12 October 2020 #Public Procurement
In welcome news for UK businesses who bid for overseas government contracts, the UK government has negotiated for the UK to continue as a party to the WTO’s Government Procurement Agreement (GPA) from 1 January 2021 as an independent country.
The GPA gives UK businesses the opportunity to bid for an estimated £1.3 trillion of government procurement contracts. The EU, the USA, Canada and Japan are all parties to the GPA so retaining access to this market was important for UK businesses.
Whilst this is a positive step, it represents a smaller international procurement market than currently enjoyed by UK businesses. Until its final exit from the EU on 31 December 2020, the UK remains part of the more comprehensive EU procurement market, with the GPA providing additional but more limited access to the procurement markets of certain countries outside the EU.
EU procurement rules currently give UK businesses the right to bid for most contracts for goods and services tendered by public bodies in all EU Member States. Whilst the UK remains in the EU customs union, UK businesses have the right to deliver any contracts they win without paying tariffs on the cross-border supply of goods of services.
In contrast, the GPA covers a more limited list of goods and services and only applies to contracts above a certain value. Some sectors are excluded from the GPA altogether, such as defence contracts, some public utilities contracts, and health and social services. Import duty and other tariffs are unaffected by the GPA. For those countries where UK businesses have to pay tariffs to export goods and services, those additional costs have to be factored into bids.
Until the trade agreement negotiations between the UK and the EU are concluded, we will not know what access UK businesses will retain to that wider EU procurement market. The EU’s Brexit negotiating mandate is to reach an agreement with the UK which goes “beyond their commitments under the GPA in specific areas”. Similar aspirations have been expressed by the UK Government. Beyond that, little is known about the current status of the procurement negotiations.
If no deal is reached, procurement opportunities for UK businesses with EU Member States will just be those provided under the GPA and we will lose the tariff free access to the wider EU procurement market. It is worth remembering, however, that the EU already has in place broader procurement agreements with countries like Canada and Japan under their respective free trade deals, so there is every possibility this type of arrangement could be agreed with the UK as well.
The GPA announcement brings to an end the uncertainty over when the UK will become a party to the GPA in its own right. Previously, the UK was a party to the GPA through its membership of the EU and there was a risk of delay in becoming a party in its own right. We now know the UK will become a party straightaway following its final exit from the EU on 1 January 2021.
It also brings some clarity to how much of the GPA procurement market will be opened to UK. Each party to the GPA prepares a schedule setting out how much of its procurement market for goods and services it will open to the other parties (see WTO website for details). The UK’s schedule has not been published yet, but an EU spokesman commented that “the final market access offer presented by the UK was "commercially credible and viable, replicating the UK's current coverage under the EU schedule with minor technical adjustments". This is an important step forward for the future of UK and EU procurement, as access to other countries’ procurement markets is not automatic under the GPA. Countries are entitled to exclude other countries from parts of their procurement markets, usually seen where reciprocal access to markets is not given. The risk was that hostilities from the Brexit negotiations might have spilt over into the GPA negotiations, resulting in the UK and EU limiting further the access to their respective procurement markets. Thankfully, that has not happened and a satisfactory agreement has been reached.
The message for now is that UK businesses who bid for international government contracts should check the WTO website to see what markets for goods and services are already available under the GPA and keep an eye on the UK/EU Brexit negotiations to see whether greater access is agreed for the EU market.