Reed Smith In-depth

Public tenders in the EU are already subject to strict procurement requirements under EU and national law, and stricter rules apply to tenders organized by entities operating in the water, energy, transport, and postal services sectors in the EU. On January 12, 2023, the Foreign Subsidies Regulation (FSR)1 – the new EU regulation on foreign subsidies distorting the internal market – entered into force, providing for new notification requirements and granting the European Commission (EC) far-reaching investigation and enforcement powers. The new regime targets any kind of foreign-subsidized activity, which might affect EU markets, including the bidding for public contracts in the EU. The new FSR may also affect U.S. companies benefitting from U.S. measures supporting industries and/or companies (e.g., under the Inflation Reduction Act, the Chips Act, or similar measures). In light of this, U.S. companies receiving public financial contributions will increasingly be subject to the FSR procedures for their dealings in the EU.

The new rules will add another (thick) layer of complexity to procurement processes and may lead to delays in awarding contracts. Strategic planning and diligent preparation will be key to comply with the new FSR rules and to successfully participate in tenders for EU government contracts.

This article will focus on the impact the FSR will have on U.S. companies seeking to participate in public tenders in the EU (including for government contracts). We will also provide practical guidance on how to prepare for FSR notifications and proceedings. We will address the impact of the FSR on concentrations (M&A deals, mergers) as well as any other subsidized business activity in a separate note.

1. The EC’s new investigation tool applicable to tenders for EU government contracts in a nutshell

The main purpose of the new FSR is to close an enforcement gap under existing EU law rules since European state aid laws apply only to subsidies granted from public sources located within the EU. While from the EU’s perspective, the new FSR will create a level playing field for all companies active in the EU, it will, at the same time, increase the administrative burden for foreign contractors seeking to participate in tenders for government contracts in the EU.

As of October 12, 2023, certain participations in public tenders in the EU will require a mandatory foreign subsidies notification to and approval from the EC. International investors that are, or have relationships with, non-EU government bodies and state-owned enterprises are required to assess whether their participation in public tenders in the EU are caught by the new filing obligations, even if these relationships are at market terms. This will involve establishing a group-wide reporting system for identifying and compiling a record of all financial contributions received from non-EU states since at least 2020 and going forward. Strategic planning and diligent preparation will be key in complying with the new FSR rules and in successfully participating in tenders for EU government contracts.

2. The new FSR toolbox

The FSR gives the EC new new tools to tackle potentially distortive foreign subsidies: a (mandatory) notification-based tool for certain bids in public tenders (a similar tool exists for M&A transactions) and a general (ad hoc) market investigation tool (ex officio investigation).

3. Mandatory notification of public procurement bids

Notification requirements: A mandatory notification will be required for all tenders (solicitations) for government contracts subject to the EU Procurement Directives (except for the Defence Procurement Directive) provided certain filing thresholds are met.