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New EU Regulation: Potential Delay For Award of High-value Contracts

AUTHORs: Kate McKenna co-author(s): Shauna Moran Services: Competition and Regulation DATE: 27/03/2023

On 12 January 2023, the Foreign Subsidies Regulation ("FSR") entered into force.  This new EU regulation allows the European Commission ("Commission") to review subsidies granted by non-EU countries to companies active in the EU. 

With regard to public procurement in particular, the FSR imposes mandatory notification obligations - which go live on 12 October 2023 - on certain large public tenders.  The FSR is intended to ensure that public tenders in the EU are not distorted by virtue of one or more bidders benefitting from a large value of subsidies from Governments outside of the EU.  The FSR therefore requires a bidder to declare such subsidies when tendering for contracts worth over €250 million, and such declarations will be investigated by the EU Commission and may delay or prevent the relevant contract award as explained below.  This new regime will likely result in substantial disruption and delay for authorities and require substantial efforts from certain companies tendering for high value contracts.

Parties to high value public contracts should be aware that notification obligations arise where the estimated contract value is at least €250 million, and the foreign financial contribution involved is at least €4 million per non-EU country.  The Commission also has the power to request ad-hoc notifications for public procurement procedures that do not meet these thresholds in circumstances where the Commission suspects that distortive foreign subsidies might be involved.

Following investigation, the Commission may prohibit the award of a contract to companies benefitting from distortive subsidies.  Contracting parties should also note that notification has suspensive effect, meaning that the notified public procurement may not be awarded until the time limits for the Commission to review the foreign subsidy have elapsed.

The FSR includes any direct or indirect financial contribution made by governments of a non-EU country, or any public or private entity attributable to that third county.  This financial contribution may be considered to be a foreign subsidy that distorts the internal market when it confers a competitive advantage on one or more specific companies or industries active in the EU. 

Bidders should be aware that they may have to go through a potentially lengthy process of obtaining clearance from the Commission before they can be awarded a contract if they are in receipt of a foreign financial contribution.

Please get in touch with Kate McKenna or your usual Matheson contact should you require further information.