Defence and Security Public Contracts (Amendment) (EU Exit) Regulations 2020

Motion to Approve

Moved by

That the draft Regulations laid before the House on 7 October be approved.

My Lords, as we look towards 2021, planning for the smooth delivery of defence and security procurement beyond the transition period is absolutely essential. This instrument will ensure that defence suppliers and buyers have the legal certainty they need beyond 31 December. It is a small instrument, but a necessary one.

In the interests of accuracy, I draw attention to a minor error in the heading to Regulation 2 of the instrument, which currently reads “Pre-exit amendments of the Defence and Security Public Contracts Regulations 2011”. Regulation headings are not an operative part of the instrument and Regulation 1(2) explicitly states that Regulation 2 comes into force the day after the day on which these regulations are made. It has been confirmed by the laying offices and the legal counsel to the JCSI that the deletion of “Pre-exit” can and shall be made editorially, prior to signature. In the interests of transparency, it is appropriate to bring that to the attention of your Lordships.

Before we consider the detail of this statutory instrument—which I shall refer to as the 2020 regulations—I highlight that this is the second EU exit amendment to the Defence and Security Public Contracts Regulations 2011. The first amendment was debated in both Houses and signed by the Secretary of State for Defence last year. The 2019 regulations, as amended by the 2020 regulations, will now enter into force on implementation period completion day, which is the end of the transition period.

This instrument ensures that the procurement provisions of the withdrawal agreement and the European Economic Area European Free Trade Association separation agreement are correctly applied to the procurement of those public contracts and framework agreements which have been launched but not finalised under the Defence and Security Public Contracts Regulations before the end of the transition period.

These transitional procurements will be regulated under that version of the Defence and Security Public Contracts Regulations which meets our current European obligations. Businesses, and indeed the MoD and our much-valued security agencies, will continue to have legal certainty beyond transition period completion day. Defence and security procurements will therefore be underpinned by solid legal bedrock.

Reflecting that, Regulations 3 and 4 of the 2019 regulations will now come into effect at the end of the transition period. The 2020 regulations replace references to “exit day” in the 2019 regulations with “implementation period completion day” where necessary. The opportunity has also been taken to update certain references to financial thresholds in the 2019 regulations, which were revised during the transition period. These are small corrections, but they are necessary.

As well as amending the 2019 regulations, the new legislation updates and corrects the original 2011 regulations. Noble Lords will note that these changes are not related to EU exit. In Regulation 12, which covers technical specifications, an outdated reference to “European technical approval” is replaced with “European technical assessment”.

I am conscious of the fact that we are dealing with a major sector, if not the major sector, of British industry. These draft regulations amend regulations made last year which amended the 2011 regulations, which brought into domestic law the requirements of a European directive. There must be someone whose bread and butter is procurement in the Ministry of Defence and who might follow it all.

However, my first question to the Minister is: why has the Ministry of Defence retained these confusingly amended DSPC regulations 2011? “We need legal certainty—a solid legal bedrock”, the noble Baroness said. This is a complicated maze with which bidders for contracts must grapple. Why has the ministry not brought before us a clean and transparent set of new regulations to govern procurement for our defence needs in the brave new world about to dawn on 1 January? Why are we carrying into the future a body of law which looks to the European directive and the European Court of Justice for its interpretation? “The principles remain unchanged”, said the noble Baroness, Lady Goldie, to us a moment ago.

My second question is this: according to the Explanatory Memorandum, one purpose of these regulations is to validate “ongoing public procurement procedures” that have been launched but not concluded before the end of the implementation period. To get some idea of the scale of what we are dealing with, how many contracts or framework agreements or applications are we engaged with? Is it five, 10, 100 or 1,000? How many application procedures are expected to be launched between now and the end of the implementation period? Is there a scurrying to get these procedures launched in the next 58 days or will the MoD be waiting for the new year?

Thirdly, what does the future hold? In the debate of March last year, to which my noble friend Lady Smith contributed, the noble Earl, Lord Howe, promised that we would not fall off a cliff but, to my mind, we are heading pell-mell for Beachy Head. I understand that businesses in the EU 27 will have their hitherto-guaranteed right of access to UK public procurements and will be tendering for government contracts on the same basis as other countries worldwide, but what about other bidders? Are Russia, China, Korea or the US envisaged? There are a limited number of arms-exporting nations. What about reciprocity? Please can the Minister confirm that we have reciprocally lost guaranteed access to EU defence procurements?

My Lords, I rise to add my support to this amendment to the regulations. I am conscious that I am simply a poor warm-up act before the noble Lord, Lord Dodds of Duncairn, gives his maiden speech, so fear not: I shall be brief.

Turning to the regulations, it is important that we ensure that our legislation continues to operate effectively beyond the transition period and procuring our defence needs in a way that is legally sound is vital. The instrument we are debating today is necessary as it will ensure just that. I recognise that the challenges being debated today are just the first step towards developing a procurement regime that better meets the UK’s requirements. I am heartened to hear that the Ministry of Defence is grasping the opportunities offered by our departure from the EU and that work has already begun to simplify and modernise the legislation and, crucially, improve the pace and agility of procurement activity. Reducing unnecessary regulatory burdens on government buyers and suppliers alike is one of the opportunities that EU exit has opened up for us and one it is important to exploit.

Looking further ahead, I take this opportunity to draw noble Lords’ attention to the excellent Dunne report, written by my former ministerial colleague Philip Dunne, which seeks to plot a pathway for defence to make a growing contribution to UK prosperity. As we leave the EU, we now have the opportunity to buy British and support UK industry. For example, under EU regulations, while warships could be procured solely from UK yards, non-combatant vessels, even those of the Royal Fleet Auxiliary, had to be put out to international tender. Equally, defence has been restricted from supporting local communities by offering food contracts exclusively to local suppliers. Can my noble friend assure me that, as the Dunne report recommends, due weighting is attached to the prosperity impact in the UK for future government tenders?

My Lords, it is a great honour indeed to make my first contribution in your Lordships’ House and to follow my noble friend Lord Lancaster of Kimbolton in this important debate. I thank all noble Lords for the warm welcome I have received in recent days. In particular, I thank Black Rod, the Clerk of the Parliaments and the doorkeepers, who have been so helpful, kind and patient, as well as all the administrative staff and the ever-cheerful catering and cleaning staff who look after us so well, especially in the present circumstances.

I am also grateful to the two supporters at my introduction. I have known the noble Lord, Lord Morrow, of Clogher Valley, since I first got involved in politics, growing up in the beautiful county of Fermanagh. With the noble Lord, Lord Browne of Belmont, I was elected to Belfast City Council in 1985—the first elected office for either of us. Like him, I have had the singular honour to serve as lord mayor of that great city and, although a Londonderry man by birth, Belfast has been my political home for many decades. The territorial designation in the title I have taken, Duncairn, references the historic electoral area in the heart of the North Belfast constituency, which I have had the honour to represent for some 35 years altogether—first, in the council, then in the Northern Ireland Assembly and, for over 18 years, in the other place.

As I return to Westminster, much has changed given the current pandemic, but Brexit negotiations still loom large. I reiterate my sincere message, which I have expounded since the referendum, that the Government have a solemn duty to deliver Brexit—they have now done that—but in a way that safeguards the union. That is their overriding responsibility, above everything else. In our deliberations, it is important to remember that the protection of the peace and political process in Northern Ireland is about recognising and defending unionist, as well as nationalist, concerns and interests. That is something that, at times, is missing from some of the debates, particularly on Brexit.

My Lords, it is a privilege to follow my noble friend Lord Dodds of Duncairn. I congratulate him on his excellent speech. However, he has been somewhat modest about his career and achievements. He studied law at St John’s College, Cambridge and was called to the Bar. As a barrister, he served as adviser to the secretariat of the European Parliament. His experience there gave him a deep knowledge of European law, which should prove useful in the current circumstances.

My noble friend has served in three elected chambers and has attained important positions. As he mentioned, both he and I were elected in 1985 to Belfast City Council. I served for one year as lord mayor, but he had the privilege to serve on two occasions in that role, and he was the youngest lord mayor the first time. Next, he was a Minister in the Northern Ireland Assembly, serving in three different departments. As we have heard, he represented north Belfast in the other place from 2001 to 2019. In 2010, he became leader of the Democratic Unionist Party here in Westminster and was appointed to the Privy Council.

Throughout his career, my noble friend Lord Dodds has demonstrated a steadfast commitment to the union as the bedrock of his political outlook. Before the referendum on Scottish independence, he stressed that all the countries of the UK were stronger together than they could ever be apart. More recently, he referred to Brexit as a battle for the union itself, and negotiated tirelessly to protect Northern Ireland’s position in the United Kingdom. In Belfast City Hall, in the Northern Ireland Assembly and in the other place, my noble friend always sought to represent all his constituents, whatever their political persuasion. When it is remembered that, on at least three occasions, attempts were made to take his life by political opponents who regarded violence as an acceptable weapon, his adherence to this principle is all the more laudable. I am very confident that better decisions, based on coherent argument and rational debate, will be arrived at in your Lordships’ House in the coming years because of the presence of my noble friend.

Is the noble Lord, Lord Mann, with us? No? I call the noble Baroness, Lady Wheatcroft?

My Lords, the nature of the world we live in means we have to have adequate defence and security provisions. Ensuring that the necessary procurement can continue effectively after our departure from the EU is clearly essential. These regulations are designed to ensure that, so I support them, but I wonder, as did the noble Lord, Lord Thomas of Gresford, why the opportunity has not been taken to draft some new and more easily comprehensible regulations than these. As the Minister tried to explain the changes that are being made and the tidying up that is being done, I sympathised with her plight: these are a real hotchpotch.

It had been my fervent hope that, after leaving the EU, the UK would seek the closest possible alignment with EU regulations, thus allowing, effectively, a continuing membership of the single market that has been such a boost to our industry. That is not the Government’s policy. I believe the decision will undermine the UK’s economy, but it is clearly important that, in the new, post-Brexit world, the UK nurtures its industrial base. The defence and security industry is a valuable contributor to that. The research and development that goes on in many of our defence businesses feeds into valuable innovation in companies in many other sectors. We need to help that in the future. Can the Minister tell us how much we are going to be able to place our own industry at the forefront when it comes to procurement? To what extent will we still have to offer contracts to the EU and beyond? Are we able to make it clear that our shipbuilding industry is the one we wish to nurture?

The noble Lord, Thomas of Gresford, referred to state aid. Can the Minister explain exactly what the position is on state aid? Many of us are confused at the moment as to why it is such a stumbling block in EU negotiations. Any elaboration she could give would be much appreciated.

My Lords, I thank the Minister for introducing this debate on these regulations. I congratulate the noble Lord, Lord Dodds of Duncairn, on his excellent and interesting maiden speech. I look forward to hearing often from him on this and many other matters.

My noble friend explained the technical effect of these measures, and I welcome the increased confidence they bring that there will be no cliff edge as far as military procurement is concerned after the implementation period ends at the end of the year. It is welcome that the proposals will make it possible for the nation to decide its priorities for procurement partnerships in defence, removing the distinction of treatment between EU suppliers and other potential partners outside the EU. This will allow new partnerships to be formed. It was good to see the recent agreement with Australia in respect of its future frigate programme, and it should enable other potential partners, such as Japan, to be considered for future defence projects.

The fiscal challenges resulting from the Covid pandemic make it all the more important that we build new partnerships to share the escalating cost burden that each new generation of military equipment requires. In forming new procurement partnerships, we will be able to invest in the capabilities that the country really needs while taking advantage of the strengths that new partners can bring.

These regulations permit the Government to abandon the requirement to offer all defence procurement projects, and indeed other procurement projects, equally throughout the EU, unless there are good reasons for exemption on national security grounds. It is right that this exemption will still apply going forward, and it is highly desirable that the UK should possess competitive, world-class shipbuilding and aircraft manufacturing industries.

However regrettable it may be, at present, UK employment costs and productivity do not compete with global norms. It is important that political objectives to maximise UK involvement should be balanced against the overriding need to procure the best equipment at the best price and on time.

The main legal framework for government procurement is the Public Contracts Regulations 2015, implementing directives from 2014 to 2024 in the UK. The defence and security directive introduced a tailored regime for the procurement of defence and security requirements. Those requirements are important—it is important that all procurements are made with proper tendering processes. There is a need to ensure that we do not end up giving defence procurement contracts to organisations that could jeopardise our defences. I support this regulation, as the defence of our country is paramount.