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05.07.2022 | KPMG Law Insights, KPMG Law Insights

LNG Acceleration Act – role model for accelerated procurement?

With Russia’s war of aggression against Ukraine, which began on February 24, 2022, the energy and security policy assessment of dependence on Russian gas supplies has changed unforeseenly at short notice and fundamentally. As a result, an interruption of Russian natural gas supplies to Germany, which have been central to the national energy supply to date (according to the explanatory memorandum to the law in Bundestagdrucksache 20/1742, currently 40 percent of the national gas supply, with total consumption of around 1,000 TWh or 96 billion m3 per year), can no longer be ruled out. This has created an unpredictable, exceptional and highly volatile situation on the gas market.

Against this background, the immediate and fastest possible development of a more independent national gas supply is extremely urgent and imperative.

I. Significance for public procurement law

It can also go fast – The coalition factions introduced the draft law to accelerate the use of liquefied natural gas (LNG Acceleration Act – LNGG) in the Bundestag on May 10, 2022. After the Bundestag passed the law on May 19, 2022, it also passed the Bundesrat one day later. The law came into force on June 01.

In order to create the possibility for additional LNG imports, the new law aims to enable the prerequisite for the purchase of larger LNG volumes at the infrastructure level as quickly as possible.

In this regard, the explanatory memorandum to § 1 (Purpose) states:

“Without the fastest possible construction of the appropriate LNG infrastructure, it will not be possible in the foreseeable future to substitute Russian gas on the scale that is absolutely necessary to avert the most serious economic damage. In the event of a complete cessation of natural gas supplies from Russia, the FSRUs available on the world market in particular will not be sufficient to fully compensate for the shortfall in the coming years.

[…]

Accordingly, contracting authorities are enabled to temporarily apply procurement law facilitations to accelerate the award of public contracts and concessions. The aim of the law is […] to go through the process of awarding public contracts and concessions considerably faster than is possible under the current legal situation, […]. In order to ensure the fastest possible implementation effectively, the corresponding legal protection must also be accelerated in each case in parallel. These adjustments are an extremely important contribution to security of supply in Germany and, because of the resulting independence from Russia, also to security in Europe.”

The explanatory memorandum to § 3 (special interest) states accordingly:

“[…] An expansion of the entire LNG infrastructure is required so that the liquefied gas can be delivered to Germany and fed into the transmission system. Currently, the construction of LNG terminals at the locations mentioned in the annex is under discussion. For these sites, the law creates a legal justification for planning and an accelerated approval and award procedure. The projects included in the annex are projects of supraregional significance. In terms of importance and impact, they extend beyond the territory of a single state. The spatial distribution of the infrastructures covered serves to steer their realization in the interest of the country as a whole, thus helping to achieve the political objectives of ensuring security of supply and creating a diversified gas supply that is open to the future. There is also a particular urgency for the realization of individual projects in the coastal region that justify their inclusion in the Annex. The expansion of the LNG infrastructure in Germany and the related realization of the projects are of fundamental importance. They require implementation as soon as possible for compelling reasons of public interest.”

Speed is thus also the core statement regarding the provisions of the draft law that regulate the handling of public procurement law. Section 9 of the bill, which is entitled “Accelerated Award and Review Procedures,” contains various procedural facilitations. The first is to speed up the awarding of public contracts intended for the construction of LNG terminals. On the other hand, the position of public contracting authorities, sector contracting authorities and concession grantors in legal protection proceedings is strengthened for this area.

In the following, we present the procedural simplifications and address the question of whether the LNGG even heralds a new era for public procurement law.

II. award procedure

The new LNGG shall apply in substantive terms, in accordance with its paragraphs 2 and 3, to the award of public contracts and concessions for the projects specified in the Annex. The annex lists a total of 18 projects at six locations (Brunsbüttel (Schleswig-Holstein), Wilhelmshaven (Lower Saxony), Stade / Bützfleth (Lower Saxony), Hamburg / Moorburg (Hamburg), Rostock / Hafen (Mecklenburg-Western Pomerania) and Lubmin (Mecklenburg-Western Pomerania). The awarding of public contracts and concessions is not, like the approval of certain types of equipment, subject to the catalog pursuant to § 2 para. 1 LNGG coupled. Consequently, the new provisions address, pursuant to Sec. 2 para. 3 LNGG public contracting authorities and grantors. The personal scope of application also extends to sector contracting entities for the regulations under Section 9 LNGG.

The LNGG contains differentiated regulations regarding its temporal scope of application: According to Section 15 of the LNGG, the LNGG enters into force on the day following its promulgation. The provisions pursuant to Section 9 (1) and (4) LNGG shall enter into force upon the expiry of the June 30, 2025 shall cease to be in force. For procedural steps in which use has been made of a regulation pursuant to Sections 3 to 10 LNGG and which have been completed by the end of the 31 June 2025 have not yet been completed, the provisions of this Act shall apply in accordance with section 14 para. 3 LNGG continues until the completion of the respective procedural step. Likewise, the provisions of Section 9 of the LNGG shall also apply to award and review procedures commenced prior to the entry into force of the LNGG but not yet completed, which relate to the award of public contracts and concessions for projects pursuant to Section 2; this shall only apply to Section 9 (1) numbers 1, 2, 7, 8 and 9 and (4) if the award procedure commenced after February 24, 2022.

1. no application of § 97 para. 4 ARC

According to § 9 para. 1 No. 1 LNGG, Section 97 para. 4 GWB does not apply. The principle of awarding contracts by lots pursuant to Section 97 para. Section 4 GWB, according to which it was only possible to refrain from awarding contracts in partial and specialized lots under certain conditions, is thus repealed for the scope of application of the LNGG.

§ 9 para. 1 No. 2 LNGG specifies in this regard, however, that “medium-sized interests need not begiven primary consideration even in the award of public works contracts” and “services need not bedivided up in quantity and awarded separately according to type or specialty.” Thus, the LNGG does not prohibit the awarding of contracts in batches. The LNGG merely makes decision-making easier for contracting authorities with regard to the question of project-related lot allocation, in that the question of the admissibility of bundled procurement (whether in “packages” or in an “overall bundling, such as general planning or general contractor awards”) can no longer be the subject of contentious disputes under procurement law without further ado.

However, the LNGG does not in any way relieve contracting authorities of their responsibility to make appropriate decisions on the specific lot allocation in individual projects. This personal responsibility of the contracting entity was already stated in recital 78, subparagraph. 2 of Directive 2014/24/EU into focus. According to this provision, the contracting entity should be obliged to consider whether it is reasonable to divide contracts into lots, leaving it free to decide on this matter independently and to justify its decision as it sees fit, without being subject to administrative or judicial control.

Particularly against the background of current market developments (e.g. available capacities and price increases), customers will have to continue to make sensitive project-related decisions on a lot allocation that actually has a chance of success on the market and in project implementation.

2. further restriction of the information and waiting obligations pursuant to Section 134 GWB

§ 9 para. 1 No. 3 lit. a) LNGG extends the waiver of the information and waiting obligations pursuant to Section 134 GWB to all cases in which the negotiated procedure without a competitive bidding process is justified – and thus no longer only to the cases of a negotiated procedure without a competitive bidding process due to special urgency. § 9 para. 1 No. 3 lit. b) LNGG clarifies in a practical manner that the information and waiting obligation does not apply even in cases where the bidder to whom the contract is awarded is the only bidder and there are no other applicants.

3. modified application of the VgV

§ 9 para. 1 No. 7 to 9 LNGG is intended to accelerate procedures and to facilitate the justification of negotiated procedures without a competitive bidding process due to special urgency. The following modifications extend to the corresponding provisions of the German Sector Regulation (SektVO), the German Defense and Security Procurement Regulation (VSVgV) and the German Construction Contract Procedures Part A (VOB/A).

Although this does not create any new procurement law instruments, it does create a legal basis for the application and justification of existing procurement law exceptions. In its explanatory memorandum, the draft law explicitly bases this on the consequences of the Russian war of aggression against Ukraine and the short-term procurement needs within the meaning of Section 2 of the LNGG, which were unforeseeable for the respective procuring entities as a whole and in detail. In their volume and nature, the war had continued to trigger unforeseeable consequences to which Germany had to respond with extreme urgency in order to counter the threat to overriding public interests.

Taking this into account, § 9 para. 1 No. 7 LNGG that in view of the basis under public procurement law for the negotiated procedure without a competitive bidding process due to special urgency pursuant to Section 14 para. 4 No. 3 VgV, for the cases covered by the LNGG

  • the extremely urgent, compelling reasons as well as the connection with events, which could not be foreseen by the client concerned, are to be considered as existing,
  • as a rule, the minimum deadlines cannot be met, and
  • the circumstances justifying the extreme urgency are generally not attributable to the client.

Accordingly, for the cases covered by the LNGG, a negotiated procedure without a competitive bidding process is to be used due to special urgency pursuant to Section 14 para. 4 No. 3 VgV may be permissible.

According to the same considerations of the legislator, Section 9 para. 1 No. 8 LNGG for the cases covered by the LNGG a duly substantiated urgency within the meaning of section 17 para. 8 VgV, so that the deadline for bids in the negotiated procedure can be reduced to up to 10 calendar days. The LNGG extends its statutory determination of a “duly justified urgency” in this sense also to the corresponding provisions on open and restricted procedures under the VgV and also here accordingly to the respective provisions of the SektVO, VSVgV and VOB/A.

With § 9 para. 1 No. 9 LNGG may, notwithstanding Section 51 para. 2 sentence 1 VgV in the case of award procedures which are carried out on the basis of Section 9 (1) VgV. 1 No. 7 LNGG are carried out as a negotiated procedure without a competitive bidding process due to special urgency, only one company may be invited to submit a bid. However, this is only on the further condition that this company is the only one capable of fulfilling the order within the technical and time constraints imposed by the extreme urgency. The examination of this last-mentioned prerequisite shall continue to be the sole responsibility of the customer on the basis of the specific individual case.

III Legal protection under public procurement law

The draft law also provides for significant modifications to the primary legal protection procedures under public procurement law, namely the statutory GWB review and immediate appeal procedure. In this respect, the following intended regulations are particularly noteworthy:

1. no mandatory consequence of ineffectiveness

According to the GWB cartel procurement law applicable to date, the following applies: If a contract to be tendered EU-wide is awarded in violation of the information and waiting obligation pursuant to Section 134 GWB and / or without a required prior EU-wide announcement, companies that have been passed over can claim the invalidity of a contract concluded nevertheless pursuant to Section 135 para. 1 GWB in the context of review proceedings by the competent review body (Public Procurement Tribunal and Court of Appeal). If, in the course of the review proceedings, a corresponding infringement is established by the competent review body, this shall have an effect pursuant to Section 135 (1) of the German Civil Code (Bürgerliches Gesetzbuch). 1 GWB has the consequence that the disputed contract is invalid from the outset. Other legal consequences were not known to the law so far.

§ 9 para. 1 No. 4 LNGG now provides, for the cases covered by the LNGG, that “.at the request of the client or ex officio” the competent review bodies cannot determine the invalidity of a contract if, after examining all relevant aspects, taking into account the purpose within the meaning of Section 1 LNGG and the special interest pursuant to Section 3 LNGG “overriding reasons of general interest” justify preserving the effect of the contract. The special interest in this sense justifies it “asa rule” to preserve the effect of the contract.

If the competent review body nevertheless arrives at a finding of invalidity in accordance with the above requirements, the effect of the invalidity of the disputed contract shall be limited in accordance with Section 9 (2) of the German Civil Code. 1 No. 5 LNGG – in derogation of Sec. 135 para. 1 GWB – limited to obligations that have yet to be fulfilled. Ineffectiveness is therefore only established for the future, but not retroactively.

The admissibility under EU law of lagging behind the legal consequence of ineffectiveness from the time of the conclusion of the contract is based on Art. 2d Para. 3 UAbs. 1 of the Remedies Directive 89/665/EEC (as well as the parallel provisions from the Utilities Remedies Directive 92/13/EEC and the Defense and Security Procurement Directive). According to 2d para. 3 UAbs. 1 of the Remedies Directive 89/665/EEC, Member States may “.provide that the review body independent of the contracting authority may not consider a contract ineffective, even if the contract has been awarded […] illegally, if the review body, after considering all relevant aspects, concludes that overriding reasons relating to a general interest justify preserving the effect of the contract. In this case, Member States shall provide for alternative sanctions within the meaning of Article 2e(2) to be applied instead of“. According to Art. 2e para. 2 of the Remedies Directive 89/665/EEC, alternative sanctions must be “effective, proportionate and dissuasive.”

2. alternative sanctions

In cases of § 9 par. 1 No. 4 Sentence 1 LNGG, i.e. if the competent review body may not determine the ineffectiveness of the contract solely for the reasons stated therein, the competent review body shall nevertheless impose alternative sanctions to determine the ineffectiveness in accordance with Section 9 para. 1 No. 6 LNGG to be enacted.

The obligation of the competent review body to issue such alternative sanctions also exists if a determination of ineffectiveness within the meaning of Section 9 para. 1 No. 5 Sentence 1 LNGG takes place, i.e. the determination of ineffectiveness for the future only provided for therein. The alternative sanctions are then to be issued “in addition” by the competent review body.

As such alternative sanctions come under § 9 para. 1 No. 6 LNGG monetary sanctions against the Client or the shortening of the term of the contract may be considered. Monetary sanctions may not exceed 15% of the contract value.

3. secondary legal protection

The LNGG – for all its interventions in the regulations of primary legal protection under public procurement law – does not affect the so-called secondary legal protection before the ordinary courts. This means that companies that have been passed over can continue to assert claims for damages against clients in the cases covered by the LNGG if the relevant requirements are met.

4. facilitated exception from the suspension effect

With the service of an application for review – according to the previously applicable GWB cartel procurement law – pursuant to Section 169 para. 1 ARC is accompanied by a prohibition on awarding contracts (so-called suspension effect). The prohibition of awarding the contract shall initially apply until the decision of the Procurement Chamber and the expiry of the appeal period. If an immediate appeal is lodged against the decision of the Procurement Chamber, the prohibition on awarding the contract shall initially continue to apply until two weeks after expiry of the appeal period. Upon request, the prohibition of knockdown may be extended until the decision on the appeal. In practice, the courts of appeal make very extensive use of an at least “interim” or “provisional” extension of this surcharge prohibition.

For ongoing award procedures, this prohibition on awarding contracts always means that they may not be terminated by the award of a contract, combined with sometimes quite considerable delays to projects. The practice of review proceedings shows that the statutory instrument of an application by a contracting authority for early permission to award a contract, which is already provided for in the ARC, regularly has little prospect of success for the contracting authority.

§9 para. 2 No. 4 and § 9 para. 3 No. 4 LNGG ties in with this practical challenge and regulates that for the cases covered by the LNGG, the interest in allowing the award to be made early “usually” prevails. The admissibility under EU law of the envisaged simplifications of an early award allowance is likely to be based, in particular, on Art. 2 Para. 5 of the Remedies Directive 89/665/EEC. Under the rule, member states may provide that the review body “maytake into account the foreseeable consequences of the provisional measures in light of any interests that may be harmed, as well as the public interest, and may decide not to take such measures if their adverse consequences are likely to outweigh the benefits associated with them.”

The LNGG also provides for significantly stricter rules on decision-making deadlines by the competent review bodies, within which they must decide on the respective applications.

IV. Turn of the times – law with exemplary character?

There are frequent calls for public procurement law to be reformed. The existing public procurement law already has various instruments at its disposal to actually and in practice make award procedures faster and more effective – unfortunately, the correct application is still very often lacking.

Chancellor Olaf Scholz coined the term “turning point” anew. It remains to be seen with excitement whether the contents or considerations of the LNGG will also find their way into other areas of public procurement or at least whether a turning point in the application of the procurement law already in force today – both by contracting authorities and by review bodies – is about to begin.

The circulars and decrees issued by various federal and state ministries on the occasion of the crisis situations to cope with the Covid 19 pandemic, the circulars and decrees on the flood disasters, for example in the west and south of Germany, and in connection with the Russian war of aggression against Ukraine show how relevant or even necessary guidance on the correct application of public procurement law and the procurement instruments set out therein apparently is, but also how flexible the current public procurement law already can be.

Our experts will be happy to advise you on the possibilities for accelerating award procedures and making them more efficient.

 

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