What kind of procurements require the Commission’s prior approval?
Public procurements require prior approval if both of the following conditions are met:
- The value of the specific procurement that is carried out under public procurement, framework agreement or a dynamic purchasing system is at least EUR 250 million.
- The tenderer or its subcontractor has received at least EUR 4 million in subsidies from a non-EU country during the last three years.
A procurement divided into parts requires prior approval of the Commission if, in addition to the conditions above, the estimated value of the part or parts of the procurement subject to tenders is at least EUR 125 million.
Other changes introduced by the regulation
If the amount of subsidies that the tenderer receives from a third country is less than EUR 4 million, the tenderer is obligated to provide the contracting entity with a declaration of the subsidies in accordance with the regulation. The declaration states the subsidies received while declaring that there is no need for the prior approval of the Commission.
The regulation also gives the Commission the right to address a procurement procedure on its own initiative if it suspects that foreign subsidies are distorting competition. The Commission may also on its own initiative start investigations of procurements that do not exceed the threshold value. The investigation may cover the previous ten years, but when the regulation enters into force in July 2023, the Commission’s investigation powers are limited to five years.
What does the subsidy control system mean in practice?
Due to the criterion for the estimated value, in Finland the regulation will in practice mainly apply to large ICT investments, construction contracts, equipment acquisitions and extensive framework agreements carried out as joint procurements.
The contracting entity must prepare for the application of the regulation in the planning phase. If any prior approval or declaration procedures set out in the regulation apply to the competitive tender process, the contracting entity must mention the regulation and its significance in the procurement documents. It is also worth noting that in negotiated procedures, for example, the tenderer needs to submit a notification or declaration in connection with the application to participate as well as the final tender.
The contracting entity is obligated to send the tenderers’ prior notifications or declarations to the Commission, which, in case the notification obligation applies, investigates the matter in a manner specified in the regulation. Since the contracting entity cannot be certain whether the procurement requires the Commission’s prior approval before the tenderers send their notifications or declarations, a possible investigation process should be taken into account in the schedule of the competitive tender process. If prior approval is required, the procurement contract must not be concluded before the Commission decision. This should be taken into consideration particularly with respect to the requirements for the validity of tenders. The Commission has 20 working days to carry out a preliminary review, and if an in-depth investigation is opened, the Commission has additional 110 working days to complete it, starting from when it receives a complete notification. In addition, the Commission can in certain situations extend the deadlines. This means that the investigation period reserved for the Commission can significantly extend the total duration of the procurement procedure.
If the Commission discovers during the investigation that the tenderer has received foreign subsidies that distort the internal market, the tenderer can offer commitments to fully and effectively remedy the distortion of the internal market. If such commitments are not offered or the Commission deems that the offered commitments are not acceptable, the Commission prohibits the conclusion of a contract with the tenderer in question. Following the decision, the contracting entity must reject the tender. Therefore, the contracting entity should consider whether it is wise to make a procurement decision in a situation where there is a risk that the Commission deems that the tender of the chosen tenderer may have to be rejected.
What does the regulation require of the tenderer?
If a tenderer does not report subsidies in accordance with the regulation, there is a risk that the tender is rejected solely for this reason. Providing an appropriate report of subsidies requires that the tenderer has information regarding the subsidies it has received and delivers the information to the contracting entity in a timely manner and as required.
The obligation to provide information on foreign subsidies concerns the group of the tenderer as well as the main subcontractors and main suppliers. Pursuant to the regulation, a subcontractor or supplier is deemed to be main where its participation ensures key elements of the contract performance and in any case where the economic share of its contribution exceeds 20% of the value of the submitted tender. The obligations also applies to all the members of the group . The main contractor, i.e. the tenderer sees to it that the aforementioned parties provide sufficient notifications and/or declarations.
The Commission provides more detailed instructions on the application of the regulation
Many of the practical details of the obligations to act laid down in the regulation are still open, and the regulation has unclear sections that are, for example, linked to the concept of a main subcontractor. The Commission is entitled to give additional instructions to the regulation , and it has announced that in the coming weeks it will publish its draft of the implementing regulation, which clarifies the rules and procedures related to the matter and provides more detailed practical instructions. According to the Commission, the implementing rules will be adopted by mid-2023. The Commission’s implementing regulation will also make it easier for contracting entities and tenderers to prepare for the regulation’s entry into force as it provides new information on matters such as the notification forms for public procurement.
