Amendments to the ARC – Bill to speed up public procurement – Noerr Insight No 2

The draft of an act to speed up public procurement (Vergabebeschleunigungsgesetz) (the “Bill”) is intended to constitute a major step towards adapting public procurement processes to the current needs of business and society. Within the framework of a series of news articles, the most important aspects of the Bill and the planned amendments to procurement law are explained in detail. The first part of this series outlined the political background and the overarching objectives of the Bill and provided an overview of the main changes to legal protection in procurement matters. It was pointed out already then that the planned reform intervenes deeply in existing structures with the aim of making public procurement more efficient, digital and innovation-friendly.

The second part of the series now sheds light on the proposed amendments to the Bill against Restraints of Competition (“ARC”) with regard to the design of procurement procedures.

A. Changes to the principle of equal treatment and making the principle of lots more flexible, section 97(2) and (4) of the ARC

Firstly, the Bill provides for a limitation of the strict principle of equal treatment laid down in section 97(2) of the ARC. Section 97(2) of the ARC is to be amended so that exceptions to the principle of equal treatment no longer have to be regulated exclusively in the ARC, but may also be required or permitted under Union law or on the basis of a federal statute. This amendment implements the judgment of the European Court of Justice (ECJ) of 22 November 2024 (C-652/22), according to which economic operators from third countries cannot, when participating in a procurement procedure advertised EU-wide, rely on the procurement directives and thus cannot demand equal treatment of their tender with tenders submitted by bidders from EU Member States. Exceptions apply to operators from third countries with which reciprocal international agreements exist concerning access to public contracts in those third countries or in the Union. Consequently, only the European Union is competent to adopt a legal act of general application governing access by economic operators from third countries that have not concluded an international agreement with the Union providing for equivalent and reciprocal access to public contracts.

In areas of exclusive Union competence according to Article 2(1) of the TFEU, only the Union may legislate and adopt binding legal acts; the Member States may act only if empowered to do so by the Union or to implement Union acts. To date, however, the Union has not empowered the Member States to legislate or adopt binding acts in this respect. Accordingly, the existing principle of equal treatment in section 97(2) of the ARC, insofar as it prescribes indiscriminate treatment of all participants from third countries, constitutes an (inadmissible) Member State measure governing access by third-country participants to procurement procedures falling under Union rules.

The planned amendment of section 97(4) of the ARC is also of particular importance. While the provision retains the principle that the interests of small and medium-sized enterprises (SMEs) must be given priority consideration in the award of public contracts and that services must be divided by quantity (partial lots) and by nature or specialist field (specialist lots), it allows greater flexibility in applying this principle. The existing exemption in section 97(4) (3^rd sentence) of the ARC, which exceptionally permits the award of several partial or specialist lots as a single contract, is to be specified and expanded. First, the insertion of the words “in whole or in part” is to clarify that combining several possible lots of partial services does not necessarily lead to the award of the entire contract as one whole.

Secondly, it will be possible in future to dispense with lot division and award the contract as a whole for “reasons of timing”. The explanatory memorandum clarifies that a mere general assumption of a causal link between an overall award and time savings is insufficient to ensure the award of a whole contract for reasons of timing. Particularly in projects of special urgency for society at large, “reasons of timing” within the meaning of the new wording should usually be easy to justify.

In addition, according to the ministerial draft, a deviation from lot division should be permissible not only if economic, technical or if, according to the draft, timing-related reasons also “require” it, as specified by the previous regulation, but also if these reasons “justify” deviation. This rewording is intended to reduce the level of detail required to justify a deviation and thus further strengthen the contracting authority’s scope of discretion.

In addition, a newly introduced section 97(4) (4^th sentence) of the ARC is intended to clarify that in the case of an overall award within the meaning of section 97(4) (3^rd sentence) of the ARC, contracting authorities are authorised to require their contractors to take particular account of the interests of SMEs when awarding subcontracts. This will regularly be relevant if the contracting authority sees considerable potential for involving SMEs in the subject matter of the contract despite an overall award. This is a discretionary provision, and the intended section 97(4) (4^th sentence) of the ARC does not specify how SMEs are to be given special consideration by the contractor. In this case, for reasons of legal clarity and certainty, the contracting authority should pass on the obligation to consider SMEs as specifically as possible.

B. Specification of a contract for pecuniary interest, section 103 of the ARC

In order to simplify the boundaries of the scope of application of antitrust procurement law, section 103(1) of the ARC is to be expanded to include a legal definition of a contract for consideration. According to this definition, a contract for consideration – as required by section 103(1) (1^st sentence) and section 105(1)(2) – is a contract by which each contracting party undertakes to provide a service in return for another service, which is legally binding if the performance of the service and the consideration are enforceable.

C. Higher EU thresholds for federal authorities, section 106 of the ARC

The planned amendment to section 106(2)(1) of the ARC is intended to reduce the group of authorities that have to observe the current lower threshold of €143,000 for the award of public supply and service contracts by central government authorities to the federal chancellery (Bundeskanzleramt) and the federal ministries. The other authorities previously covered by section 106(2)(1) of the ARC will in future have to apply the higher threshold for the award of public supply and service contracts of currently €221,000. In addition, the planned deletion of section 106(3) of the ARC means that it will no longer be necessary to publish the applicable EU thresholds repeatedly in the Federal Gazette. The EU thresholds are already published in the Official Journal of the European Union and are binding.

D. Amendments to the rules on in-house awards

The planned amendments to section 108 of the ARC aim to clarify the rules on public-public cooperation (known as in-house awards) to allow public bodies to cooperate with greater legal certainty and thus more easily, without adversely affecting competition. The new section 108(4) (2^nd sentence) of the ARC will expressly state that public-public cooperation is also possible where several contracting authorities jointly control a legal entity within the meaning of the current section 108(4) (1^st sentence) of the ARC, even if that control is indirect, inverted or in a “affiliated” setup in which both contracting authority and contractor are controlled by the same public-law parent body.

The new section 108(4) (3^rd sentence) of the ARC will clarify that chambers constituted as legal entities under public law may also participate in public-public cooperation, even though they are not always deemed contracting authorities under section 99 no 2 of the ARC, given their special status under German administrative-organisation law and the legal uncertainties affecting cooperating in IT in particular.

Replacing the word “contracts” (“Verträge”) with “public contracts” (“öffentliche Aufträge”) in section 108(6) of the ARC will make clear that procurement requirements become relevant only once the procurement regime applies. The revised wording in section 108(6) no. 1 of the ARC implements the requirements developed by the ECJ under Article 12(4) of Directive 2014/24/EU (judgment of 22 December 2022, C-383/21, C-384/21): the public contract must be the result of an initiative for cooperation between contracting authorities based on a cooperative concept defining the distribution of tasks and ensuring the effectiveness of the cooperation. The addition to section 108(3) no. 4 of the ARC explicitly implements the recent ECJ case law (judgment of 28 May 2020, C-796/18) into national law and confirms that the prohibition on conferring an undue advantage, derived from Article 18(1) and recital 33 of Directive 2014/24/EU, is an integral part of public-public cooperation exempt from procurement obligations. This is intended to highlight that the public contracting authorities are required to observe equal treatment, transparency and proportionality.

The new section 108(7) (1^st sentence) defines “entrustment” as the performance of at least 80% of activities for the fulfilment of delegated public tasks, without such entrustment necessarily having to be effected by sovereign act. Furthermore, the 2^nd sentence extends the calculation of this 80% to activities carried out within a joint area of responsibility under subsection 6, so that the performance of shared tasks under cooperation agreements is also counted, while the 3^rd sentence clarifies that the definition likewise applies to public-public cooperation under joint control within the meaning of subsection 4. The protective purpose of this rule is to ensure that the entrusted entity works predominantly for the contracting authorities, as it would otherwise mainly operate on the market and could obtain a distortive competitive advantage through the in-house contracts.

E. Regulatory authorisation to specify mandatory requirements for the procurement of climate-friendly services, section 113 of the ARC

The regulatory authorisation in section 113 of the ARC, which authorises the federal government, through legal ordinances with the consent of the Bundesrat, to lay down rules on the details of the award of public contracts and concessions and on the alignment of competitions, is to be extended and clarified in the newly planned section 113(1) (2^nd sentence) no. 9 of the ARC to include the regulation of requirements for procuring climate-friendly services.

The newly proposed section 113(2) of the ARC is also intended to empower the federal government to update the reference to the new version of Part A of the Construction Services Procurement and Contract Procedures (Vergabe- und Vertragsordnung für Bauleistungen Teil A – VOB/A) issued by the German Procurement and Contract Committee in section 2 (2^nd sentence) of the Public Contract Award Regulation (Verordnung über die Vergabe öffentlicher Aufträge – VgV) and in section 2(2) (2^nd sentence) of the Defence and Security Procurement Regulation, without the Bundestag and Bundesrat having to be involved again as was the case under the previous regulation.

F. Simplification of the tender specification, section 121 of the ARC

Section 121 of the ARC is to be amended so that the subject matter of the contract must still be described as clearly as possible, but no longer as comprehensively as possible. The aim of this amendment is to reduce both the effort required by the public contracting authority in drawing up the service specifications and the effort required by companies in analysing and evaluating them. In addition, the contracting authority should be encouraged to make greater use of functional service specifications and functional requirements.

G. Simplification of eligibility criteria and verification requirements, section 122 of the ARC

The amendment to section 122(3) (1^st sentence) of the ARC is intended, firstly, to strengthen self-declaration by making it the standard instrument for proving suitability and for proving the absence of grounds for exclusion under sections 123 and 124 of the ARC and, secondly, to reduce the obligations to provide evidence. The principle of self-declarations previously provided for in section 48(2) of the Concession Award Regulation is thus to be given the status of formal law. In addition, the newly proposed section 122(3) (2^nd sentence) of the ARC is intended to ease the burden on companies: in future, documents going beyond self-declarations will only be required during the course of the procedure from those candidates or tenderers who have been identified as promising by the public contracting authority. Such documents will include certificates (from third parties) and other evidence.

The planned amendment to section 122(4) (2^nd sentence) of the ARC, which states that the principle of proportionality in section 97(1) (2^nd sentence) of the ARC must be observed, is intended to take account of the special significance of the principle of proportionality. This is to prevent the requirements imposed by the public contracting authority on companies from exceeding what is necessary. In this context, particular attention should be paid to ensuring that the relevance and proportionality to the subject matter and value of the contract are maintained.

The newly planned section 122(4) (4^th sentence) of the ARC is intended to clarify to the contracting authority the conditions under which the electronic address of the tender documents may also be referred to in the notice of the selection criteria. According to the Bill, the notice must clearly indicate the specific place in the directly linked tender documents where the eligibility criteria are listed.

H. Conclusion and outlook

In addition to the changes to the review procedure already presented and critically assessed in the first article, the Bill also contains far-reaching amendments to the procurement procedure itself. The draft wording reveals a clear and well-grounded policy approach in many areas: making lot division more flexible, revising rules on in-house awards, and alleviating burdens concerning specifications, suitability criteria and documentary evidence – these aspects directly address the growing control needs of public administration and can help make public procurement more efficient, digital and innovation-friendly. The ability to exclude suppliers from third countries without reciprocity is likewise both compatible with Union law and objectively justified. Numerous clarifications and specifications are also expected to harmonise and facilitate the interpretation and application of procurement law overall.

The third part of this series will focus on the planned amendments to the Public Contract Award Regulation, which are of particular practical relevance for implementing the reform. It will address, in particular, new procedural flexibilities, digitalised processes and the strengthening of innovative and SME-friendly procurement instruments.