Brexit: The impact on law firms’ projects and procurement teams

Will the UK adopt EU rules?

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On 23 June 2016 the British people voted for the United Kingdom to leave the European Union.

The government will have to request the EU to start the Article 50 process of the Treaty of the European Union — the only mechanism that exists for the exit of a member state. European Council sanctioned negotiations will then follow between the other 27 member states and the European Commission, before a vote of the European Parliament is called.

Detailed negotiations will be entered into about both the past and the future. Agreements will need to be concluded on how to “unwind” previous rights and obligations, with decisions taken on how the UK and the EU will interact in the future.

The legal consequences of Brexit will be considerable: subject to the terms of new trading arrangements with the EU, EU treaties, directives, regulations and decisions of the European Court of Justice (ECJ) could cease to apply to the UK, unless specifically preserved by UK law.

This article will focus on the impact of Brexit on the area of projects and procurement, with a specific focus on the EU public procurement rules, EU funding, state aid and human rights.

EU public procurement rules

The EU public procurement rules have been implemented in the UK by the Public Contracts Regulations 2015 (along with the Utilities Contracts Regulations 2016 and the Concession Contracts Regulations 2016, which came into force on 18 April 2016). As the UK has voted to leave the EU, although the EU Procurement Directives will cease to apply to UK contracting authorities and utilities, the UK legislation that implements the EU rules will continue to apply unless and until repealed. Given the current scrutiny of the use of public money in the UK and the pressure to use public funds effectively and efficiently, the EU procurement regime principles of seeking to obtain value for money for public sector spending by running some form of competition for works, supplies and services is likely to remain, although the cross border interest test may no longer apply.

The UK has actually supplemented the EU Procurement Directives in a number of areas, including specific provisions on ensuring accessibility for SMEs. The government is therefore unlikely to adopt a wholesale repeal of the legislation. It is also unlikely that simplification of the current UK procurement legislation will be a top priority for the UK government at this time. Public procurement is likely to remain “business as usual” for UK contracting authorities, while UK businesses competing in the EU may lose the benefit of the application of the EU public procurement rules by EU contracting authorities, although the UK may negotiate a separate trade treaty to give some protection to UK businesses trading in the EU.

EU funding

Many public sector projects and activities involve an aspect of EU funding, and public and other bodies in the UK can currently apply for regional and social funding through the European Regional Development Fund and European Social Fund. In the current round of funding (2014 to 2020), the EU has emphasised research and innovation, transport and energy as key areas for the EU’s future where funding is available through the European Structural and Investment Funds.

In order to qualify for such EU funding, applicant organisations must be established in the EU so such funding will no longer be available to UK bodies, although a non-EU organisation can still participate as a subcontractor or collaborating partner. Whether Brexit will trigger a clawback of any EU funding already granted to UK public bodies (as the recipient is no longer established within the EU) depends on the terms and conditions of each individual grant and whether the EU will seek to enforce the terms of such grant funding.

State aid

The main aim of the EU state aid rules is to maintain a level playing field between competing businesses from different EU member states. The rules do this by seeking to prevent public money from being used to unfairly support or otherwise advantage any business or other trading entity where such support could potentially distort competition and affect trade between the EU member states.

Whether the UK continues to have a state aid regime post-Brexit will depend on the eventual trading model that the UK adopts. For example, an EEA/EFTA model would mean retaining a broadly equivalent state aid regime to that which currently applies to the UK under the EU rules.

Even the World Trade Organisation has subsidies rules that the UK would need to comply with if it sought to rely on the WTO regime alone. The issue, therefore, will be whether public authorities in the UK will have to continue to consider the state aid implications of their actions and what effect this will have on competition within the UK.

Human rights

As a member of the Council of Europe, the UK government is a signatory to the European Convention for the Protection of Human Rights and Fundamental Freedoms (Convention). Under the Human Rights Act 1998 (HRA), public authorities and other organisations — when they are carrying out functions of a public nature — have a duty not to act incompatibly with the Convention.

An exit from the EU does not mean that the UK will cease to be a member of the Council of Europe nor cease to be a signatory to the Convention, so the repeal of the HRA is a separate issue to exiting the EU. The duty on public authorities is likely to remain in some form if the UK remains a signatory to the Convention.

Rishi Kohli is a newly qualified solicitor at Bond Dickinson.

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