BREXIT: Organisations warned against casting aside EU state aid and public procurement rules in light of vote

This is part of Out-Law's series of news and insights from Pinsent Masons experts on the impact of the UK's EU referendum. Watch our video on the issues facing businesses and sign up to receive our 'What next?' checklist.

Specialists in state aid, public procurement and competition law Caroline Ramsay and Stuart Cairns of Pinsent Masons, the law firm behind Out-Law.com, said state aid restrictions will continue to apply regardless of whichever trading model the UK negotiates with the EU. Public procurement laws will also remain in force until such time as they are repealed or amended.

"Unfortunately there is no immediate state aid or procurement silver lining to any Brexit cloud for public bodies or private sector entities," said Ramsay. "Whatever happens in the negotiations in the next few months and years, we do not see any immediate opportunity in terms of throwing out either rule book."

EU state aid rules are intended to prevent the distortion of competition which occurs when national governments grant advantages or incentives to different businesses. To ensure fair competition within the EU, state aid is prohibited unless it can be justified for general economic development reasons.

Although the UK has voted to leave the EU, public bodies will still be regulated in the near future and potentially for many years to come in how they give any financial assistance or subsidies to businesses, Ramsay said. State aid will remain regulated regardless of whether the UK agrees a bespoke trade deal with the EU, trades with the EU as a member of the European Economic Area (EEA) or has its trade relationship with EU countries governed by World Trade Organisation (WTO) rules, she said.

"The UK’s future ability to negotiate a trade deal with the EU will be massively dependent on it respecting the single market so it seems highly unlikely that the UK would want to be seen to be flouting competition rules in the interim and subsidising UK business," Ramsay said. "Legal compliance with state aid law is therefore still very much an issue."

"If UK aid granting bodies, or recipients, now cast state aid compliance to the side and we end up in either a single market bespoke trade agreement or the EEA, it is likely that these bodies would find themselves custodians of projects which would be unlawful under that trade agreement and that would give rise to a significant legal and commercial liability," Ramsay said.

"Given the current and future uncertainty over how state aid will be regulated, and the current variety of pre-existing state aid exemptions, it would be wise for aid granting authorities and recipients to consider their future pipeline of projects and, if appropriate, bring forward dealing with state aid now rather than leave it until the new regime is in place when it may have much less choice in terms of state aid validation. For example, WTO regulation, which has no exemptions, only prohibitions," she said.

Cairns said that because EU public procurement laws are already implemented in UK legislation those rules would continue to apply until such time as they are repealed or amended. As such public bodies should be aware that "disgruntled bidders" for their contracts could rely on those rules to challenge any procurement process that deviates from that set out in the current laws, he said.

Whatever trade deal the UK agrees with the EU, a form of procurement regulation will continue to apply, Cairns said. The UK would be required to abide by the EU procurement rules if it adopted the European Free Trade Agreement, or Norwegian model of relationship with the EU, he said. The WTO’s Government Procurement Agreement, which would apply if the UK exits the single market entirely, still requires open and fair competition for public contracts too, he said.

"It is therefore unlikely that even in the distant future that there will be no requirement for competitive procurement and in fact, whilst at a European level procurement law is about opening up competition, at a national level, it is of course also about delivering value for money," Cairns said. "This is why there is no scenario that we can foresee where no such rules are in place. As other commentators have recently pointed out, the other benefits of a strong, and respected, procurement regime include the minimisation of corruption and business confidence."

"As with the state aid regime, the UK’s ability to successfully negotiate a trade agreement with the EU will depend on how it is seen to respect the single market. Therefore it is essential that it follows all rules on fair and transparent competition even during this period of uncertainty," he said.

Cairns said there are practical steps businesses and public sector organisations can take to address change and uncertainty brought about by the UK's 'leave' vote.

"Organisations bidding for competitions which are in the very late stages, at least in the short term, should consider whether any changes to their submitted financial or commercial proposals are required in light of changes to the economy and recent slide in the property market," Cairns said.

"With the current uncertainty impacting business priorities, contracting authorities and utilities may need to review current live projects which may in turn lead to a need to reshape projects, such as scaling back scope or duration," he said. "Those bodies need to ensure such modifications are handled in line with the current UK procurement regime. Authorities and utilities should also be prepared to handle changes in the bidding pack as businesses weigh up their response to Brexit, which might include companies dropping out of bidding for contracts or changes in consortium membership."