Brexit and Procurement

30-014-2018

By Don Peebles, Head of Devolved Governments, Policy and Technical, CIPFA

In the Spring Statement, the Chancellor, promised the UK that there will be light at the end of the tunnel to look forward to, as he heralded the moderate improvement in the country’s economic forecasts as evidence that the UK is turning a corner. 

But whilst there is perhaps a case for some very limited optimism, we cannot ignore the fact that many public services, after years of austerity, are still suffering. And, what Philip Hammond scarcely mentioned is the impact Brexit could have on public finances.

Indeed, Brexit is already having a very real impact on some areas of public spending. One significant example of this, which is often overlooked, is the impact on procurement. 

Since the referendum vote, the pound has dropped 10% against the euro and the dollar, as a result, prices for imported products, services and building materials have increased. Given the scale of its procurement spend, local government is particularly sensitive to this, as is the NHS.

And, if we do have a ‘hard’ Brexit, procurement processes could become an even more expensive, as there would likely be additional costs due to tariffs and customs checks. There would also be more operational impacts too, such as delays and restrictions on supply chains. 

Because of the risks, public bodies should already be making initial plans to map out where their products either originate or pass through the manufacturing process. They also need to identify EU and non-EU countries with which they are trading and the value of such trade, how many of their suppliers are from the EU (many will be registered in the UK for contractual purposes). There may be specialist equipment and goods that come from EU countries.  
 
Public bodies also need to reconsider their contracts to understand what kind of review, change in law or variation clauses they have that will allow them maximum flexibility in the event the final agreement has a material impact. Of course, there is a possibility that the actual impact will be very minimal, as all parties will want to ensure as little disruption in the immediate aftermath of Brexit as possible. 

Furthermore, in the ‘Tiggerish’ spirit of Philip Hammond, it’s also important to remember that Brexit could even be the catalyst that leads to reform of procurement processes through which significant savings and efficiencies could be made.

As pointed out by the Communities and Local Government Committee in its 2014 report on council procurement, potential savings from greater collaboration and an effort to improve the capacity and capabilities of procurement teams could be up to £4.8bn a year. To make such savings, regulation wouldn’t have to drastically be changed, as the EU Public Contracts Directive allows for a more commercial and collaborative approach.  

The Directive, introduced in 2014, is shaped to help public organisations secure better value for money and support economic developments, but whilst it did lead to procedures being simplified and e-procurement becoming mandatory, not enough local public services have yet taken full advantage of the opportunities it presents.  This is reflected in a Scape Group 2016 survey, where 77% of local authority chief executives claimed they wanted a change in procurement law to give greater local flexibility, even though many of the opportunities they wanted already existed.

However, given the negative impact Brexit is already having on procurement processes will likely continue to intensify, local leaders may now be compelled to closely look again at the scope for transforming procurement procedures within current legislation. If this is done, there will be perhaps some light at the end of the tunnel, but, considering the risks could perhaps outweigh the opportunities, it might not be as bright and golden as Philip Hammond is hoping.