Modernisation of public procurement law

The EU Directives on the modernisation of public procurement law which entered into force in 2014 have to be implemented into national law by April 2016. The recently presented draft bill on the amendment of the German Act Against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen – GWB) provides information on planned changes.

I. Modernisation of public procurement law – background

Somewhat belatedly on 8 July 2015, the federal cabinet passed the “Draft Bill for the Modernisation of Public Procurement Law” presented by the Federal Ministry for Economic Affairs and Energy. The draft bill presented by the Ministry was preceded by a key issues paper of the federal government of 7 January 2015, which outlined the basic structure and the timeline for the implementation into national law of the EU Procurement Directives 2014/23/EU, 2014/24/EU and 2014/25/EU which came into force on 17 April 2014.

The above EU Directives, of which Directive 2014/24/EU (conventional contract awards) and possibly Directive 2014/23/EU (concession contracts directive) are likely to be of interest for the healthcare industry, have to be transposed into national law by 18 April 2016.

The legislator is planning to also use the upcoming amendment to simplify the public procurement regime currently in place in Germany. Accordingly, more aspects are to be regulated than is currently the case in Part 4 of the Act Against Restraints of Competition; the rules of the Regulations on Contract Awards for Public Supplies and Services (and the Regulations on Contract Awards for Freelance Services) as well as the – recast – Regulations for the Award of Public Contracts are to be incorporated completely in the Act Against Restraints of Competition, and the awarding of concessions is for the first time to be codified in a separate set of regulations.

In particular, Part 4 of the Act Against Restraints of Competition will in future increase considerably in significance because it will now contain all key requirements for the awarding of public contracts (and concessions) – from the specifications and the course of the award procedure to contract award and the execution of the contract.

II. Key points of the draft Act Against Restraints of Competition – with relevance for the healthcare sector

In the presented draft bill for the amendment of Part 4 of the draft Act Against Restraints of Competition (GWB-E), the basic principles of the award procedure are described in Chapter 1 (Sections 97 – 154 GWB-E) and the review procedure in Chapter 2 (Sections 15 – 184 GWB-E).

General changes

As in many other sectors, clients and contractors active in the area of supplying medical services and in the pharmaceuticals and medical technology industries will from April 2016 have to deal with a series of changes and additions within the draft Act Against Restraints of Competition when contracts are being awarded.

For example, details regarding framework agreements (Section 103 (5) GWB-E), on the awarding of concessions (Sections 105, 148 ff. GWB-E), on specifications (Section 121 GWB-E) and the suitability of companies (Sec. 122 GWB-E) as well as on grounds for exclusion (Sections 123 f. GWB-E), and on the contract execution terms (Sections 128 f. GWB-E), will be incorporated into the draft Act Against Restraints of Competition or are being transferred to the draft Act Against Restraints of Competition in revised form from the Regulations on the Award of Public Contracts, the Regulations on Contract Awards for Public Services and Supplies and the Regulations for Contract Awards for Freelance Services.

In departure from the current legal situation, the contracting authority will from April 2016 be granted the option of choosing between an open procedure (as a one-stage procedure without competitive bidding) and a restricted procedure (as a two-stage procedure with competitive bidding) (Section 119 (2) GWB-E).

The mandatory requirement provided for in the Public Procurement Directives that electronic means of communication are used (if necessary falling back on longer implementation deadlines) is merely established in Section 97 (5) GWB-E – more details will be specified in the contract award regulations which are also to be revised.

In accordance with the requirements of the Directives, some regulations have now also been codified for the first time. This, for example, concerns monitoring and statistics obligations (Section 114 GWB-E). In substantive terms, the GWB-E now also provides for express regulations on self-cleaning mechanisms, according to which bidders can resolve compliance infringements which can have the effect of exclusion (Section 125 GWB-E). The regulations on changes to contracts and the handling of “key” contractual changes (subject to a compulsory tender procedure) and the contracting authority’s right of termination as the legal consequence of a failure to make a call for tenders in such cases (Sections 132, 133 GWB-E) are also new and are being codified for the first time. Finally, the GWB-E (Section 108 GWB-E) also provides for specific regulations on the possibility of (vertical or horizontal) cooperation between public authorities which does not require a tender procedure.

Specific impact on the healthcare sector

Whilst specific changes which (exclusively) affect procurement plans in the pharmaceuticals and medical technology industries or in the area of providing healthcare services are not expressly regulated in the GWB-E, it is certainly to be expected that the consequences of certain Directive requirements and new regulations will be particularly felt in the healthcare sector:

• It cannot, for example, be ruled out that public contracting authorities “interested in cooperation” in the area of providing hospital and other healthcare services (such as services in the area of medical laboratory diagnostics or services for the benefit of state health insurance schemes) will make more active use than to date of the now specific possibility of cooperation not requiring a tender procedure on the basis of in-house contract awards or horizontal public-public cooperation (Section 108 GWB-E) in order to position themselves against their private competitors. It should be noted here that the threshold for third-party turnover outside the cooperation permissible within the scope of the cooperation not requiring a call for tenders has been fixed at 20% (which, based on case law handed down so far, has at least been unclear).
• Should further developments in the areas of e-health and telemedicine (finally) assume sizeable proportions also in Germany, the newly introduced possibility of innovation partnerships (Section 119 (7) GWB-E) between public contracting authorities (such as the state health insurance schemes or public hospital companies) and for example the companies of the medical technology industry would be available for the joint development and subsequent acquisition of innovative products and processes. This partnership can be initiated and “awarded” subject to facilitated conditions.
• In future, “contracts for social and other special services”, which can also include medical services and, if applicable, supporting supply services in connection with healthcare, can be awarded more easily. Accordingly, the contracting authority (for example state health insurance schemes) is at least free to choose the procedure (Section 130 GWB-E).
• Finally, it remains to be seen whether the legislator will take advantage of the opportunity presented by the new EU Directives to carry out more extensive changes, additions or even introduce new regulations on the awarding of healthcare services in the area of the service provider and selective contracts of the German Social Code V (Sozialgesetzbuch (SGB) V) – for example with respect to the public procurement regime for the procurement of medical supplies subject to public tender or organisation as an “open-house contract” (Section 127 SGB V) or with respect to the contracts for integrated healthcare (Section 140a SGB V).

III. Conclusion and outlook

Overall, the upcoming modernisation of public procurement can be seen as the largest amendment to German public procurement law in the last decade. Without categorically adhering to the wording of the Directives, the requirements at EU level are to a large extent being implemented one-to-one with the GWB-E.

It appears, however, that the material changes compared to the current legal situation (and the corresponding practical impact of the amendment) will not be significant because in many areas principles of public procurement case law (of the ECJ) which already exist and are applied in practice are being codified without any major changes – for example the self-cleaning mechanisms which are now expressly regulated (Section 125 GWB-E), the provisions on contractual changes and legal consequences in Sections 132, 133 GWB-E or the regulations on public-public forms of cooperation which do not require a call for tenders (Section 108 GWB-E). The fact that the principles set out by case law to date in these areas are now being expressly regulated and defined is, however, sensible and welcome in view of the increased legal certainty which this creates.

It also appears that the new freedom to choose between types of procedures (open / restricted procedures) will not be of major practical significance because the hurdle for contracting authorities to reach the much more flexible negotiation procedure will continue to exist (Section 119 (2) sentence 2 GWB-E).

Following adoption of the cabinet resolution on the amendment to the Act Against Restraints of Competition in July, the legislative procedure in the Bundestag and the Bundesrat is to be expected in autumn 2015. The cabinet resolution on the regulations which are to be recast (in particular the public procurement regulations and the regulations on the award of concessions) has been announced for this period. The legislator currently expects that following completion of the legislative procedure in winter 2015 the implementing legislation will come into force in due time on 18 April 2016. Whether this deadline can in fact be met, however, remains to be seen.