10 May 2018 | Comment | Article by Emily Powell
In the wake of controversy over the Ministry of Defence’s ( MoD’s) recent decision to allow foreign bidders to take part in the competition for the build of three naval support ships, the Secretary of State for Defence was asked whether the Government had any plans to redefine and extend the term “warship”. Current Government policy is that warships are designed and built in the UK. On 1st May 2018, the Government confirmed that there are currently no plans to redefine the term. However, from a public procurement perspective, it is doubtful that simply redefining the term warship would in any case have enabled the Government to restrict the nationalities of bidders in this tender process.
As any defence contractor will know, the award of contracts by the MoD is governed by the Defence and Security Public Contracts Regulations 2011 (“DSPCR”). Under the terms of the DSPCR, any contract with a value above a given threshold – and it is safe to say that a ship design or build contract is highly likely to be above threshold – must be competed unless one of a number of exemptions apply.
These exemptions include, at regulation 7, the award of contracts where the application of the DSPCR would “oblige the United Kingdom to supply information the disclosure of which it considers to be contrary to its essential interests”. This exemption complements Article 346 of the Treaty of the Functioning of the European Union which permits Member States to take measures or withhold information where this is necessary for the protection of its essential security interests.
The National Shipbuilding Strategy makes clear that warships should be built in the UK “for reasons of national security”. The government policy therefore appears to rely upon the exemptions set out above to justify not competing contracts for the design and build of warships.
In order to restrict the nationality of bidders in a competition for support ships, restricting the nationality of bidders would need to be necessary to protect the essential security interests of the UK. This would be the case irrespective of whether Government policy defined these ships as warships. As the function of these ships is supply, it can be seen that it would be difficult for the MoD to argue with any credibility that there is a link between the procurement of the ships and the protection of the essential security interests of the UK. Whilst the support ships have a role in enabling ships that are protecting the essential security interests of the UK, this is insufficient to satisfy the strict tests required to justify a restriction on the nationality of bidders. If arguments relating to indirect protection of the security interests of the UK were permissible, the effect would be that very few contracts would ever need to be competed, leading to protectionist purchasing, pushing up costs to the tax payer and with potential negative effects on quality and innovation as defence companies would be subject to far less competitive tension in the market.
It can be seen therefore, that as a means of enabling national purchasing, a simple redefinition of the term warship would be ineffective to allow support ship competitions to be limited to UK companies. It is a change in public procurement law and not policy that would be required to enable this approach to change.
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