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12.09.2019 | KPMG Law Insights

HOAI minimum rates contrary to European law – And now?

HOAI minimum rates contrary to European law – And now?

The ECJ has ruled that the minimum and maximum rates provided for in the HOAI violate European law. In practice, uncertainty is spreading. But a closer look also reveals opportunities for contracting out planning services.

With its ruling of 04.07.2019 (Case C-377/17), the ECJ has sealed the end of the HOAI minimum and maximum rates. In the end, the all too permeable German law on access to the profession was their undoing. This is because, since professional groups other than architects and engineers can also demand the minimum rates, it is, according to the ECJ, contradictory to justify them with the purpose of quality assurance. This means that, with immediate effect, clients may no longer stipulate minimum and maximum rates in accordance with the HOAI. Although the outcome of the decision was expected, it nevertheless triggered a broad response in the (specialist) public.

And indeed, a multitude of questions arise for the future practice of awarding and executing contracts for planning services. We can help you find the answers that are right for you.

Ongoing award procedures
Ongoing planner award procedures can in principle be continued, even if remuneration is provided for in accordance with the HOAI. However, as of now, no bids may be excluded because prices are offered below the minimum rates or above the Нmaximum rates of the HOAI. Any tender documents contradicting this should be adapted during the ongoing procedure, if necessary in conjunction with an extension of the deadline for submission of bids.

Ongoing contentious proceedings
The immediate effect is also demonstrated by the case law on actions brought by planners to comply with the minimum rates in the short time since the ECJ ruling. However, the situation is currently anything but clear: In a decision dated July 17, 2019 (14 U 188/18), the Higher Regional Court of Celle clarified the primacy of application of European law and dismissed the minimum rate claim of an architect. According to the Higher Regional Court of Hamm (judgment of 23.07.2019 – 21 U 24/18), on the other hand, the binding price framework law of the HOAI is still applicable in any case between private parties in ongoing architect fee litigation.

Upcoming planner award procedures
However, despite all the uncertainty, there are also interesting opportunities for (public) clients to put prices up for competition to a greater extent than before when awarding planning services in the future. However, the use of price competition poses challenges in contract design and in the design of the award procedure. Our solution approaches enable an optimal alignment of upcoming planner award procedures for both aspects:

Contract adjustment required!

Since the minimum and maximum rates of the HOAI are no longer binding and thus do not restrict the remuneration agreements, there will be a large number of possible remuneration variants in the future. In the future, it will be necessary to decide how remuneration is to be paid in each individual case and to regulate this specifically in the contract.
Flat rates are now just as effective without restriction as billing on the basis of hours or daily rates according to actual expenditure. Even partial performance-based compensation is conceivable.
However, it remains to be seen whether and to what extent the market is prepared to calculate and agree prices outside the usual framework of the HOAI. It can therefore be assumed that the contractual agreement of remuneration in accordance with HOAI will continue to play a major practical role. Even after the ECJ ruling, it remains permissible to agree on the HOAI as the basis for remuneration in whole or in part. An advantage of the remuneration assessment according to the HOAI is its reference to the construction costs (chargeable costs in cost calculation). This makes it possible to conclude a remuneration agreement for the planning services at an early stage in the project, when the concrete scope of the construction measure and the costs have not yet been reliably determined. A lump sum would often be difficult for the planner to calculate at this stage, and invoicing according to actual expenditure would be too risky for the client. The calculation model according to the HOAI offers a compromise that has proven itself in practice.
In order to avoid billing disputes, in future, in addition to the remuneration rate, remuneration parameters that are particularly susceptible to dispute, such as

– Fee zone
– Number/ division of settlement objects
– Building fabric to be processed/conversion surcharge

be explicitly regulated in the contract. This is now possible without restriction due to the ECJ ruling.

Design of the award procedure

In the design of award procedures, in addition to the weighting of the price evaluation and the associated evaluation method, it will be particularly important to design qualitative award criteria in order to ensure the required quality of the service. Up to now, price has often been given a 20% to 30% weighting in planning awards due to the limited competition. Depending on the remuneration model, the price could be weighted significantly higher in the future. In order to exclude price dumping, the valuation method will be very important in addition to the weight of the price valuation. In addition to the classic evaluation methods (e.g. linear interpolation, inverse rule of three), innovative models can also be used, for example by evaluating the price offered by the lowest bidder, but only the price of the second lowest bidder with, for example, 90%.
Promising qualitative award criteria may include, in particular:

– Evaluation of the experience of the personnel designated for the execution of the order via personal references.
– Assessment of the qualification of the personnel intended for the execution of the order by conducting a qualified interview (assessment).
– Evaluation of the organization of the personnel intended for the execution of the contract, e.g. by means of an organizational chart of the project team intended for the execution of the contract to be prepared and submitted by the bidder.
– Evaluation of a concept to be prepared and submitted by the bidders for the intended provision of services.
– Evaluation of a development of proposed solutions for the construction task by the bidder (e.g. site plan, floor plans, textual explanations, etc.), § 76 par. 2 VgV.

Outlook
It remains exciting to see how the legislature will react (usually within about a year) to the ECJ’s decision. The maximum rates will hardly be maintained, the minimum rates at best if the access to the profession is regulated and the Commission supports this solution in the result.
In order to ensure that the HOAI is applied in accordance with European law until the implementation of the ECJ decision by the legislator, the Federal Ministry of the Interior, for Construction and Home Affairs (BMI) has published a decree on the application of the HOAI. The decree also adapts, on a transitional basis, the model contracts for freelancers in the Guidelines for the Implementation of Federal Construction Tasks (RBBau). The state of Berlin has also already published a circular (circular SenStadtUm V M No. 03 / 2019) with instructions for the awarding of contracts and fees for the services of architects and engineers.

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