Particularities of Public Procurement Law in the Cooperation of Scientific Institutions with their Spin-offs (Part 2)

Legal policy timeliness:

When it comes to collaborating with their spin-offs, public-sector scientific institutions have two options in terms of how they can structure it. On the one hand, there is the possibility of passing on subsidies, which is determined by EU state aid law. This topic has already been explained in the first part of this series of articles. The other variant is the award of a public contract. In this case, public procurement law comes into play.

Special features of public procurement law in detail:

Public science institutions must take public procurement law into account when collaborating with their spin-offs through public contracting. However, there are certain exceptions from antitrust law in this regard, which are presented and examined below.

For example, § 116 para. 1 No. 2 of the Act against Restraints of Competition (GWB) for the upper threshold range states that procurement law is not to be applied insofar as services are concerned which are to be classified as research and development services. The purpose of the scope exception is to promote research and development as unhindered as possible by government and private investment. However, this exception does not apply to delivery services. Below the threshold values, the Sub-Threshold Procurement Regulation (UVgO) refers in § 1 para. 2 to the range exceptions of the upper threshold range. Consequently, the exception of § 116 para. 1 No. 2 GWB also in the sub-threshold area.

However, what exactly falls under the terms “research” and “development” is not clearly defined in law. Only recital 13 of Directive 2009/81/EC contains a reference to this. Accordingly, research is understood to be the systematic search for new scientific and technical knowledge using generally accepted scientific methods in a planned form. The concept of research thus includes applied research in addition to basic research. Development includes work based on existing knowledge gained from research and/or practical experience to initiate the production of new materials, products, or devices; to develop new processes, systems, and services; or to significantly improve what already exists.

The exception of § 116 para. 1 No. 2 ARC, however, also presupposes that the retroactive exception of the second half of the sentence does not apply. According to this, there must initially be no orders according to the reference numbers of the “Common Procurement Vocabulary” mentioned there. These numbers are defined in Regulation 213/2008/EC and include various services and goods that occur in connection with public contracts. In addition, the two conditions of the re-exception pursuant to. § 116 para. 1 No. 2 2nd half-sentence lit. a) and b) GWB are present. Accordingly, the results may not become the exclusive property of the client for its use in the performance of its own activities and the service may not be fully remunerated by the client. The definition of ownership in this context depends on whether the client acquires an exclusive right of use. Merely informing the general public about the results obtained is not sufficient to avert the concept of ownership.

Section 108 GWB also regulates an exceptional circumstance which excludes the application of public procurement law. There, the so-called public-public cooperation (“cooperation”) is regulated. For the cooperation of public science institutions with their spin-offs, para. 6 of the aforementioned GWB regulation may be considered. However, start-ups operating exclusively in the private sector, which are not financed by public bodies and are not subject to their supervision, do not fall under this exemption. The establishment of an association of the public scientific institution with its spin-off also leads to freedom of award only insofar as the prerequisites of an in-house award are met. Accordingly, the contracting authority must exercise service-like control over the association, the association must also provide more than 80% of its services to the contracting authority, and there must be no direct private equity participation in the legal entity. Finally, the possibility of a negotiated procedure without a competitive bidding process in accordance with Art. § 14 para. 4 No. 4 Vergabeverordnung (VgV) must be taken into consideration if the exception acc. § 116 para. 1 No. 2 GWB is not relevant.

However, the use of an exception to the procurement obligation also entails the risk that unsuccessful bidders may seek review proceedings or a declaration that the conclusion of the contract is null and void. In order to minimize this risk, both the option of a voluntary ex ante transparency notice pursuant to Art. § 135 para. 3 GWB, as well as the ex-post announcement pursuant to § 135 para. 2 GWB can be considered.