29.05.2015 | KPMG Law Insights

Overview of the reform of public procurement law

Dear Readers,

“Everything is new in May” – this proverb can be applied almost one-to-one to the draft bill on the Modernization of Public Procurement Law recently published by the German Federal Ministry of Economics and Technology.

Another new development is an advance by the EU Commission in the area of EU state aid law: With a total of seven current individual case decisions, the Commission is providing general guidance on the EU state aid exemption of government support measures that have a purely local impact and no intergovernmental significance.

We wish you interesting reading! Sincerely yours

Public Sector Team of KPMG Rechtsanwaltsgesellschaft mbH

Mathias Oberndörfer Dr. Anke Empting

Lawyer Attorney

The draft bill for the reform of public procurement law is intended to implement the new EU public procurement directives on the award of public contracts, the award of contracts by contracting authorities in the water, energy, transport and postal services sectors, and the award of concessions in Germany. This must be completed by April 18, 2016.

Abolition of VOL/A and VOF

The familiar cascade of laws (GWB), ordinances (VgV, SektVO, VSVgV) and contracting regulations (VOB/A, VOL/A and VOF) is to be streamlined. The aim is to bring together in the reformed ARC all the key requirements for awarding public contracts and concessions. This is to be done primarily at the expense of VOL/A and VOF, which are to be dropped altogether and their regulations “pulled up” into the GWB (and into an expanded VgV). However, parts of the SektVO, VSVgV and VOB/A are also rendered superfluous by the more comprehensive regulation in the GWB.

In terms of content, the ARC will in future outline the entire course of an award procedure in addition to the familiar principles, exceptions and types of award. In the future, the ARC will contain rules on the description of services, on the requirements for suitability and award of contracts, on the grounds for exclusion and on the conditions of performance. In addition to this structural revision, the draft bill also incorporates the innovations prescribed by the EU directives.

News from Brussels: Self-cleaning and subsequent amendments

In addition, the draft bill also contains a provision on the significant aspect of subsequent contract amendments. The regulation enables contracting authorities to amend concluded contracts in the future without the risk of a new tender obligation if the value of the amendment does not exceed either the EU threshold applicable to the specific service or 10% (for services and supplies) or 15% (for works) of the contract value.

Regardless of the value of the services, changes can be made without a tender if they are clearly and precisely formulated in the original contract. The previous exceptions for additional services, for example due to an unforeseen event, are now also to be found in the ARC instead of in the procurement and contracting regulations as was previously the case.

What is new is that contracts can be terminated during their term if the contracts have subsequently been substantially amended, there was a compelling reason for exclusion when the contract was awarded, or the contract should not have been awarded to the contractor due to a breach of public procurement law or the TFEU that was established in infringement proceedings.

Procurement-free public-public cooperation

In the context of in-house business, the quota of harmless third-party business (previously less than 10%) will be raised to less than 20% in line with the new regulation from Brussels. Now, only more than 80% of the contractor’s activities must serve to fulfill tasks with which the contractor has been entrusted by the client.

Likewise, public-public cooperation is now regulated in the GWB. According to this, contracting authorities may cooperate on a contractual basis without a call for tenders under three conditions:

  • it must be a collaboration to achieve common goals,
  • this must be motivated only by considerations related to the public interest, and
  • the contracting entities perform less than 20% of the activities covered by the cooperation on the open market.

EU State Aid Law

A total of seven individual decisions by the EU Commission at the end of April 2015 on the EU state aid relevance of various support measures in the EU member states provide important new guidance on the question of whether a state measure is subject to EU state aid control or is free of EU state aid from the outset.

The decisions were each prompted by individual notifications of EU state aid measures in various member states – including two from Germany. The resolutions concerned support measures in favor of a hospital, a rehabilitation clinic, a medical care center, an economic development office, a port, a training center for mountain sports and in favor of sports clubs.

State support for individual companies is generally prohibited under EU state aid law if it has the effect of distorting competition and affecting trade in the internal market. In the absence of one of the constituent elements of Art. 107 par. 1 TFEU – e.g. due to a threatened impairment of trade in the internal market – a state aid measure is free of EU state aid law from the outset and is therefore not subject to the otherwise existing notification and approval requirement with the EU Commission.

Rare value of the Commission’s decisions

In the opinion of the European Commission, the (potential) effect on trade was absent in all seven cases – so that the subsidy measures in question had to be classified as free of EU state aid from the outset.

The effect on trade had to be ruled out because the aided companies each offered their services in a geographically narrow area and in only one Member State and therefore the probability was low that the respective services would also attract customers or patients from other Member States. At the same time, according to the EU Commission, the subsidy measures in question would have no – or at most marginal – impact on cross-border investments in the respective sector of activity or on the establishment of companies in the EU single market.

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Mathias Oberndörfer

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