State Aid And Public Procurement

State aid and public procurement are legal subjects deriving from the law of the European Union ("EU"). Both regimes have a significant impact on large development projects. Projects containing elements of State aid and/or public procurement can, however, be managed in such a way as to avoid problems arising as a result. Careful consideration of the relevant issues, especially during a project's early stages, helps identify any potential difficulties and, in turn, prevent any such unwelcome results further down the line.

The risks are clear-cut:

If State aid is not granted legally, it may lead to investigation and condemnation by the European Commission. This in turn can lead to a project being terminated or a public body being required to reco

If public procurement rules are not appropriately observed, decisions taken by a contracting authority may be set aside or the contracting authority may face claims for damages from any aggrieved potential contractors who, as a result of the rules being breached, have lost the opportunity of winning the contract.

It is the obvious interests of all parties involved in regeneration projects to avoid either of the above.

State Aid

Identifying a State aid

State aid is the technical term for a subsidy granted by a national government or any extension thereof. To qualify as State aid, the following four elements must be present in a funding plan or package:

A form of financial benefit received (i.e. revenue granted). Financial benefits may take several forms, such as: direct grants to establish a new production facility; writing-off debt; special tax concession or preferential loans or guarantees which are unavailable from private banks. It might even be the national administration of EU structural funds. In a development project, the benefit might typically be the sale, lease or purchase of land by public bodies to or from private parties at non-market prices or building infrastructure, which will only benefit private business and not the public. In all such cases private enterprises gain financial benefits they would not otherwise receive.

Granted from "state resources". The financial benefit identified must come from the state or an extension of the state. Local authorities and councils and regional development authorities all qualify as extensions of the state in this sense and as such are regulated. For example, for local authorities, State aid often arises when grants are offered to attract overseas investment into particular regions.

Granted to a specific beneficiary. Thirdly, the provision of benefits must involve selective financial assistance to particular firms or sectors. Grants or tax breaks which benefit all companies in a given region or industry will not qualify.

Must cause an actual or potential distortion of competition, which may affect trade between Member States. Local authorities often fail to have sufficient regard to the effect of aid outside their localities and on trade generally. The European Commission and the European Courts, however, have always taken the restrictive view that, unless very special circumstances exist, one should assume the aid causes an actual or potential distortion of competition which may affect trade between Member States.

Managing State aid - when is it compatible?

If, by applying the above, a project is found to contain State aid, the project must be managed. Either the project must be restructured to eliminate those elements of aid, or...