The effect of Brexit on the public procurement sector in Italy

It is too early to determine with certainty the effects that Brexit could have on public procurement either in the UK or in the member States. The rules governing this sector are the result of thirty-years of legal developments which are almost exclusively EU rules and procedures designed to ensure fair competition in the single market.

At the present time we are only in a position to consider the effects that Brexit will produce on the basis of the EU Directives and of the national law currently in force on the basis that the UK Government decides to modify the relevant internal laws and regulation (based on the EU rules) and adopt rules no longer compliant with the EU Regulations and Directives. Such effects could be obviously mitigated by possible agreements that the UK Government could negotiate with the EU or with single member States.

The basic issue is that as of the date in which Brexit shall be effective, UK economic operators shall be considered as operators from third States. This basically means that they shall not be granted the same guarantees and rights of the economic operators established in the member States. Nevertheless, this does not imply that UK economic operators are excluded from participating in the public tender procedures carried out in the member States.

As a general remark, the application of the EU rules concerning the public procurement is not limited to operators in the member States.  On the basis of EU Directive (see Art. 25 of the Directive 24/2014/EU) and to the Italian legislation (see Art. 49 of the Act of Public Contracts enforced by means of the Legislative Decree 19 April 2016, no. 50) economic operators established in third States signatories to the Agreement on Government Procurement (GPA) within the framework of the WTO are granted by the contracting authorities treatment no less favourable than the treatment reserved to the economic operators established in the member States.

In this respect it is worth noting that the EU Directives as well as the national law identify the economic operators (se Art. 2, par. 1, no. 10 of the Directive 24/2014/EU and Art.3, par. 3, lett. p, of the Act of Public Contracts) as any natural or legal person or public entity or group of such persons and/or entities, including any temporary association of undertakings, which offers the execution of works and/or the supply of products or the provision of services on the market. No subjective requirement related to the nationality of the economic operator is expressly provided for.

The UK is part of the GPA as member of the European Union. We can reasonably expect, and in any case we cannot exclude, that UK negotiates its singular participation in GPA before Brexit is effective.

Therefore, from a theoretical perspective we can consider two possibilities.

(i)      UK is not part of GPA, and in such a case the participation of the UK economic operators in public tender procedures can face serious obstacles; but in such a case the same obstacles shall be met by the member States’ economic operators in the tender procedures carried out in UK.

(ii)     UK adheres to GPA and its economic operators are granted the favourable conditions provided by the said agreement, which establishes the principle of open, fair and transparent condition of competition in public procurement. That being said, the adhesion to GPA does not automatically extend all the EU regulation on the public tender procedures, because the GPA Agreement does not fully comply with the EU rules.

This means that in the public procurement Brexit can result in significant discrimination between EU and UK economic operators. At the present stage it is impossible to reasonably predict which is the concrete level of the said discrimination and if it can prevent at all the access of UK economic operators to the public procurement sector in the EU States. It should also be observed that if UK operators face discrimination in the EU the reverse is also likely to be the case.

Since a real restriction to the access of UK economic operators to the public procurement is unlikely (even if theoretically possible), to give a concrete example of the difficulties that the UK competitors can meet in the tender procedures we can consider the discipline concerning technical specifications, as well as the subjective requisites requested to the economic operators for being admitted in the tender procedures (for example, see Art. 64 of the Directive 24/2014/EU).

This rule is based on common EU rules which do not apply to the operators established in third States even if those States enforce rules substantially equivalent to the EU Directives.

Other rules are specific and typical of the EU system, but are absent in the GPA agreement. This is the case of the rule which grants the economic operators the faculty to rely on the capacity of other entities to meet the financial or technical requirements requested for participating in a tender procedure (see article 63 of the Directive 24/2014/EU). This rule, clearly aimed at expanding competition, is not expressly provided for in the GPA and consequently should not be applicable to economic operators from a third State, even if such State is a party of GPA.

It must also be considered that the regulation of public procurement is strictly connected with the EU’s State aid rules.

The EU law on public procurement implies that the competition of the economic operators is not altered or distorted by actions of the member States. In this respect the EU control on the subsidies granted by the member States to the respective economic operators guarantees the equal treatment of all the undertakings and prevents unfair competition between competitors who could take advantage from the support of the State they are established in.

As of the date of Brexit, the UK could modify its internal legislation concerning the State subsidies and decide to adopt a more flexible regulation giving the UK companies stronger support to improve their competitiveness. If UK is no longer part of the EU single market the EU authorities are no longer entitled to control (and possibly sanction) the granting of subsidies not compliant with the EU rules. We can reasonably expect that in this case the member States would limit access of UK operators in the EU market.

WTO rules also provide rules restricting State subsidies, but these rules are not as comprehensive or as effective as the sophisticated EU rules on State aids. In the contest of WTO an agreement concerning state subsidies was signed, but this agreement is not so “strict” as European rules on State aid. Therefore, even the participation of UK in the WTO agreements does not prevent UK undertakings from possible restrictions in participating in the tender procedures carried out in the member States.

Another critical point connected to public procurement concerns the legal remedies and the protection of the competitors before the national judicial authorities.

According to the Directive 2007/66/CE the member States guarantee competing tenderers the possibility to avail of judicial remedies aimed at giving prompt, effective, and full protection of their own interests. In this respect the Court of Justice has found that the protected interest consists in the interest of the competitor to participate in a fair competitive procedure and to be awarded the contract. Pursuant to the reciprocity principle, any possible modification of the UK legislation concerning the jurisdiction on public procurement could affect the level of the legal protection of competitors and trigger a consequent restriction for the UK companies in participating in public tenders in the remaining member States.

On the basis of this brief overview it clearly emerges that the possible impact of Brexit on public procurement is not exclusively related to the decisions that the UK Government will take with regard to the legislation specifically regulating this sector.

Public procurement is influenced by several concurrent rules directly or indirectly related to the general regulation of the market and of the commercial competition among economic operators. The current EU framework and the laws enforced in the member States with regard to public procurement imply the effectiveness of many other rules aimed at guaranteeing real competition between EU economic operators and that the conditions of real competitiveness in the market are not affected by national obstacles or by national interventions for giving unfair support to some operators.

Consequently the first point that arises from Brexit is the necessity of a real protection of the economic operators established in the Member States and competing in the single market, to avoid that the flexibility given to the UK Government by Brexit can alter the legal conditions necessary for guaranteeing a fair competition in public procurement. In this respect the overall legal framework shall be considered as well as the consequences that each new law or regulation possibly enforced in the UK can produce on the capability of the UK economic operators of competing in the European market.