26.06.2014 | KPMG Law Insights

Appeal on the future of the science system – Continued lack of clarity on horizontal in-house transactions

Dear Readers,

Unfortunately, the German version of the Union Framework was published somewhat too close to the editorial deadline. Due to time constraints, it was not possible to discuss its contents and amendments in this issue, in particular in connection with the so-called 20% clause. In the next issue – probably designed as a special edition – we will, however, deal with the version in detail, we promise!

However, so as not to deprive you of the pleasures of EU state aid law, we report on the EU Commission communication from May 2013 on important projects of common European interest, which among other things also deals with major R&D funding measures. In the future, in order to be classified as compliant with EU state aid rules, these must either be of a significant innovative nature or represent important added value for R&D, taking into account the state of the art in the sector concerned.

In addition, we do not want to withhold from you the extremely explosive decision of the Administrative Court of Gelsenkirchen in terms of higher education law: It is about the fate of the university admission laws for medical studies of all federal states!

In the May 2014 issue, we promised readers with an interest in public procurement law that we would report on the Federal Administrative Court’s decision on the “HIS” versus “Datenlotsen” case. This decision has been published in the meantime and provides exciting information on the horizontal in-house contract award.

Sincerely yours

Public Sector Team of KPMG Rechtsanwaltsgesellschaft mbH

Mathias Oberndörfer Dr. Anke Empting

In a joint statement, the presidents of the German Research Foundation (DFG) and the German Rectors’ Conference (HRK), as well as the chairman of the German Council of Science and Humanities (WR), point to an urgent need for action in education and science policy.

The reason for the joint declaration at a federal press conference on May 19, 2014, was the goal of resolving the mutual blockade of those with political responsibility at the federal and state levels and in the political parties with regard to urgent future issues of education and science policy.

The top representatives call on political decision-makers to urgently implement the guidelines formulated in the Grand Coalition’s coalition agreement for further prioritization of the federal government in education, science and research and for future cooperation with the states. This includes a sustainable improvement in the financial resources of universities as well as substantial participation of universities and research institutions in the federal funds for education and support envisaged in the coalition agreement. Without leaving these funds to the states without any earmarking. There must be no playing off of education and research against each other in the distribution of funds.

The “Excellence Initiative”, “Pact for Research and Innovation” and the Higher Education Pact, which expire in 2015, are to be continued and further developed. Regulated cooperation between the federal and state governments in the areas of education, science and research is to be achieved by abolishing the prohibition on cooperation laid down in the Basic Law.

If no action were taken in the short term along the lines outlined above, the entire higher education and science system in the Federal Republic of Germany would be set back far and wide in the long term, and the 2.5 million students in Germany would be threatened with further and greater damage.

Number of German Scholarships Grows

The number of German scholarships awarded increased by 42% from 2012 to 2013: As can be seen from the BMBF’s announcement of May 20, 2014, German universities supported a total of around 19,740 students with the scholarships in 2013.

Behind these scholarships lie around 21.1 million euros, which were raised by private sponsors in 2013 alone. In the case of the Deutschlandstipendium, private sponsors share the maximum monthly amount of 300 euros per scholarship with the federal government.

Three years after the introduction of the Deutschlandstipendium, just under three quarters of all universities are participating in the scholarship program, according to a statement from the BMBF. The frontrunners in terms of the number of scholarships awarded are North Rhine-Westphalia with 5,428 Deutschlandstipendien, Bavaria with 3,116 scholarships and Baden-Württemberg with 2,837 scholarships. In terms of the proportion of sponsored students in each state, Saarland is ahead, followed by Bremen and Saxony, and Lower Saxony. In the meantime, every third scholarship for students funded by the federal government is a Deutschlandstipendium.

Public procurement law: permissibility of horizontal in-house transactions still unclear

Universities may not be commissioned by federal states by way of in-house contracting if they are entitled to extensive autonomy in the field of research and teaching. The judgment of the ECJ of May 8, 2014 was based on the legal dispute between the Technical University of Hamburg-Harburg and Hochschul-Informations-System GmbH HIS against Datenlotsen Informationssysteme GmbH DIS concerning the legality of the award of a contract that the university had awarded directly to HIS without conducting an award procedure.

The university intended to procure an IT university management system. HIS is a limited liability company under private law, one third of whose capital is held by the Federal Republic of Germany and two thirds by the federal states, with the City of Hamburg holding 4.16%. According to its articles of association, the purpose of HIS is to support universities.

Autonomy in the field of research and teaching excludes comprehensive control of the university

The ECJ leaves open the question whether the exception for “in-house procurement” may also be applied to so-called horizontal in-house transactions. In his view, this was not relevant, since there was already no comprehensive control relationship between the university and the City of Hamburg – thus an essential prerequisite for a horizontal in-house business. The control exercised by the City of Hamburg over the University relates solely to the area of procurement, but not to the areas of “research and teaching”. Thus, the city of Hamburg had only partial control over the university.

It is still unclear whether the in-house principles also apply to contracts awarded between public subsidiaries (so-called sister companies). However, it would have been desirable if the ECJ had provided legal certainty in this matter. This is because quite a few public contracting authorities have multi-level group-like corporate structures and continue to be left in the dark as to whether their sister companies are allowed to procure among themselves free of procurement law.

The fact that the applicability of public procurement law should not depend on how the contracting authority is structured or how it organizes its tasks internally speaks in favor of such horizontal in-house transactions being exempt from tendering.

There are reservations about this insofar as the ECJ has so far applied the in-house business as a narrowly interpreted exceptional case only to legal entities directly involved in the contract. It therefore remains to be seen how the case law of the ECJ will develop in the future – not least against the background of the reform of public procurement law.

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Mathias Oberndörfer

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