State Aid Rules and Covid

Any business that has bid for contracted public works, and some non-public projects, through a formal tender process, will know that there is typically a requirement to declare any state aid received. This declaration is designed to identify any potential disparity or unfair advantage in the bidding process. It also helps to highlight where there may be issues of financial viability on the part of one bidding entity, (semi) reliant on public funds to keep going.

What is State Aid?

State aid refers to money provided directly to the business from the public purse i.e. any regional, national or continental Governmental budget. Examples of this could be Government backed loans or EU grant funds. In the majority of cases, most SMEs will be able to turn in a negative declaration as few will have been direct recipients of public financial support. We are used to hearing of some sectors receiving Government support – in recent years steel and car manufacturing industries spring to mind – but for most smaller companies, commercial lending is the only option open to them.

But nearly one year in to the Covid crisis, the tables have been turned almost completely and there are few businesses that can say they have not been in receipt of one form of Government financial support or another. From Government backed loans and discretionary grant funds to the national Job Retention Scheme, were it not for Government intervention many businesses and even entire sectors may have failed in 2020.  So, what does this mean for future tendering?

Declaring Covid State Aid

Needless to say, the UK Government is not alone in having waded in to support its economy and people throughout the pandemic and most major economies have had to introduce similar financial schemes. As a result, the EU rules on what constitutes state aid have been reviewed on three separate occasions since March 2020 and each member country, including the UK, had to submit its financial support plans for approval.

In the vast majority of cases the status quo will be maintained because the support provided has either been available to everyone, and therefore not favoured one company or sector over another, or the sums involved will be low enough so as not to require declaration. It is therefore likely that either the wording on future state aid declarations will change, so as not to require Covid support to be noted, or the declaration threshold will be revised up to take account of the scale of the situation.

But for larger organisations that have furloughed the majority of their staff for a significant period, and/or taken out Government backed loans – creating an overall aid package of six or seven figures in scale, they will likely still have to declare this on any new tenders. This will probably be met with a relaxed view on ‘what is state aid’ as most companies will be turning in similar declarations, so the question of financial viability or competitive advantage through state support is moot. The focus will therefore remain on non-Covid related Government financial support – but with the ripples of the pandemic likely to continue over many years the number of big names and key sectors approaching the Government is sure to increase.

Government Financial Support

For all businesses regularly tendering or considering this as part of their business plan in future years, it is worth keeping a clear and concise note of what support has been received during the crisis. From business rates grants to CBILS and bounce back loans and of course the value of furlough support for payroll employees, it is recommended that this be recorded and made available to bid teams, so that, if required, your organisation can continue to bid in confidence and complete all the necessary declarations asked of it.