Background

On 1 September 2021, the Act on Screening of Certain Foreign Direct Investments, etc. in Denmark (the Investment Screening Act) entered into force. The Investment Screening Act entails that a large number of investments in and special financial agreements with Danish companies in particularly sensitive sectors made by foreign investors require prior authorisation from the Danish Business Authority.

According to the explanatory notes to the bill, preliminary experience shows that the Investment Screening Act's screening mechanism is generally resilient in relation to screening investments and special financial agreements, but that there is a particular need to strengthen the control of parties who are awarded contracts by public authorities, etc. concerning critical infrastructure to ensure that foreign powers or other malicious parties do not gain access to influence the establishment or operation of critical infrastructure or gain security-threatening insight into information about it. Preliminary experience also shows that there is a need for a more efficient application process to ensure that uncomplicated cases can be expedited faster by the Danish Business Authority.

The following will give you an overview of the proposed amendments.

Screening of contracting parties to public contracts concerning critical infrastructure

The scope of the authorisation scheme is proposed to be extended so that all parties to public contracts concerning critical infrastructure must obtain prior authorisation from the Danish Business Authority.

Public contracts

Public contracts will generally include all contracts awarded by a public contracting authority. This covers supply contracts, operating and service contracts, building and construction contracts, concession contracts and other types of contracts. Public contracts will comprise both contracts that are subject to the obligation to call for tenders under the Public Procurement Act and contracts that are not subject to the obligation to call for tenders, e.g., because the contract value does not exceed the relevant thresholds for tendering. However, it is possible that in the long term, a more detailed delimitation of the contracts to be covered may ultimately be implemented, meaning, for example, that only contracts that exceed certain thresholds will be comprised.

Public contracting authority

The contract must be awarded by a public contracting authority. In this context, a public contracting authority means State, regional and local authorities, bodies governed by public law, associations of one or more of these authorities or bodies governed by public law as well as state-owned companies. The proposed definition of public contracting authorities is thus closely aligned with the concept of a contracting authority under public procurement law, but stipulates, however, that also state-owned companies are to be considered public contracting authorities under the Investment Screening Act. According to the explanatory notes, this applies regardless of whether they are wholly or partly state-owned companies. 

Critical infrastructure

The contract must relate to critical infrastructure. Critical infrastructure is further defined in Section 11 of the Application Order and includes, among other things, companies active within energy, information and communication technology, transport, health care and contingency planning and civil defence. Initially, it is envisaged that only public contracts in the energy sector will require prior authorisation. This is due to the need to screen participants in the upcoming tender for the North Sea Energy Island. The exact scope of the areas concerning critical infrastructure that will be subject to prior authorisation is expected to be defined by the end of 2023.

In special cases, the Danish Business Authority will also instruct that authorisation must be obtained for the conclusion of contracts in other particularly sensitive sectors, such as the defence sector, IT security functions and critical technology, provided that the contract is deemed to pose a threat to national security or public order.

Contracting parties

The requirement for prior authorisation will apply to all contracting parties intending to conclude a public contract, i.e., the law will not only apply to persons and companies outside the EU and EFTA (as is the case for special financial agreements under the current rules), but to all persons and companies, including Danish persons and companies.

Furthermore, the Danish Business Authority will not only focus on the direct contracting party, but also on any potential sub-contractors. Thus, the application for authorisation will be required to include information about any sub-contractors. If the subcontractors are not identified at the time of contract award, the Danish Business Authority can make it a condition of its authorisation that they are approved at the time of appointment.

Application for authorisation

Authorisation must be obtained prior to entering into the contract. Generally, only the contracting party with whom the contracting authority intends to enter into a contract must apply for authorisation.

In special cases, however, if overriding reasons of public interest so require, the Danish Business Authority may require all tenderers in a procurement procedure to apply for authorisation. It is stated in the explanatory notes to the Act that this may be necessary, for example, if the contracting entity must share critical information early in the procurement process or if, in the case of large public construction projects, it is necessary for time reasons that authorisation is available before awarding the contract.

New process for the Danish Business Authority's case handling

A new process is proposed for the Danish Business Authority's case handling entailing a 2-phased application process. This applies to both the mandatory authorisation scheme and the voluntary notification scheme.

In future, the Danish Business Authority must process uncomplicated cases within 45 days from the time when the Danish Business Authority declares the application complete (phase 1). It is proposed that the case processing in phase 1 will be based on a simplified application form that will require less information than under the current rules.

If the Danish Business Authority assesses that further investigations are required, the Danish Business Authority shall initiate a supplementary assessment phase of up to 125 days (phase 2). This will require additional information and documents, including the EU notification form if the investment involves a foreign investment. The 125-day deadline is calculated from the time when the Danish Business Authority declares the additional information complete.

If, after the 125 days, the Danish Business Authority assesses that there may be a threat to national security that cannot be remedied with a commitment, the Danish Business Authority must present the matter to the Minister for Industry, Business and Financial Affairs.

Overall, the Danish Business Authority's case handling process may in future take up to 170 days (or more). However, it is explicitly stated in the explanatory notes that - as is the case today - there will be no consequences if the Danish Business Authority does not meet the deadlines. In other words, the Authority's handling of a case may therefore exceed 170 days.

Expected effective date

The deadline for submitting consultation responses is 29 March 2023. The bill is expected to be introduced in the Danish Parliament and adopted as soon as possible (probably by the summer holidays) so that the law can be applied to the upcoming tenders in connection with the establishment of the North Sea Energy Island. Formally, the bill is expected to enter into force the day after the announcement in the Danish Official Gazette and will apply to tenders published thereafter.

Plesner's comments 

The bill entails a significant extension of the current rules, according to which contracting parties to public contracts only require prior authorisation from the Danish Business Authority if the contract constitutes a special financial agreement, which requires that the contract gives the contracting party control or significant influence over the public contracting party, and the contracting party must be domiciled outside the EU and EFTA. The bill thus implies that all contracting parties to public contracts concerning critical infrastructure must obtain prior authorisation from the Danish Business Authority, regardless of whether the contracting party gains control or significant influence over the public contracting party and regardless of the nationality of the contracting party.

The bill will thus lead to greater complexity in connection with public contracting authorities' conclusion of contracts concerning critical infrastructure. This will affect both the public contracting authorities and the contracting parties. When organising tender processes in the future, public contracting entities must take into account that the contracting party with whom they intend to enter into a contract must apply to the Danish Business Authority for authorisation, which, in light of the Danish Business Authority's case processing deadlines, can considerably extend the tender process. The contracting authority must therefore consider whether it may be necessary to initiate the tender process at an earlier stage to ensure timely completion.

For the contracting parties, it is essential to be aware that an application for authorisation must be submitted for the conclusion of the contract, and that the Danish Business Authority, in its assessment of whether the conclusion of the contract could constitute a threat to national security or public order, will not only assess the contracting party, but also any sub-contractors of the contracting party. The contracting party should keep this in mind when selecting sub-contractors.

In relation to the new process for the Danish Business Authority's case handling process, it is generally positive that a shorter deadline (up to 45 days) is set for processing uncomplicated cases than is the case today, and that the processing of these cases must be based on a simpler application form. Conversely, there is a very long deadline (up to 125 days) for processing cases that give rise to further investigations, which may be due to the fact that the Danish Business Authority has not received feedback from the relevant authorities within the standard deadline. The new deadlines may thus lead to significantly longer periods between signing and closing in connection with investments.

Want to learn more?

Access information about the bill submitted for hearing on the Public hearing portal (in Danish).