organisations that provide similar links, but they are mostly based around specific practice areas.  We collaborate closely with them and plan to develop those links.  The Circuit's committee reflects a close Anglo-Irish cooperation.  My predecessor Colm o hOisin SC and the incoming Deputy Leader, Paul McGarry SC, are both based in Dublin.

The third key focus of the European Circuit has always been to provide an English speaking forum for professional and social collaboration amongst litigators across Europe.  This is something we are keen to build on.  We have had very successful conferences in Lisbon and Madrid in the last couple of years, despite all the challenges!  Our annual conference for next September is already in planning.  We have a healthy membership from beyond the British Isles, but there is always scope for improvement and we look forward to working on that.

More immediately we have some great events, and note particularly the upcoming hybrid event - in person in Dublin - on Advocacy in European Courts on 5 December.   Sign up at https://europeancircuit.com/events/advocacy-before-the-european-courts-perspectives-from-practitioners/     

Other events and so forth are to follow.  Do please also sign up on the website to join us.  And if you are already a member please make sure that you sign up to the Members Area as we plan to provide more material there.

While much of our members' work is enmeshed in EU law, or the law of ECHR we have to reflect the continued need for advice and advocacy in a much broader range of problems with cross-border ramifications.  Even in the UK there remains a substantial EU population and our clients from across Europe continue to encounter issues when they have families, accidents, get ill, do business or die abroad.  These problems have only got more complicated in the last few years and whatever relationship the UK government seeks to forge, it will be necessary for the legal profession to meet the immediate needs of its clients and if we can make sure steps are taken to ease the challenges for those clients then so much the better.  

Finally I express my heartfelt thanks to Colm o hOisin SC who, as I've mentioned, has led the Circuit through the last few very challenging years.  He and his committee have done a great job and I know only too well how difficult it has been to keep organisations like this going in the last few years.  I look forward to many of the committee providing continuity and to those moving on, many many thanks for all your help.  The Circuit owes you a considerable debt of thanks.

So do please sign up, sign up, sign up!  We look forward to meeting you, seeing you and discussing with you the needs of litigators, barristers and advocates across Europe.  For more on the circuit today see https://europeancircuit.com/the-european-circuit-today/

 

 

 

 

 

 

 

 

Time for a Safe Space for Positive Post Tender Negotiations in Public Procurement

Since the 1980s EU public procurement law has demonised post tender negotiations.  The word "negotiations" has such negative connotations that the process of negotiation with a preferred bidder is generally justified only on a risk based assessment and is often cloaked in descriptions that try to obscure the true nature of what is being done.

There is rarely any principled basis for deciding what is or is not appropriate negotiation and so lawfulness is determined on whether the negotiations actually make a difference to the outcome.   This may be consistent with the limited case law on this topic - going back to the old London Underground case.

However, this is undesirable because it is self-defeating.  If negotiations are worth doing in a public tender process, they might sometimes change the outcome!  That's the whole point.

Further, this situation encourages a view that the negotiations are justified only on a risk based analysis. 

When negotiations ought to be prohibited, this is because the negotiations undermine the integrity of the process not because they might change the result.  Classification of "good" and "bad" negotiation without regard to proper ethical standards undermines the whole process.  If one is to protect integrity issues one surely wants to consider the ethical/moral/legal issues by reference to some clearer standard than just the comparative merits of the substantive offers affected.  This lack of clarity simply encourages all negotiations to take place in a grey zone of legality, regardless of whether the negotiations might be beneficial or not, or whether they should be lawful or not.

Some negotiations should not only be lawful, they are inherently desirable.  To take one example, in the construction industry the achievement of net zero outcomes is an essential goal in public procurement.

In practice the full net zero value to be achieved in a project is rarely achieved in a bilateral exchange between purchasing authority and the main contractor.  The innovative ideas that deliver effective environmental performance will come from a range of consultants, sub-contractors and suppliers.  The necessary outcome depends on negotiations with participants in the supply chain which are highly unlikely to take place until late in the process.  Perhaps achievement of these goals, and survival of our way of life depends on a more satisfactory approach to defining what is and is not appropriate by way of post tender negotiations in public procurement.

These thoughts flow from my participation on Thursday and Friday last week at the Construction Conference of the King's College London, Centre for Construction Law, and my preparation and participation at the White Paper Procurement Conference.  At the White Paper Conference I made a couple of suggestions as to how we might carve out this safe space in the framework of the forthcoming UK Procurement Act.  I will give these some more thought and blog later once they're better thought out, but perhaps those who were there, and those who were not, might send me any thoughts on the observations above, or on the means of protecting positive negotiations going forward.