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Government Contracts 2017: Trends & Conclusions

In recent years, government contract work has been significantly influenced by the global economic situation and a number of political factors. Interviewees have reported busy practices and an increasing demand for procurement advice. Clients are apparently striving to overcome these challenges and seize opportunities for commercial gain through litigation proceedings, innovative methods of contracting and new technologies. One source remarked that these changes have given advisory work a more strategic focus which places an emphasis on securing revenues from the public contract. 

Litigation

Government contracts is becoming a more litigious area of law, and sources report a significant uptick in this area of their practice. This can be attributed to a range of factors. The number, size and value of procurements have increased, giving rise to a greater potential for conflict. Interviewees also report companies’ increasing appetite for challenging decisions, with one stating that “clients are withholding themselves less and are looking at the commercial aspects and opportunities that may arise as a result”. In England, bidders have become increasingly aware of their rights in tender proceedings and more willing to challenge the awards process. There has also been an uptick in damages claims arising from decisions taken under contractual frameworks. This change in attitude has presented opportunities for the legal market, and the number of practitioners has risen in many jurisdictions across Europe and the US as a result. That said, in cases of conflict parties are often willing to compromise and opt to settle.

One interviewee reported that in countries such as Scotland, as a result of the increasing number of challenges, the devolved government is paying more attention to compliance. This has brought compliance work to the fore and resulted in clients becoming slightly more conservative with their tenders.    

Joint ventures and public-private partnerships

Procurement is a complex, protracted and expensive process for bidders and for this reason they are not always keen to participate, even in high-value tenders. As a result, private companies are seeking innovative ways to contract with the public sector so that they do not get “trapped” by the rules of the tender process. This has led to a rise in joint ventures and public-private partnerships, particularly in the past decade. As parties have become more familiar and comfortable with alternative types of undertaking, they are more willing to explore these avenues.

This trend has been prominent in the UK and in the US, where practitioners have seen a growing number of government and municipal entities undertaking projects by innovative contracting methods. This includes the cities of Los Angeles and New Orleans, and Washington, DC. 

Europe

Public procurement is a busy market in Europe. UK sources reported an increasing amount of outgoing work from the NHS as the system struggles to cope with both clinical and non-clinical work. Practitioners in Finland have also been engaged regularly by private healthcare providers following huge health and social reform. In Austria, ongoing economic problems have resulted in lower government spending; however, practitioners have observed an increase in medical and pharmaceutical industry tenders, high levels of activity in the energy sector and a number of PPP school construction projects.

In February 2014, the EU introduced three new directives on public procurement and concessions to be implemented by member states by April 2016. The directives introduced a number of substantive changes, including the introduction of sustainability, environmental and social responsibility criteria into the public procurement process. These secondary considerations supplement the traditional macroeconomic focus and have added a lawyer of complexity to the law. Sources report that this complexity has presented transparency challenges, which is a key principle of public procurement.

The changes introduced by the directives have caused public entities anxiety over how to apply the new rules. Sources predict an increase in advisory work as companies and public institutes seek assistance to comply with the provisions, and in contentious matters until the interpretation of the rules have been clarified by the courts. In Poland, one lawyer reported that the changes caused a “shock to the market” as clients struggled to understand the new rules and their application in practice. As a result, many tenders were paused and the market stagnated for a time, though sources report that these tenders have now been reactivated.

National governments have shown an interest in public procurement as a political tool to direct their spending to achieve social policy objectives. For instance, UK sources speculate that under Theresa May’s government public interest considerations may come to the fore. As these considerations are decided by the government, it is possible that public procurement may become more politicised. This is a particularly interesting area of discussion given the UK’s impending departure from the EU, as the latter’s policy is less nationalistic and less flexible, being determined at the supranational level.

Brexit

Practitioners in the UK observed a slowdown in the pipeline of major projects following the EU referendum. However, there are now signs of an uptick in work as new products are coming to the market. Brexit’s uncertainty continues to be a source of work for lawyers as clients request advice concerning the impacts on their projects, and it also gives rise to regulatory issues. However, interviewees expect business to more or less continue as normal, although clients embarking on long-term projects are very conscious of the ongoing uncertainty.

The government’s proposed “Great Repeal Bill” will aim to transpose all existing EU law into UK domestic law. As a consequence, it seems likely that substantive UK law will remain the same in the short term, although future development is dependent on arrangements reached with the EU. The UK will no longer be bound by EU directives, although sources predict that national policy may mirror the EU regime. Decisions of the EU courts will cease to apply and lawyers questioned how UK courts will interpret case law based on previous EU court decisions, with some predicting that such decisions may be persuasive but not legally binding. It appears, then, that Brexit will likely not cause any major immediate impact, with divergence from current rules and case law occurring over time.

USA

In the USA there has been a notable uptick in almost all categories of work due to improvements in the economy and the country’s recovery from budget paralysis. The number of bid protests has been increasing over the last five years, attributable in part to the scarcity of government contract work, and companies have been willing to spend greater amounts of time and resources on these protests. Lawyers also reported an increase in contract dispute work. However, conversely, sources stated that the change of administration has resulted in a decrease in regulatory activity compared to last year.

Since President Trump’s election, US spending on government contracts has increased. This is set to continue, particularly in key areas such as defence and infrastructure development. This will present opportunities for US contractors, who typically perform most of this work. The Trump administration is pushing hard for the infamous wall between the US and Mexico to be built and a bidding process involving prototype design is currently under way, despite the current lack of funding. Construction companies have shown interest in this project, although one interviewee observed that some are opting not to get involved for public policy reasons. President Trump has also pledged huge sums for infrastructure development and a US$1 trillion investment plan proposal is expected later next year. This has focused media and contractor attention on the infrastructure industry and, depending on the proposal’s contents, could have a major impact on the market by creating new incentives for innovative contracting and making additional funds available to support new projects.

Despite the increase in funding for new projects, the Trump administration is aiming to downsize certain federal agencies and has submitted a budget that would significantly shrink agencies such as the Environmental Protection Agency, which is due to take large cuts of approximately 30 per cent. Interviewees reported a huge amount of inspector-general work in response to the agency fund cuts.

Use of technology in public procurement

Technological advances are likely to be a key area of future development. The European Commission has drawn attention to the use of digital technologies and IT solutions such as e-procurement to improve efficiency. It is also seeking to develop expertise to assist public authorities with cost-efficient IT purchases. This is an important consideration in view of public finance constraints and pressure on public services such as healthcare.

In India, procurements are increasingly stalled due to procedural impropriety and corruption. Sources told us of significant efforts to move towards an electronic platform for bids and procurement in order to increase the transparency of the process. In addition, US sources reported that contractors are placing an increasing emphasis on cyber security due to the growing awareness of hacking vulnerability.

Legal market analysis

The legal market is highly populated and has seen an increase in the number of practitioners with specialist expertise in this area of law. Over the past 10-15 years sources have observed an influx of large firms who have developed a strong government contracts practice. This trend is echoed by interviewees across a wide range of jurisdictions including the US, the UK and Norway, where sources report that large firms are doing well. There are also a number of strong boutique firms operating in the international marketplace, and their numbers are increasing in jurisdictions including Austria and Sweden. In Austria, boutique procurement lawyers are becoming increasingly specialised in particular industries, causing separation in the legal market. Meanwhile, sources in Sweden report a similar trend, with many different types of adviser constituting the large and diverse market.

The cost of legal services is a highly significant issue as, due to the current global economic situation, the public sector is tightly constrained by resources. The lack of funding available to public administrations means they are expected to “do more with less” and achieving value for money for the taxpayer is of paramount importance. This puts pressure on firms to provide a cost-effective option and creates further opportunities for boutiques to compete successfully. Sources in the UK and the US report that this has also driven public authorities to move their legal work in-house, which has caused some uncertainty for lawyers. In addition, there has been a marked increase in the professionalism and capabilities of inside counsel. Sources state that this is a challenge for private practice lawyers, for whom it is now necessary to develop highly sophisticated knowledge and expertise in order to distinguish themselves from other players in the market.

***

The government contracts market is in a period of transition as public entities and private contractors seek to adapt to political and economic changes. Resource considerations, national demand and varying political priorities are focusing government spending on industry sectors such as health, transport and infrastructure. Lawyers report a great deal of advisory activity in these areas and also an increase in dispute work as the competitive marketplace leads more clients to challenge decisions. The uptick in use of innovative contracting methods and technological solutions is also presenting opportunities for practitioners. Interviewees in jurisdictions around the globe have reported an influx of practitioners and law firms acquiring expertise in the government contracts space.

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