EU Foreign Subsidies Regulation Go Live: Impact on Public Procurement Bidding

Adopted in December 2022, the EU Foreign Subsidies Regulation (FSR) addresses the European Union (EU) internal market distortion caused by foreign subsidies. This regulation closes the regulatory gap concerning subsidies from foreign states, which was not covered by EU State aid rules applicable to EU countries. The notification obligations under the updated FSR came into force on 12 October 2023.

The Power of Notification

The FSR introduces two key notification obligations: one for businesses engaged in mergers and acquisitions and the other for bidders in EU public procurement processes.

1. Mergers and Acquisitions (M&A). The regulations require companies to seek approvals for mergers, acquisitions, and joint ventures:

• If at least one of the merging parties, the target or joint venture has an EU presence and an EU turnover of €500 million; and
• If the companies involved have received foreign financial contributions exceeding €50 million from non-EU countries in the three years preceding notification.

2. Public Procurement. Bidders in EU public procurement tenders must submit a notification as part of their tender response when:

• The estimated value of the procurement or framework contract is at least €250 million (net of VAT) or, in the case of divided lots, when the aggregate value of the lots reaches at least €125 million; and
• If the bidder (its main contractors, and suppliers) have received foreign financial contributions of at least €4 million from a third country in the previous three financial years.

The Complex Review Process

The European Commission encourages pre-notification discussions, which can only occur concerning published tenders. Given the often short timescales for pre-qualification questionnaires (30 days from the publication of the contract notice), engaging in these discussions may prove challenging.

Once the notification is submitted, the contracting authority must immediately send it to the Commission. Unlike the M&A procedure, the Commission cannot postpone the statutory timeframe’s commencement based on incomplete notifications. This safeguards against delays in public contracts and ensures equal treatment of bidders. The tender is declared irregular and rejected if a notification remains incomplete after ten working days.

In multi-stage processes, bidders must resubmit an updated notification alongside their final tender. The Commission may temporarily halt its review during this period.

Key Considerations for Your Business

The FSR regulations came into effect on October 12, 2023.

If your business contemplates transactions or regularly bids for significant EU public procurement opportunities, there are critical steps to be taken:

• Gather information about foreign financial contributions received by your corporate group.
• Maintain records of future contributions.
• Ensure sub-contractors and consortium partners are aware of FSR obligations.

As you navigate this new regulatory landscape, keep in mind that awareness and proactive compliance will be your most valuable tools for success. The FSR has set new rules, and your readiness to embrace them will set you apart in this evolving business landscape.

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