Amendments to the German Sector Regulation – Bill to speed up public procurement – Noerr Insight No. 5

The draft of an act to speed up public procurement (the “Procurement Acceleration Act”) (Vergabebeschleunigungsgesetz ‒ VergBeschlG) 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, we explain in detail the most important aspects of the draft and the planned amendments to procurement law.

The first part of this series outlined the political background and the overarching objectives of the draft and provided an overview of the main changes to legal protection in procurement matters. It was already clear at that stage that the planned reforms would entail considerable intervention in existing structures, with the aim of making public procurement more efficient, digital and innovation-friendly.

The second part of this series examined the planned amendments to the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen ‒ GWB) with regard to how procurement procedures are organised. These changes have resulted in increased flexibility and measures for contracting authorities.

In the third part of this series, we outlined the proposed changes to the German Public Procurement Regulation (Vergabeverordnung ‒ VgV), which are intended primarily to promote young companies and SMEs, strengthen innovation and speed up procurement procedures.

The fourth part of this series of articles explored the changes to the German Concession Procurement Regulation (Konzessionsvergabeverordnung ‒ KonzVgV) and the German Defence and Security Procurement Regulation (Vergabeverordnung Verteidigung und Sicherheit ‒VSVgV) and the opportunities they offer for making award procedures more flexible and simpler.

The fifth and final article in this series discusses future changes to the German Sector Regulation (Sektorenverordnung ‒ SektVO) and the underlying objectives and inherent potential, which may already sound familiar to attentive readers of the fourth part of this series. The Sector Regulation applies to contracting authorities in the areas of water, energy and transport supply. It specifies the requirements of the Act against Restraints of Competition for these particular sectors, in which companies are subject to their own, partly simplified procurement regime due to their dominant market position.

A. Acceleration of procedures

In parallel with the newly introduced section 42(4) of the Public Procurement Regulation, the legislature also seeks to speed up procurement procedures by replacing section 51(1) of the Sector Regulation, making the simplified evaluation procedure the standard. Until now, the law has required contracting authorities first to check the suitability of all bidders before examining the content of their bids. In future, the evaluation of the bid is to take place before the suitability check. However, as in section 42(4) of the Public Procurement Regulation, the decision lies with the contracting authority as to which evaluation procedure it chooses. It may diverge from the legislature’s intended simplified evaluation procedure if this will avoid increased time and/or human resource requirements. The potential effort required of bidders is also to be considered. This provision aims to strike a balance between faster procedures, by lightening the burden on public bodies and fostering business growth, or at least avoiding placing undue demands on companies. This is precisely where there is great potential for SMEs and startups, who can first submit their tenders and thereby impress ‒ without the contracting authority being discouraged by their possibly still limited track record. However, it is important that documents for the suitability check are submitted quickly and in full to maintain the positive impression. It remains unclear, though, to what extent public bodies will consider the effort required from potential bidders; this creates the greatest uncertainty, especially for new players in the market.

With the abolition of section 106(3) of the Act against Restraints of Competition, changes to the thresholds applicable under the Sector Regulation, as set out in section 106(2)(2) of the Act, will in future only be published in the EU Official Journal rather than in the German Federal Gazette. This is, however, mainly relevant for contracting authorities since it means they must select the appropriate procurement procedure together with its requirements.

Ultimately, the addition of the appropriateness criterion in section 46 of the Sector Regulation, which lays down the requirements for selection criteria, also aims at speeding up procedures by ensuring sector contracting authorities do not impose excessive requirements on businesses. This further expands the latitude with regard to selection criteria, which is already broad in the sector context. Further relief and acceleration are to be achieved by enabling, at least according to the explanatory memorandum to the law, the option of requesting supporting documents only from promising businesses.

B. Strengthening innovation

In line with the planned amendment to section 28(1) of the Public Procurement Regulation, section 26(1) of the Sector Regulation will also be adapted to allow market exploration before the actual procurement process to include social, environmental, quality and innovation aspects.

The same applies to changes in section 33 of the Sector Regulation, mirroring those in section 35 of the Public Procurement Regulation. Here too, a “statement and decision requirement” about admitting, specifying or excluding alternative bids will be introduced. The stated aim here is also to enable innovative solutions to be incorporated into the procurement process, including those which the contracting authority may not have considered in advance. This approach gives SMEs and startups a particular opportunity to present their innovative solutions and convince the contracting authority of the merits of those solutions, particularly when these are especially technically advanced or sustainable. In future, contracting authorities will need to actively decide whether to allow or exclude alternative bids since the presumption rule in section 33(2), second sentence of the Sector Regulation will no longer apply. The intention here is to encourage a more considered approach by contracting authorities to the use of alternative bids. However, there will be no obligation to justify their decision regarding the acceptance of such bids.

C. Explicitly targeting young companies and small and medium-sized enterprises

Section 46 of the Sector Regulation will, in parallel with section 42 of the Public Procurement Regulation, be supplemented with an additional subsection to ensure that the position of young companies and SMEs is taken into account when choosing selection criteria and evidence of suitability. There will be no obligation to justify the selection decision, leaving contracting authorities with discretion – in line with the reforms’ core aim of acceleration. Possible factors to be considered, as set out in the explanatory memorandum to section 42(2) of the Public Procurement Regulation (which is referenced in the explanatory memorandum to section 46(4) of the Sector Regulation), include high minimum annual turnover requirements or project references, both of which were flagged as key obstacles in the public consultation on procurement law reform in 2023. It remains to be seen whether this provision will actually offer a real advantage to startups and SMEs. While there is no requirement to provide reasons, which keeps the administrative burden low, this could allow for inappropriate criteria to be set. Nevertheless, affected companies should clearly highlight their innovative potential and expertise. It should also be remembered that such expertise may be evidenced by academic work, research collaborations or pilot projects.

D. Amendment of rules on further information requests

The new version of section 51(2) of the Sector Regulation is intended to bring it more closely into line with the wording of Article 76(4) of Directive 2014/25/EU and to make it easier for contracting authorities to request further information. This mirrors the changes made to section 56(2) of the Public Procurement Regulation. The distinction between business-related and performance-related documents will no longer apply. The reform aims to prevent companies from being excluded from procurement procedures prematurely due to formal errors, when they actually meet substantive requirements. Yet the option to request such documents will still remain at the sole discretion of the contracting authority.

E. Conclusion and outlook

The planned amendments to the Sector Regulation, which largely correspond in substance to changes in the Public Procurement Regulation, are also intended to promote flexibility, acceleration and innovation. By making what is already a common approach in practice ‒ assessing offers before evaluating suitability ‒ standard, the procurement process can be further streamlined. It is laudable that support for young and innovative companies, as well as SMEs, has also found its way into the Public Procurement Regulation. When looking at the new opportunities and risks for this group as a whole, it becomes clear that they stand to gain the most from the proposed legislation, provided that sector contracting authorities, which enjoy an especially broad discretion under the Sector Regulation, make proper use of this discretion and embrace “fresh ideas”. Even if the details are still uncertain, SMEs and start-ups should start addressing the issue in good time and consider whether, and if so how, they want to present themselves to contracting authorities, so as to make the best use of the opportunities available.