Public procurement issuesDr Albert Sanchez-Graells, Reader in Economic Law

Unfair competition from the public sector in commercial markets: crowding out and state aid after Brexit

Scottish Competition Forum, Glasgow, 7 September 2017

7 September 2017

1Unfair competition from the public sector after Brexit

Agenda

• Raise some issues concerning the increasing gaps that (EU) procurement rules leave for public intervention in the market (via purchases)

• Revisit interaction with EU State aid rules• Suggest some possible (post-Brexit) solutions

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Narrowing scope of procurement rules in atomised / intermediated markets

• Recent tendency to limit the scope of (EU) public procurement rules• Falk Pharma – non-procurement systems for the

delivery of goods/services in atomised markets• Creates an incentive for a substitution of

procurement with licensing that can benefit incumbent (quasi/formerly public) providers

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Expansion of in-house, public-public collaboration and centralisation

• New rules on in-house, public-public and centralised procurement allow for direct awards to less than full-arms’ length entities that can then compete in commercial markets• In-house + public-public up to 20%• Centralised without (explicit) limits

• Does competition law apply here?Unfair competition from the public sector after Brexit 4

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Reservation of contracts

• For special & social services up to €750k /3 years• Creates difficulties in small markets where private

providers are bound to become sub-contractors of the (mutuals) beneficiaries of the reservation

• Particularly problematic if combined with local aggregation; can create local dominant positions(cf Manchester out-of-hospital care tender and English NHS STPs under 5 year forward view)

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State aid through ’secondary policies’

• Inclusion of special performance conditions, particularly labour / wage requirements, can also result in de facto reservation of contracts• Theoretical need for regional legislation, but much

going on de facto (local value, apprenticeships, etc)• Can also have an element of State aid, in particular if

any increased contract price is not (monitored to be) transferred down to workers / community

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Summary of regulatory gaps

• Shortcomings in application of standard competition law, depending on market definition

• Shortcomings in application of EU State aid rules due to threshold values

• Shortcomings in judicial review of procurement decisions unless strict proportionality test adopted (+ principle of competition)Unfair competition from the public sector after Brexit 7

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Potential solutions

• Legislation of principle of competitive neutrality• Creation of domestic ‘public aid’ rules that

replicate EU standards with lower value thresholds

• Regulation of use of carve-outs from procurement rules + strict (public interest) judicial review of that discretion

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Conclusions

• In the procurement context, there is an expanding regulatory gap that may result in distortions of competition in the medium term, in particular in small markets

• Need for strict review under procurement rules• Functional need for ‘public aid’ controls at lower

value levels than EU rulesUnfair competition from the public sector after Brexit 9

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Thank you for your attention

• Stay in toucha.sanchez-graells@bristol.ac.uk

@asanchezgraells

http://howtocrackanut.com

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