A few weeks ago, the government submitted a draft law for consultation that will affect all companies – including Danish ones – that enter into agreements with public authorities and companies within areas that are characterized as either a critical sector, critical technology or critical infrastructure.
The consultation period expired on 29 March 2023, and after that we expect a rapid adoption of the legislative changes that the proposal will entail, probably by mid-2023 at the latest.
What a critical sector, critical technology and critical infrastructure?
The Investment Screening Act has been in force since 2021, and has meant that the purchase of and investment in Danish companies by foreign persons and companies, the establishment of subsidiaries in Denmark and the conclusion of certain agreements with Danish contracting parties must be pre-approved by the Danish Business Authority, if we are within the scope of a number of critical sectors, critical technology and critical infrastructure, cf. the overview at the bottom of this news (in English).
In this context, Denmark has defined what is critical very broadly, also when we compare ourselves with the other EU countries. We find that concrete clarification is often needed as to whether a given technology is critical or whether an area is actually defined as critical infrastructure.
The new rules will initially only come into effect in the area of energy, and this is done in order to frame the conclusion of an agreement regarding the future energy island in the North Sea, but it is expected that a large number of the other critical areas will be covered before the end of 2023.
Public contracts
The new rules aim at any “public contract”. Public contracts are very broadly defined as any goods purchase, construction, framework, supplier, operating, service or concession agreement (i.e. in relation to the latter, where a contracting authority transfers responsibility for the delivery of a construction work or a service to a supplier who, as consideration for this, either receives the right to use the construction work or the service or this right together with the payment of a price) within a critical area, which is entered into with state, regional and municipal authorities, bodies governed by public law and associations of one or more of these authorities or one or more of these public law bodies as well as state companies.
There is no lower limit for what value the public contract must have in order to be approved. If it concerns a critical area, the value is immaterial.
Purely Danish companies are also covered.
Until now, investment screening has been reserved for cases where foreigners were involved, including in relation to Danish companies owned from abroad.
But the new screening rules in the area of public contracts apply to all contracting parties, and thus also purely Danish companies.
This is, of course, a very drastic expansion of the scope of application of the rules, and something that must be expected to entail significant administrative burdens for companies that have the public sector as customers.
Subcontractors
Furthermore, the focus of the new rules is not only on the direct contracting party, as subcontractors must also be specified and approved as part of the procedure at the Danish Business Authority. If the subcontractors of e.g. significant partial deliveries are not known at the time of the contract award, the Danish Business Authority can set a condition in the permit that these must be approved when they are appointed.
The companies that apply must therefore have incredibly good control over the use of subcontractors and they may have significant administrative burdens, also during the contract period.
The approval process
The process of approval can risk significantly delaying the conclusion of the contract, as the application must, as a rule, only be submitted once a party to the agreement has been identified for the agreement in question. In special cases, e.g. in relation to the tender process around the energy island in the North Sea, however, a requirement can be made that all bidders are approved before awarding.
It is always the contracting party that must apply for permission from the Danish Business Authority. However, the covered public actors are also obliged by law, as a final agreement may not be entered into before permission has been obtained. For the same reason, an agreement entered into without permission is invalid.
It is planned that unproblematic applications can be processed within a period of 45 working days, whereas, in relation to complicated applications that require a “phase 2” review, there is a deadline of 125 working days.
The approval procedure also applies to public tenders.
It is the specific conclusion of the agreement that is approved, and companies cannot thus be “pre-approved” to enter into an agreement with the public sector.
DreistStorgaard’s comments
It is our opinion that the rules for entering into agreements with public actors are significantly complicated. The complexity that has been there so far in terms of tendering rules is increasing significantly.
Advisors will now often have to be involved in connection with entering into an agreement, particularly in relation to whether this requires approval, and if so, handling the application process itself. This means that the costs of entering into an agreement with public actors may risk increasing significantly.
Since it is not only the company itself that must be approved, but also the subcontractors, this requires a very strict handling of the subcontractors and that one considers whether they could endanger an approval. This too risks becoming a significant administrative burden and, of course, particularly for small and large companies and in relation to agreements that are not currently covered by the procurement rules.
One can therefore hope that based on the consultation response from the organizations that have been asked for advice, there will be a relaxation of the rules before they are adopted, but if the process is the same as when the Investment Screening Act was adopted in May 2021, then there will probably be changes only very little in relation to the scope of the law.
If you have questions about this area, you can contact DreistStorgaard’s expert in the area, partner and lawyer Nikolaj Juhl Hansen at njh@dslaw.dk or +4527740507.
