The Federal Government is planning sweeping reforms to public procurement law to make procurement processes simpler, faster and more flexible. This will help tackle major and urgent challenges, such as strengthening competitiveness, renewing and improving infrastructure and accelerating digitalisation.
To this end the Federal Government plans to simplify public procurement procedures for both contracting authorities and companies in part by increasing digitalisation. The draft bill also proposes numerous measures to expedite primary legal protection under public procurement law, allowing public procurement tribunals to rule without a hearing in first-instance review procedures under certain conditions and eliminating the suspensive effect of an immediate appeal to the higher regional court against a negative decision by the public procurement tribunal.
The key proposals in the current draft bill are summarised below:
Public procurement law reform
The Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie) conducted a public consultation on the transformation of public procurement law back in the first half of 2023. More than 450 stakeholders took part. The Public Procurement Law Transformation Act (Vergaberechtstransformationsgesetz) launched by the previous coalition fell prey to the change of government following the snap elections, however. The current Federal Government is now making a fresh attempt to reform national public procurement law applicable above the EU thresholds with its draft Act to Accelerate the Awarding of Public Contracts (Gesetz zur Beschleunigung der Vergabe öffentlicher Aufträge, “VergabBeschlG”). While the new draft takes up many aspects of the previous bill, it goes beyond this in some respects. There are also some obvious parallels to the draft Bundeswehr Planning and Procurement Acceleration Act (Gesetz zur beschleunigten Planung und Beschaffung für die Bundeswehr) recently approved by the Cabinet (see Government bill for Bundeswehr Planning and Procurement Acceleration Act | Gleiss Lutz). The following changes proposed by the draft bill are particularly noteworthy:
Restrictions of obligation to issue EU-wide call for tenders
The draft bill aims to accelerate and simplify the awarding of public contracts by exempting certain contracts from the obligation to issue an EU-wide call for tenders.
- Firstly, this concerns contracts for supplies and services awarded by top- and upper-level federal authorities and comparable federal institutions, which are presently subject to the lower EU threshold for central government authorities (currently: EUR 143,000). If the draft bill comes into force, only the Federal Chancellery and the federal ministries would have to comply with this threshold. The other top- and upper-level federal authorities and comparable federal institutions – like all other public contracting authorities – would only have to issue an EU-wide call for tenders if the standard threshold for supplies and services (currently: EUR 221,000) is exceeded.
- Secondly, the draft bill aims to simplify public-public cooperation and put it on a more legally sound footing to enable, for example, IT-related administrative cooperations to be established without an (EU-wide) call for tenders. This is to be achieved by, among other things, specifying that public-public cooperation is permitted even in the case of joint indirect control of a legal entity by several public contracting authorities or in the case of entities controlled by the same public contracting authority (“sister entities”). Public law entities that only partly meet the requirements for a public contracting authority within the meaning of section 99, no. 2 GWB will also be able to enter into a public-public cooperation – a measure introduced primarily with professional governing bodies in mind (e.g. those responsible for assessing the equivalence of professional qualifications).
Easing of requirement to award contracts by lots
- One of the key tools for protecting the interests of SMEs in procurement procedures is the requirement to award contracts by lots. Currently, partial and trade-specific lots may only be awarded collectively if this is necessary for economic or technical reasons. The draft bill specifies, however, that infrastructure projects financed from the Special Infrastructure and Climate Neutrality Fund (see What the allocation of the Special Fund for Infrastructure and Climate Neutrality means for construction companies | Gleiss Lutz) may deviate from this. Partial or trade-specific lots may accordingly also be awarded collectively if this is necessary to implement urgent infrastructure projects financed in this way, provided that their estimated contract value is more than 2.5 times the thresholds in section 106(2) GWB. The aim is to enable the urgently needed investments to be made quickly using the resources of the special fund, which will only be available for a limited time. According to the draft bill, awarding partial or trade-specific lots collectively will always be “necessary” if applying the principle of awarding contracts by lots would demonstrably prevent the rapid implementation of the infrastructure projects and if there is a particular urgency for which the contracting authority is not responsible.
- The draft bill nevertheless considers the interests of SMEs to be safeguarded for two reasons: Firstly, the option will only apply to large-volume projects, which are therefore not primarily aimed at SMEs. Secondly, the contracting authority may – in cases where an infrastructure project is awarded as a whole – require its contractor to give particular consideration to the interests of SMEs when awarding subcontracts. This provision is intended to cover situations in which SMEs are not able to fulfil the overall contract, but could nevertheless be involved as subcontractors.
Relaxation of requirements for conducting procurement procedures
- The description of services forms the core of any invitation to tender. The draft bill aims to simplify the procedure for contracting authorities by requiring only a “clear” – instead of the current “clear and comprehensive” – description of services. It is doubtful whether this will actually reduce the effort required from contracting authorities and contractors, as the description of services still has to describe the subject matter of the contract in such a way that contractors can understand what is to be procured. Only then can the contracting authority expect to receive comparable tenders. It should be noted that current legislation already allows functional descriptions of services.
- The proposed amendments to section 122 GWB are likely to have a greater positive impact in terms of accelerating procurement procedures and cutting red tape. According to the draft bill, contractors will be able to prove that they are eligible and that there are no grounds for exclusion as per sections 123 and 124 GWB by submitting self-declarations only. Contracting authorities may ask only promising applicants or bidders to provide documents going over and above such self-declarations during the procedure. While this approach is already possible and appropriate, the draft bill seeks to make it a requirement. Furthermore, the draft bill will make it clear that sufficient notice of the eligibility criteria is deemed given if there is a link to the electronic tender documents indicating exactly where the eligibility criteria are to be found – a welcome development from the contracting authorities’ point of view. This is in response to a large number of decisions in procurement review procedures that have dealt – sometimes with conflicting results – with the issue of using a link to tender documents to notify potential bidders of the eligibility requirements (e.g. Berlin Court of Appeal, decision of 1 March 2024 – Verg 11/22; Dresden Higher Regional Court, decision of 15 February 2019 - Verg 5/18; Düsseldorf Higher Regional Court, decision of 11 July 2018 – Verg 24/18).
Changes to primary legal protection
The draft bill seeks to simplify and accelerate, as well as promote the digitalisation of both the procurement procedure and any subsequent review procedures.
- Firstly, it expands the option for decisions to be taken by the chairperson or the regular associate member on his/her own, instead of by the full tribunal including the honorary associate member.
- Secondly, it will be possible to take decisions on the basis of the file, i.e. without a hearing, if this will expedite the procedure and the case does not present any particular legal or factual difficulties.
- The draft bill moreover includes a range of welcome initiatives aimed at digitalising the review procedure, such as conducting the procedure primarily in text form, making it clear that decisions to admit other parties to the proceedings can be issued electronically, making it possible to transmit or inspect files electronically, enabling virtual hearings and making it easier for public procurement tribunals to issue and substantiate their decisions in electronic form.
- A key change in review procedures proposed by the draft bill is that an immediate appeal before the higher regional court will no longer have the effect of suspending a negative decision by the public procurement tribunal (section 173(1) GWB (draft bill)). The draft bill does not provide for the option to apply for suspensive effect while awaiting the appeal decision. As a result, a bidder who is unsuccessful before the public procurement tribunal would no longer have a guaranteed opportunity to have its chance of being awarded the contract reviewed by a national court before the contract is definitively awarded to its competitor. This seems somewhat problematic given the requirements for legal protection to be afforded by the courts in public procurement procedures imposed by constitutional, EU and international law.
- The authors of the draft bill are right in pointing out that the time it takes to conduct immediate appeal proceedings before the higher regional courts is highly unsatisfactory for contracting authorities and that the courts’ current practice of routinely extending the suspensive effect through “interim orders” until a decision on the merits is reached thwarts the requirement of expedited primary legal protection. The draft of the earlier VergRTransfG took a different approach to solving this problem – one with a lesser impact on the (primary) legal protection available to unsuccessful bidders. It clarified that the suspensive effect was only to be extended in exceptional cases, setting out criteria for what qualified as such an exception.
- Section 135(4) GWB (draft bill) also substantially modifies the primary legal protection afforded to bidders. Accordingly, a contract may be deemed not ineffective from the outset if, after all the relevant aspects have been reviewed, overriding reasons in the public interest exceptionally warrant upholding its legal effect. In such a case, the public procurement tribunal or the court of appeal must impose proportionate and dissuasive alternative sanctions (financial penalties or a reduction of the contract term) on the contracting authority rather than declaring the contract null and void. The draft bill cites, in particular, essential public services and the safeguarding of Germany’s security and defense interests as overriding reasons in the public interest.
Other procurement-related amendments
- In addition to the amendments to the GWB described above, the draft bill also proposes several amendments to the Ordinance on the Award of Public Contracts (Vergabeverordnung), in particular to strengthen SMEs and start-ups (e.g. the obligation to take into account the special circumstances of young, as well as small and medium-sized enterprises when deciding on eligibility criteria and proof of eligibility, and when reviewing the financial and economic capacity of applicants or bidders.
- An amendment to the Budgetary Principles Act (Haushaltsgrundsätzegesetz) will also give contracting authorities greater choice between the different types of awards below the EU thresholds; in particular, the negotiated award procedures (for supplies and services) and direct awards (for construction services) will also routinely be available, provided that either a call for competition is issued or a notice is published beforehand.
- Finally, the planned increase of the general limit for direct contracts of the Federal Government to EUR 50,000 is noteworthy. Contracting authorities will likely be able to award contracts up to this limit without conducting a procurement procedure – but taking into account the principles of efficiency and economy and supplier diversity. The Federal Government would then be following the lead of federal states that have already significantly raised the limits for direct awards this year (Baden-Württemberg and Bavaria, for example, to EUR 100,000.
Conclusion and outlook
On the whole, the draft bill delivers on the Federal Government’s pledge to accelerate procurement procedures in Germany and facilitate the implementation of infrastructure projects, with a number of provisions to streamline tender documentation, simplify procedural requirements and speed up review procedures. The amendments are likely to be welcomed – or at least accepted – for the most part, as they offer the potential for more pragmatic solutions and the opportunity to cut red tape.
However, the proposal to eliminate the suspensive effect of a bidder’s immediate appeal against a public procurement tribunal’s decision rejecting its application for review raises serious concerns. The legal protection afforded in the review procedure is currently an effective tool for bidders because, based on its suspensive effect, filing an immediate appeal generally bars the contracting authority from awarding the contract and creating an irreversible situation until the higher regional court issues its final decision. This tool will most likely become less effective in future, as the prohibition on awarding contracts following a decision by the public procurement tribunal (rejecting the application for review) will no longer apply. This possible amendment is a particular bone of contention in the current public procurement debate. There is good reason for the concerns that have been raised under constitutional and EU law that this would result in the loss of truly effective legal protection before a court – given that the public procurement tribunal is an administrative authority. In practice, a contracting authority will likely think twice before actually awarding the contract before a decision by the Higher Regional Court, which could benefit an affected bidder, as the authority risks substantial damages if they lose the appeal. It remains to be seen whether the bill will be passed by the Bundestag – including the limitation of the suspensive effect of appeals – or if the legislature will revert to measures with less impact on the (primary) legal protection available to unsuccessful bidders.
Regarding the ongoing debate about higher limits for direct awards in sub-threshold procurement, the draft bill still exercises some restraint, proposing that the relevant value be increased to “only” half of what already applies in Bavaria and Baden-Württemberg. While this may worry some contracting authorities, on the whole it is likely to foster a healthier awarding culture and help prevent corruption. And the potential delays associated with such restraint should be manageable, especially given the already low contract volume of sub-threshold procurement.
Forward
