18/11/2024
At Bevan Brittan, we have built a team of specialist lawyers who work across the specialisms of subsidy control, public procurement and competition law. Why is that?
Although they are three distinct regulatory regimes, they are closely interlinked and it pays for a public authority to take a holistic approach to compliance. We find that it can be incredibly useful to involve lawyers with these multiple specialisms so that we can give holistic advice when helping public authorities to design their projects.
All three areas are concerned with ensuring that conditions of fair and effective competition prevail in the market. This is the core aim of competition law, whilst procurement law aims to ensure that all businesses have a fair chance to compete for public sector contracts. Subsidy control law aims to level the competitive playing field not only between the UK and other countries but also now within the UK, the Subsidy Control Act 2022 having complemented the EU State aid regime’s traditional cross-border focus with a significant new layer of protection for intra-UK competition.
Here are some key points to be aware of regarding the interplay between subsidy control, public procurement and competition law:
1. Where two or all three of the regimes are engaged, they must be complied with in parallel. It is a common misconception, for example, that the subsidy control rules will never be engaged if a contracting authority runs a competitive procurement exercise. It is true that running a competitive procurement exercise aimed at securing a market price and which complies with the underlying procurement principles of transparency, proportionality and non-discrimination can usually ensure that the resulting contract is awarded on terms which do not give rise to a subsidy. However, this will not always be the case. A competitive procurement exercise may be designed to identify the supplier who is able to deliver the contracting authority’s requirements in return for the smallest subsidy.
Even though the procurement rules do not apply when a contracting authority awards a contract to its Teckal subsidiary, if the subsidiary qualifies as an ‘enterprise’, it will still be necessary to ensure that the overall package of funding and support provided to it by the contracting authority, and the terms of all contracts awarded, comply with the subsidy control rules. Depending on the nature of the subsidiary’s activities, the rules on subsidies for services of general economic interest may be engaged too.
By way of further example, if a supplier does not comply with competition law, it runs the risk of being disqualified from bidding for public sector contracts, and the rules on this have been strengthened in the Procurement Act 2023.
2. In all three areas, it is relevant to think about the public or private sector nature of the parties to a transaction and the extent to which their activities are commercial in nature, because these factors will determine how (and whether) the rules apply. It is too simplistic, for example, to assume that a public authority is never required to comply with competition law. Competition law applies to any organisation which qualifies as an ‘undertaking’ because it offers goods or services on a market, regardless of whether it is a public or private sector organisation. In subsidy control law, a subsidy can only arise if the recipient of financial assistance qualifies as an ‘enterprise’ but there is no rule which says that a public sector organisation cannot be an enterprise. The public/private status of a party will influence whether any financial assistance it gives is given from public resources by a public authority and therefore capable of amounting to a subsidy.
In procurement law, the manner in which an organisation is owned, governed and financed (including whether it is in receipt of public sector subsidies) and the nature of its activities influences whether it qualifies for the Teckal (or controlled person) exemption, and also whether it is a ‘body governed by public law’ (or public authority or public undertaking, to use the terminology in the Procurement Act 2023) and therefore required to comply with the public procurement rules when awarding its own contracts.
3. Subsidy control law now requires public authorities to play close attention to the effect the financial assistance they provide could have on competition in the market. The potential for an impact on competition affects whether a subsidy arises in the first place, and there is a requirement to design subsidies so that any distortive effects on competition are minimised. The statutory guidance on how to do this borrows heavily on traditional competition law analysis, particularly when it comes to justifying larger subsidies which qualify as subsidies of particular interest.
4. Requiring a subsidy recipient to run a competitive procurement exercise (following similar principles to those in the public procurement rules) can be a useful tool to ensure that the subsidy ‘stops’ with the recipient, and does not flow down as an indirect subsidy to the third parties with whom it contracts when delivering the subsidised project.
5. It is very important that a public authority explicitly considers the application of the subsidy control rules, public procurement rules and competition law at an early stage in the planning of any programme, project, scheme or development. Compliance with the rules and regulations in these areas should not be a ‘back-ended’ consideration – they should be considered at an early stage because this will help to ensure that the programme, project, scheme or development is structured in an optimal way which will not be derailed by regulatory roadblocks later on.
Hopefully, this has given plenty of food for thought and highlighted the multi-faceted interplay between the three regulatory areas. If you would like to engage Bevan Brittan’s services across these areas or you need support with developing a range of compliant options for structuring or delivering an upcoming project, please contact Bethan Lloyd.
