The PSO Regulations retain the substance of the old EU Regulation 1370/2007, but with a number of changes to simplify the wording, codify supporting caselaw (since the UK now does not have to follow EU court decisions) and align to new domestic legal regimes and to market practice in the transport sector in Great Britain. This should make them easier to follow in practice.

They apply throughout Great Britain (England, Scotland and Wales) but do not extend to Northern Ireland.

Notable changes

The most interesting changes include:

• Clarifying the rules on preventing overcompensation (subsidy control in the transport sector). In particular the meaning of "reasonable profit" has been redefined to align more closely with how operators assess profitability in the GB market.
• Codifying the caselaw on advertising public service contracts, including defining the underlying purpose of pre-award publication in the case of both direct awards and competitive tendering procedures, which is to enable an interested party to raise objections to a direct award, or to prepare for an invitation to tender. A failure to give the full year's notice in advance of a direct award or a new competition will only be enforceable against the competent authority where the timing of publication is insufficient to achieve the underlying purpose or (in the case of a competition) puts the interested party at a significant disadvantage compared to the incumbent.
• A new regime for enforcement of the Regulations including shortening the time limit on claims to one month from post-award publication or (if later) any compliance with a request for information under the Regulations. This is in line with time limits in the wider domestic subsidy and procurement regimes and gives more certainty to contracting authorities as after a month they will be able to go ahead with the contract with a reduced risk of it being then set aside.
• Alignment with the Subsidy Control Act 2022 in defining a "subsidy" for the provisions on recovery orders, introducing a new remedy of recovery of unlawful subsidy.
• Alignment with the new Procurement Act 2023, including adopting the new procurement "objectives" (such as delivering value for money and maximising public benefit) and new rules on modifying public service contracts (not previously codified in the old EU Regulation) which are closely modelled on the new Procurement Act provisions. Interestingly, competent authorities in Scotland (which will not be subject to the new Procurement Act) are required to follow the pre-existing "Treaty" principles, such as transparency, proportionality and equal treatment, rather than the new procurement objectives, but those Scottish authorities will be subject to the new contract modification rules.

Comment

The new regime should be simpler and clearer to apply, as an EU-wide instrument has been replaced with a GB-specific measure which is much more aligned to domestic market practice. 

Much to the rail sector's relief, the ability to make direct awards is retained, including the general right to make direct awards in respect of the rail sector (which had been shortly due to expire under the EU regime). The updated rules on avoiding overcompensation and controlling in-life modification are particularly relevant in the context of directly awarded contracts.

The provisions that are based on the new Procurement Act 2023 will be interesting in practice. These are coming into force at least 10 months before the main regime and so competent authorities will need to get to grips with the updated concepts more quickly for their passenger transport contracts than for anything else.