German Procurement

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Partnering Contracts Point the Way Forward June 19 2006 Introduction German Contracts Do Not Go Far Enough Comprehensive Approach Choosing the Right Project Competence Required Contract Award Based on Price Schedule and Cost Certainty Through Project Management All-Round Project Management Comment Introduction Work without added value, hostility between parties, schedule and budget overrun, parties tricking each other - these are some of the typical problems encountered in complex construction projects in Germany, sometimes even when so- called 'partnering models' are used. However, using elements of partnering may be a sound approach to improve German guaranteed maximum price (GMP) contracts, which often offer little added value when compared to traditional procurement methods. The crisis in the German construction industry - including all of its negative effects - continues unabated. The amount of construction continues to fall, while price wars and cut- throat competition are prevalent. Legal disputes ensure rich earnings for a growing army of construction lawyers. Many problems arise simply because of the enormous complexity of the processes in construction projects, especially large- scale projects. Full cooperation between all parties is the decisive factor in the success of a project. Therefore, solutions should aim to improve cooperation. In general, mediation is accepted as one possible solution, but does not yet have a convincing track record in German construction. The development of innovative procurement methods and contract types should be seen in this context because they try to

Transcript of German Procurement

Page 1: German Procurement

Partnering Contracts Point the Way Forward

June 19 2006

IntroductionGerman Contracts Do Not Go Far EnoughComprehensive ApproachChoosing the Right ProjectCompetence RequiredContract Award Based on Price Schedule and Cost Certainty Through Project ManagementAll-Round Project ManagementComment

Introduction

Work without added value, hostility between parties, schedule and budget overrun, parties tricking each other - these are some of the typical problems encountered in complex construction projects in Germany, sometimes even when so-called 'partnering models' are used. However, using elements of partnering may be a sound approach to improve German guaranteed maximum price (GMP) contracts, which often offer little added value when compared to traditional procurement methods.

The crisis in the German construction industry - including all of its negative effects - continues unabated. The amount of construction continues to fall, while price wars and cut-throat competition are prevalent. Legal disputes ensure rich earnings for a growing army of construction lawyers.

Many problems arise simply because of the enormous complexity of the processes in construction projects, especially large-scale projects. Full cooperation between all parties is the decisive factor in the success of a project. Therefore, solutions should aim to improve cooperation. In general, mediation is accepted as one possible solution, but does not yet have a convincing track record in German construction.

The development of innovative procurement methods and contract types should be seen in this context because they try to dissolve existing opposition between parties and achieve greater cooperation. Thus, owners and contractors in Germany are increasingly working with GMP contracts, which are an adapted and simplified form of the Anglo-American concept of 'construction management'. In this form of project management - which is particularly common in the United States, the United Kingdom and Australia - a construction manager is brought in as an external construction department to handle the design and the construction process for the client using established business practices (eg, the management partnering approach).

German Contracts Do Not Go Far Enough

At best, the GMP contracts which are common in Germany harness only parts of this approach. They are not far-reaching - as the name implies, they concentrate on the required

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performance and remuneration. However, in many important areas, they simply use the traditional general contractor procurement model.

Comprehensive Approach

The Anglo-Saxon concept of construction management is far more comprehensive and usually relates to the following:

organization and structure of the project;

implementation of an integrated project team with a non-hierarchical system of communications;

schedule of work;

project management;

involvement of the construction manager in the design;

value management through systematic processes; and

risk management.

Ideally, the contractor is the client's project manager.

In its international form, construction management in Germany is mainly practised by industrial companies with global operations (eg, DaimlerChrysler, BP, Ford, Roche and Infineon).

Innovative forms of project procurement along the lines of the internationally widespread partnering concept, project partnering or second-generation long-term partnering are almost unknown in Germany. In addition, the project alliancing model, which is increasingly used in oil and gas industries and seems to be well established in Australia and Asia in private and public construction projects, has not yet arrived in Germany.

Experience of the German variety of GMP contracts has been very mixed. Often, one or both parties complain that the added value is low compared with traditional general contractor models. Frequently, it is found that normal claim management and all-too-familiar disputes over time, quality and costs occur to the same or even an increased extent.

However, many of these problems can be avoided or diminished by using partnering management methods and moving the German GMP approach nearer to international standards of construction management.

Choosing the Right Project

Construction management and other procurement methods using partnering elements are not suitable for all projects. If the scope of the works is clear, the bill of quantity is ready, few changes are expected and the time available for the completion of the works is not too short, a traditional procurement method may be the best solution; but if the design and construction times are short, the project is complex and liable to change, and several interfaces are

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involved, it is advisable to use a partnering approach. If cost certainty is the prime concern at an early point of the project, a maximum price may be agreed.

Competence Required

Partnering procurement methods are not suitable for every owner. The owner must be technically, commercially and legally on equal terms with the contractor. It should have the resources to enable it to benefit from the influence which it can exercise in partnering models. It must have the technical expertise to evaluate the optimization proposals made by the construction manager and to adjust the maximum price in the contractor's bid to a competitive level.

The few companies which successfully practise construction management and GMP on the client side include Vivico Real Estate, Frankfurt am Main, and the Bayerische Bau und Immobilien Gruppe Group (Schörghuber group), Munich.

Almost all large construction companies offer GMP models under various names, but only a few of the large construction corporations which dominate the market are able to implement genuine construction management successfully. There is a lack of expertise in project management and design on the contractor side, and if one branch of a company has gained experience with partnering methods, there is often no transfer of knowledge to other branches. German project management companies only venture rarely into the field of construction management to take direct responsibility for construction works - the few exceptions include Alba BauProjektmanagement and Drees & Sommer.

Contract Award Based on Price

In Germany, construction projects are regularly awarded on price alone - even in GMP models. The purchasing and internal audit departments play the dominant role, but the contract award price is often only the beginning of the process. Internationally, however, members of project teams and their competences and references are often the main focus. Frequently, the contract award process is akin to an assessment centre and several teams provide certification of their work in pre-qualification rounds.

Contract drafting for more partnering-oriented procurement models is complex and differs in many respects from the standard general contractor contracts. Legal advice given to parties often fails to take this fact sufficiently into account.

Negotiations should deal with matters beyond the legal details of the contract and the extensive provisions for mutual rights and duties; such factors can be used to decide - with varying accuracy - who is to blame for any failure only after the event. The project management services of the contractor are rarely recognized as central performance obligations, but decisive factors for the success of a project include an awareness of procedures and processes, organization, typical processing scenarios, and reward and risk management systems. The project manual, which among other things defines the cooperation between the parties, deserves at least as much attention as the provisions for remuneration and termination.

Schedule and Cost Certainty through Project Management

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The contractor's participation in the planning phase must be more than mere consultation and checking.

The checking and optimization of the design from a technical and economic perspective should ideally be an actively implemented process of value management, not just a cursory examination shortly before the plans are used by the contractor. The contractor could even take over the management of the design process. As far as possible, the client and the contractor should jointly draw up the performance requirements for the construction phase. Subsequently, it will be difficult for the contractor to claim for supposed change orders, hindrances and misgivings which arise from defects in design that have been thoroughly examined by the contractor to avoid claims for additional payment or extension of time arising from design defects.

In certain circumstances it may be advisable to place the design team under the leadership of the contractor from, at the latest, when the execution phase begins. This would almost completely eliminate excessive changes and supplements to the scope of the work which can arise at the interface between design and construction works and often lead to problems with time and quality. The design and production process could then proceed smoothly and the duration of the project would be reduced.

The contractor should manage the involvement of the client, prepare the ground for any decisions the client needs to take and actively obtain such. The harmonization processes in the project team would prevent delays.

All-Round Project Management

Ideally, the contractor should take an all-round approach to project management. The contractor's project management integrates design and construction, and ensures from the outset that what is designed can actually be built. On the other hand, by being fully involved in the building phase, the client can also ensure that what has been designed is in fact built.

Cooperation is the keyword for success in partnering-oriented construction. Partnering elements in construction projects cannot force the parties to have such awareness, but they can create structures which create a cooperative atmosphere.

Comment

GMP is not enough. Where GMP contracts or other German-style partnering models fail, this is mainly due to insufficient consideration being given to the many success factors that are applied in English-speaking countries and the tendency of parties to focus almost entirely on questions of remuneration.

It is hoped that this will change in the future. In many types of project, construction management offers the client a combination of the advantages of individually awarded contracts and general contractor contracts. On the one hand, it allows the client a significant degree of influence - even at a late stage in the project - and offers the flexibility of individual contracts and trade package contracts. On the other hand, if the right precautions are taken, construction management offers a price certainty which is considerably higher than in traditional German turnkey construction contracts.

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The Central Association of the German Construction Industry has also recognized that the commonly used GMP models are insufficient. In February 2006 the association presented a new standard contract which - according to members of the working group responsible for drafting it - goes beyond the familiar standard contracts and develops the idea of cooperation further. Under the partnering contract, the association discovered the benefits of the Anglo-American procurement method of 'construction management at risk', where the construction manager is also the contractor. It remains to be seen whether the international experience gained by companies will be taken into account in the implementation of this standard contract. The general lack of training and knowledge management in executing innovative project procurement methods may not be remedied by editing a new standard contract, but the standard form contains many valuable ideas which go beyond the common German GMP model. That contractors are aware of the possible advantages of construction management for specific projects is a very positive sign. In any case, the new standard contract takes German contractors some further steps forward on the long and winding road to genuine partnering.

For further information on this topic please contact Thomas Richter at SIBETH Partnerschaft by

German construction has seen a declining investment trend over 10 years after theboom in early 1990’s (Federal Office for Building and Regional Planning - Bundesamtfür Bauwesen und Raumordnung, 2004). This trend is expected to continue.Information from the Federation of the German Construction Industry (Hauptverbandder Deutschen Bauindustrie) indicates that the share of actual construction workcarried out by the larger companies is declining. Bosch and Philips (2003) point outthat the majority of the larger German building firms have developed into generalcontractors and building service companies. The common procurement method inGermany has changed to general contracting (Hochstadt, 2002). The largercompanies take on the position of a project management organisation while theconstruction work itself is principally sub-contracted to smaller companies.Johansen: Lean Construction: Prospects for the German construction industryLean Construction Journal 2007 21 www.leanconstructionjournal.orgVol 3 # 1 April 2007 ISSN: 1555-1369German industry is highly regulated. Construction work is primarily regulated by theGerman Building Contract Code (Vertragsordnung für Bauleistungen, or VOB). It iscommon practice in the German construction industry to base awarding proceduresand contractual relations on the VOB (Bosch and Philips, 2003). A unique feature ofthe German construction industry is the monopoly of the master craftsperson, which“ties the management of building firms within the handicraft trades to proof ofqualification and thus constitutes an important barrier to an increase in the numberof low-qualified self-employed people, existing, for example, in the Untied Kingdom”(Bosch and Philips, 2003). The Handicrafts Code (Handwerksordnung) specifies who isallowed to set up such a business. The accelerated structural change in the industry,the poor economic progression and the intensified internationalisation of the marketare expected to slow down the innovative capability of the construction industry(Hochstadt, 2002). In order to meet the challenges in the German constructionindustry, reforms have been implemented concerning primarily the vocationaltraining and the Handicrafts Code (Bosch and Philips, 2003).

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Sustainability

Following an industry-wide consultation, the JCT has also decided to extend the ‘green’ provisions within its contracts. A JCT working group is now preparing a publication on how sustainability might be provided for within contract documentation, with publication anticipated early in the new year.

How long does it take to change a Construction Act?

The question may soon be answered. A draft Construction Contracts Bill was issued

in July 2008, setting out proposed amendments to the relevant provisions of the original 1996 Act, for consultation on the drafting. The consultation period ended on

12 September and the Local Democracy, Economic Development and Construction Bill included in the legislative programme announced in the Queen’s Speech on

3rd December contains, in Part 8, a revised set of proposed amendments to the 1996 Act.

A copy of the Bill can be found at

http://www.publications.parliament.uk/pa/ld200809/ldbills/002/2009002.pdf

More in the next issue.

N

ew RICS forms

The RICS has published two new forms, a Standard Form of Consultant’s Appointment and a Short Form of Consultant’s Appointment, together with a set of explanatory notes.

The forms are written in plain English and include scopes of services for project managers, quantity surveyors, project monitors, building surveyors, CDM co-ordinators and employer’s agents. The default positions in the forms are said to provide “a practical balance of risk between the client and the consultant..”

A notable feature of the Standard Form is a liberal use of tick boxes. Is this the way forward?

PPC2000 upgrade

In October 2008 the PPC, SPC and TPC forms of contract were relaunched. The structure and content are essentially the same but, in addition to drafting changes and amendments made in response to user feedback, there are key changes in respect of:

KPIs, targets and incentives;•

partnering timetable and risk register; •

sustainability (with a full definition); and•

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project bank accounts.•

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Construction law issues in Germany

Does Germany have standard forms of contract for construction contracts?

No. Construction contracts have to be agreed individually between the parties. Construction contracts may, however, include specific standard terms and conditions which are set out in the German Construction Contract Procedures (VOB/B) under federal law

Does federal or state law (or both) contain provisions that deal with construction contracts?

Generally, construction law is dealt with by the German Civil Code (BGB) which is federal law. However, as most of the statutory provisions are not compulsory, they can be modified by agreement or by predetermined general terms and conditions for construction contracts. Most of the common general terms and conditions for construction contracts are provisions contained in the German Construction Contract Procedures (VOB/B) under federal law.

In Germany what is the most popular contractual arrangement for procuring a construction project?

The contractor agrees to build the construction project in accordance with the design produced by the designers. This is the more common practice in Germany and is called a “general contractor agreement” (Generalunternehmervertrag), whereas the combination of the design and construction in one agreement (Generalübernehmervertrag) is not so common.

What is currently the most popular method of resolving construction disputes in Germany? Litigation in the courts or arbitration (if mediation or other forms of alternative dispute resolution are unsuccessful)?

Litigation in the courts or arbitration are the methods of resolving construction disputes in Germany, depending on the agreed contract dispute resolution process. Where the statutory provisions apply (for example the VOB/B, BGB or German Civil Procedure Act (ZPO)), generally litigation proceedings will apply.

On the whole, small construction projects rely on litigation in the courts, whereas large construction projects, especially with international aspects, will choose arbitration

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If a party is considering taking a dispute to court, does it start legal proceedings in a state court and, if so, which one?

Under the German court system, no particular state court deals with disputes on construction law. In Germany, any and all disputes in connection with construction agreements need to be taken to the (general) state local courts (Amtsgerichte) or state district courts (Landgerichts) depending on the amount in dispute (local court: up to EUR 5,000; district court: more than EUR 5,000). State courts, however, have to apply federal laws.

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If applicable, according to Section 18 VOB/B, the proceedings will take place at the competent court for the office of the owner’s court representative (i.e. the competent court for where the owner’s lawyer’s office is ).

Is there, in Germany, any equivalent of the UK construction dispute resolution process (DRP) of adjudication?

No, in Germany, there is no equivalent of the UK statutory construction dispute resolution process (DRP) of adjudication but the parties to an agreement may agree on a dispute resolution process alongside litigation or arbitration (for example, mediation or adjudication) according to Section 18 no. 3 VOB/B or under BGB.

In addition, according to section 15 lit a) of the Introductory Act to the German Civil Procedure Act (EGZPO), each state may enact an Act which provides for an arbitration before litigation is permitted, for disputes with an amount in dispute up to EUR 750. Further, pursuant to section 18 no. 2 VOB, any disputes in respect of agreements with public authorities (Behörden) need to be resolved first by such an arbitration dispute resolution process.

Under English law, purchasers, tenants, operators and funders of development ask for contractually binding “collateral warranties” or third party rights from the designers and contractor with whom, otherwise, they do not have a contract (and therefore no contractual remedy) or other right if the building works are defective. How does German construction law deal with this problem?

Under German law, if persons/entities have not agreed on contractually binding “collateral warranties” (which are not usual) where they are not party to the contract, their remedies are limited to statutory remedies as stipulated in the law of torts pursuant to Section 823 seq. BGB, i.e., German construction law does not have a general provision for collateral warranties.

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Usually, the benefit of the construction agreement is assigned to purchasers, tenants, operators and funders of developments (i.e. to as many parties as necessary, which is permitted under German law) by the principal to provide for the equivalent of a warranty, but under the construction agreement. Although German law recognises contracts for the benefit of a third party (see Section 328 BGB), construction agreements generally do not provide for such wider liability of designers and contractors vis-à-vis third parties.

Is retention of a percentage from interim payment until final completion common practice in German construction contracts?

Yes, on average about 5 %.

What is the position in Germany generally between builders and employers - adversarial or collaborative?

In Germany there is no approach similar to partnering in England; the approach in Germany is more adversarial.

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In England and Wales there is a specialist Technology and Construction Court. Does Germany have any specialist construction courts?

As noted, there are no specialist construction courts. However, each state court is divided into departments, each of which deals with specific questions of law. Therefore, the competent department of the court dealing with the dispute can be regarded as specialised in questions regarding construction law.

If a construction and engineering claimant is successful in its claim before a German court will the court order the unsuccessful party to pay the successful party costs of its lawyer?

Yes, pursuant to Section 91 paragraph 2 German Civil Procedure Act (ZPO), any legal costs shall be borne by the unsuccessful party as long as they are appropriate. This will, however, not cover lawyer’s fees exceeding the statutory fees as stipulated in the German Lawyers’ Fees Act (RVG). Thus, any lawyer’s fee exceeding the predetermined statutory amount will have to be borne by the successful party even in a successful court dispute.

Is the cost position the same in arbitration?

As regards state arbitration proceedings for disputed amounts lower than EUR 750 pursuant to the EGZPO, the cost position is the same as for proceedings before the courts. Whether the cost position is the same in (contractually agreed) arbitration depends on the cost provisions in the relevant agreement.

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Is there federal or state legislation (or both) on health and safety on construction and engineering projects?

The federal German labour protection laws (Arbeitsschutzgesetz; ArbschG) which have been in place since June 1989 are designed to improve safety and health protection at work.

In addition, based on the ArbSchG, a federal ordinance on health and safety on construction and engineering projects came into force in June 1998 (Baustellenverordnung) and, as with the case of the German labour protection laws, implements a European directive on the matter.

After what period are claims under construction contracts time-barred?

Pursuant to statutory provisions, i.e., Section 638 BGB, claims under construction contracts are time-barred within

5 years from final acceptance of the construction in relation to structure (Bauwerk); or•

2 years from final acceptance of the construction if not in relation to structure.•

Also, it is to be noted that the above periods may be reduced to under one year where the terms are individually agreed by the Parties, but not, however by way of predetermined general terms and conditions (for example the VOB/B). However, in cases where the VOB is applicable as general terms and conditions for the contract, the period may not be less than 4 years (Section 13 VOB).

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Are time penalties for late completion permitted under German law?

German statutory law provides for time penalties where there is late completion: depending on the situation, the owner and/or the builder may be able to claim for damages, including additional costs for late completion, and/or terminate the contract.

What are the current headline issues in construction in Germany?

One important development is the change in legislation relating to planning laws which were amended on 1 January 2007 and facilitate proceedings for development plans in CBDs (town centre developments).

Another important topic is energy saving in buildings, which is to be proven by an energy performance certificate. This is to be provided by the property owners to purchasers or tenants.

Dr Jürgen Streng

[email protected]

Andrea Stratmann LLM

[email protected]

Introduction to German Construction Law

by Natalie Keller, Partner

HFK Rechtsanwälte, Heiermann Franke Knipp, Germany

(WTHF’s Affiliate Office)

German construction law comprises two basic fields - public construction law and private

construction law.  Public procurement law is also relevant.  As a specialized firm for

construction related and real estate matters, HFK Rechtsanwälte covers the entirety of the

aforementioned fields with a focus on private construction law, public procurement and real

estate.

Public Construction Law

Public construction law concerns all public regulations on construction and is divided into two

fields - zoning law and building regulations.  Zoning law regulates urban and regional planning,

including infrastructure and industrial development.  Zoning law sets forth the procedures for

governmental decision-making concerning public projects and the admissibility of private

ones.  The main source of public construction law is the federally legislated Building Code.

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The law related to building regulations defines exactly how to build.  It includes such

regulations as the permissible eaves height, the minimum distance to a neighboring property,

safety regulations regarding static, materials, constructive details and fire protection.  Building

regulations can even determine the design of a construction project, which must comply with

the characteristics of a given region.  Each federal state has its own building law, but these

laws are largely congruent.  In addition, there are regulations on conservation, energy saving

etc., and specific regulations on the municipal level.

Every building in Germany must comply with all public laws.  A building permit is a compulsory

requirement.

Public Procurement Law

In public procurements, the contracting  authorities are bound to award contracts under 

certain rules.  In short, procurement must be  economical and fair.  The current procurement 

rules are a combination of European directives  and national rules.  Public procurement law is 

primarily focused on public authorities and  public corporations, but also covers certain 

enterprises related to public needs.  From certain threshold values onward, contracting

authorities must comply with European and national tender regulations for all acquisitions.  The

current threshold value for public construction is set at ® 5.15 million, which triggers

compulsory Europe-wide contract notice requirements and application of certain procedural

rules.  For acquisitions that remain under the threshold value, specific national and regional

procurement regulations must be observed.

While every step made by contracting authorities is strictly regulated, tenderers must also

comply with a set of formal criteria.  Tenders that failed to comply with these criteria by, for

example, altering the provided tender documents or submitting incomplete or delayed ones are

excluded from consideration.  The remaining tenders are evaluated according to a catalogue of

criteria, which must be included in the invitation to bid documents.  All procurements are

conducted under the same principles of equal treatment, transparency, competition,

proportionality and promotion of SME companies.  Tenderers have to prove their skills,

efficiency, experience and reliability.

Tenderers can take legal action at the bodies responsible for appeals (chambers) in the event

they wish to challenge the procurement procedure or to assert defects in the invitation

documents or competing tenders.  If successful, the procurement procedure must be repeated

and/or the tenderer can claim compensation.

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Private Construction Law

On the private side, German construction contracts are surprisingly short.  This is because the

German Civil Code as well as the VOB/B-terms and conditions provide a substantial basis for

most aspects of any contract.

The prototype for construction contracts is found in the Civil Code, usually translated as

“contract for work and services” (Werkvertrag).  Under this type of contract, as distinguished

from a “contract for services,” it is the finished product, and not the work itself, for which

payment is made.  Consequently, the contractor is largely free to organize and carryout the

work in the manner it sees fit.  Only the date of acceptance is decisive.  Another basic rule is

first work, then pay - softened by the  right of the contractor to demand on-account payments

and surety bonds.  Further, the  ordering party is free to terminate the contract at any time. 

Without a genuine reason for the  termination, however, the ordering party is still  obliged to

pay the full price, less spared expenses basically resulting in recovery of the full profit margin

by the contractor.  With respect to defects, the contractor must be  granted an adequate

chance to perform remedial work before the ordering party can  replace the contractor and

claim related costs.

All the basic rules discussed above come into effect automatically under the Civil Code and,

therefore, apply to every construction contract.  As a result, construction contracts theoretically

require only two additional terms:  specification of the required work and the  price.  In fact,

many private construction  contracts are concluded on the basis of the Civil Code with

relatively little other verbiage.

In the commercial sector, virtually every construction contract uses a set of standardized

contract terms for construction contracts known as the VOB/B.  For contracting public

authorities, use of the VOB, is mandatory.  The VOB/B is one of three parts of the VOB, an

abbreviation standing for “procurement- and contract regulations for  construction work.” 

VOB/A deals with procurement rules, VOB/B provides standardized contract rules, and VOB/C

states particular technical regulations.  Under the VOB/B, a contract can also be concluded by

merely specifying the work to be performed and the price.  The basic construction terms set

forth in the VOB/B are consistent with the Civil Code and also certain more specific  provisions.

Among those more specific terms in the VOB/B are those concerning change orders and

payment for extra work.  The builder is free to make changes in the work at any time, but is

required to pay any related costs.  Also, the builder can demand the completion of extra work,

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provided that it stands in close relation to the original specifications (otherwise it is subject to a

possible separate agreement.  The parties should, but quite often do not, come to an

agreement on the payment for extra work).  The VOB/B provides that the new price for

addendum work must correlate with the so- called original calculation, i.e., the contractor’s

pricing as set forth in the contract.  In other words, the contractor is bound to his own

calculation of costs throughout the whole project.  If the parties do not agree on a price, it can

be determined through judicial review.  Factors like market-price increases are considered

relevant.  In fact, the new price must take into account all factors that were not foreseeable at

the time the original agreement was executed.  Such additional costs are paid by the builder. 

On the other hand, the contractor is bound to his profit margin and his original calculation of

indirect expenses, including overhead costs, etc.  The rule of thumb is that “fat price remains

fat, lean price remains lean.”  While calculations, of the contractor’s indirect costs, are

generally considered to be confidential, they must be disclosed when necessary to verify

addendum prices.  In practice, a hardcopy of the calculations is handed over by the contractor

in a sealed envelope, and if necessary, both parties together will examine the respective

calculations.  Negotiations over changes often lead to serious disputes, and handling these

disputes makes up a good part of the legal counseling in German construction law.

Other terms of practical importance are construction time, terms relating to work schedules,

and terms relating to payment.  With regard to these issues, the VOB/B provides several

conditions.  One side is the contractor’s duty to perform on schedule and, if the contractor fails,

correctives (such as setting time limits) and penalties (such as damages and/or termination). 

The other side is hindrance, i.e., delays to the work beyond the     contractor’s responsibility,

with consequences for extensions to schedule (extra time) and payment (extra payment).

The VOB/B also defines the typical roles and responsibilities of the contracting parties,

including organization and disposition on the one hand and cooperation duties on the other. 

Customized contracts often include specific terms on the organization of the construction site,

meetings, reports, and planning competencies.  The latter is important because, in many

cases, the builder and contractor share the responsibility for planning.  A typical allocation of

these responsibilities calls for the builder to provide the conceptual design, the approval design

and the engineering, while the contractor provides the detail planning and the work drawings. 

This division of responsibility for planning is another potential cause for serious conflicts and

disputes. 

The VOB/B explicitly requires that all defects and flaws must be remedied immediately, while

under the Civil Code the question whether work is defective is not pertinent until the

acceptance date.  The rationale behind the explicit VOB/B term is to give the builder the

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chance to address defects immediately, so as to avoid resultant costs and damages.  The

builder can give notice of the defect and demand that it be remedied within a reasonable

period.  If this period expires without the defect being remedied, the builder can terminate the

whole contract or, under certain conditions, the respective part of the work, and have it finished

by a different contractor.  The original contractor is, in turn, obligated to pay any resultant

costs.  With regard to defects that occur after acceptance, the VOB/B also provides rules that

address remedies, compensation claims and periods of limitation.

Further terms of the VOB/B refer to the acceptance of sureties and to unexpected damage

caused by force majeure.  The VOB/B also contains elaborate rules that address termination

rights.  Clauses on accounting and payment may also be of interest.  As a general rule, the

final payment is due at the moment of acceptance.  Additionally, the VOB/B requires a formally

correct account settlement.  In other words, the contractor’s account must be auditable, i.e.,

comprehensible for the builder.  Final payment is not due until the builder has finished the

audit, or for a period of two months beginning with the receipt of the account.  This has the

effect of postponing the payment date, compared to the basic rule in the Civil Code, where

payment is due at the time of acceptance.

Validity of Terms and Conditions: AGB-law

Based on the notion of equality, no party to contract shall be placed in an advantageous

position by using ready-made, biased terms and conditions.  The German Civil Code is quite

strict in judging which terms and conditions of a contract remain effective and which cannot

survive judicial review.

If one party provides a catalogue of standard conditions, the law on so-called  General Terms

and Conditions (AGB) automatically applies.  Only individually negotiated clauses are not

subject to the AGB-law.  The definition of genuinely negotiated and individual clauses,

however, is very restrictive.  Most building contracts are judged upon the compliance with the

AGB-laws and must meet these criteria.  If a contract clause is considered invalid under  AGB-

law, the respective matter is judged according to the Civil Code.  AGB law also applies to the

VOB/B clauses if they are altered even slightly or any term is omitted.

Technical Standards and Regulations

Construction work is regarded as free of defects when it fulfills all the requirements of the

contractual specifications and complies with the technical standards.  Therefore, certain

technical standards apply even if not explicitly described in the specifications.  The generic

Page 15: German Procurement

term for these standards is literally the “Generally Accepted Rules of Technology” (here

shortened as GART).  This term is used in the VOB/B, and the Civil Code is interpreted to refer

to these standard terms as well.  A higher or lower standard than the GART can be required by

contract, but must be set forth expressly in contract terms.

The GART are similar to, but not exactly the same as, state of the art/technology, as that

concept is understood in Germany.  Strictly speaking, state of the art is a higher standard, but

the two terms are often used synonymously.  A rudimentary definition of GART is: scientifically

acknowledged, yet practically established standards.

There is no code listing all of the accepted rules of technology.  The most prominent are the

catalogued standards called DIN (originally German Industrial Norms), which are published by

a private institute by the same name.  The majority of all German technical standards are DIN. 

Thousands of DIN cover all conceivable subjects, not just construction.  The European Norms

(EN) are also increasingly important. When nationally implemented, these are called EN-DIN. 

While there are numerous other published standards, it is the actual technical practice, and not

the written standards, that are determinative.  A particular group of DIN is the VOB/C, which is

automatically incorporated when the VOB/B applies.  The VOB/C is an elaborate catalogue of

detailed work steps, measuring and accounting rules for every craft.

Procedural Law and Arbitration

For cases involving public construction law issues, such as building permits, the administrative

jurisdiction is competent; for procurement matters it is the said chambers and the civil courts. 

The civil courts generally address all issues regarding construction contracts.  Separate bodies

specializing in construction law are found at the higher courts.  At the lower courts this is not

standard, but depends on the local courts’ organization.  Disputes are generally heard in the

jurisdiction where the building at issue is located or where the offices of the builder or

contractor reside.  Where international parties are involved, special conditions apply.

There are several possibilities for extra-judicial resolution of disputes such as arbitration,

conciliation and mediation.  In particular, arbitration procedures are widely accepted in the

construction industry.  Two proper statutes were designed, the “rules on arbitration and

conciliation for construction issues” (SOBau), and the “arbitration code for construction

including plant engineering” (SGO Bau).  The application of one of these codes is quite

frequently fixed in construction contracts.  As a rule, the arbitration body consists of at least

one degreed lawyer or judge.

Recently, adjudication procedures following the British model have been discussed, and there

Page 16: German Procurement

is the intent to implement this type of arbitration into the national Code of Civil Procedure.  In

addition to alternative means of dispute resolution, alternatives for the prevention of conflicts

have also been discussed, including construction partnering.  With regard to such measures,

improvement to the German system seems possible, though on the far horizon.  In this regard,

there is a lot to be learned from US-American practice.

Natalie Keller is a guest author and partner in the Berlin, Germany office of the German law

firm, HFK Rechtsanwälte, Heiermann Franke Knipp, which also has other offices in Frankfurt,

Hanover, Hamburg, Munich, Germany and Vienna, Austria.  Watt, Tieder, Hoffar & Fitzgerald,

L.L.P. and HFK Rechtsanwälte are affiliated to help with your international legal issues.  Future

newsletters will include articles from HFK Rechtsanwälte attorneys to introduce you to that law

firm. HFK  Rechtsanwälte's website is: http://www.hfk-rechtsanwaelte.de/englisch/home.php

The information or opinion provided in this article is the author's own and not necessarily that

of Watt, Tieder, Hoffar & Fitzgerald, LLP. The author is solely responsible for the information

and opinion that he or she has provided. The information contained herein does not replace

seeking specific legal counsel to directly address individual client needs.

Watt, Tieder, Hoffar & Fitzgerald is one of the largest construction law firms in the world, with a

practice that encompasses all aspects of construction contracting, claims and disputes

resolution, and transactional legal services. WTHF principally represents large general

contractors, design firms, and sureties throughout the country and internationally.

Maude said UK businesses had lost out in the past when bidding for UK public sector contracts because of an "anti-UK bias". Maude said the bias had come about because public sector bodies had over-interpreted EU law and that this had driven up costs for UK businesses and stifled innovation.

"In the same 12 month period while British companies won £432m of EU contracts, French firms won £911m and German firms £3600m. The UK awards 3% of public procurement by value to foreign suppliers, compared to 1.9% in Germany and 1.5% in France," Maude said. 

"And it’s not because France and Germany break any rules. They don’t. The difference is the Governments of these countries work closely with their domestic firms so they are geared up to win contracts at home and abroad. Whereas in Britain by over-interpreting EU law and overreacting to fears of bias in favour of British suppliers – we take an almost deliberately short-sighted approach to working with business.  The result of that has been a bias against British based firms," the Cabinet Office Minister said.

"So while Germany and France nurture mutually beneficial long-term relationships with their key suppliers – the British public sector has taken a speed dating approach to ours. Because

Page 17: German Procurement

we have made it really difficult and expensive for smaller British suppliers even to bid for business, we’ve excluded some of the most innovative and competitive suppliers from doing business with us and for us," he said.

Public sector organisations often advertise contract opportunities in the Official Journal of the European Union (OJEU) in order to comply with EU free trade laws. The EU's Public Contracts Directive sets out financial thresholds for specific kinds of contracts and requires some contracts above the thresholds to be made available to tender across the EU.

Maude said that decision-making about Government contracts would not "skew procurement in favour of UK firms and jeopardise value for money". 

"We want to access the widest range of the best suppliers and award the contract after fair competition to the supplier that can best do the job. The only question we will consider when choosing suppliers is who will give us the best cost effective service. It is imperative that the £60bn-plus Whitehall spends and the £230bn the whole public sector spends on goods and services supports UK growth and gives taxpayers better value for money," Maude said.

The Cabinet Office last month issued guidance advising Government departments to use 'Contracts Finder' to prior notify UK companies about forthcoming contract opportunities. Contracts Finder is an online publishing and search tool which the Government launched in February to give suppliers, buyers and the public access to information about Government contracts.

Maude said it was particularly important for UK businesses to be given better information about UK public sector contracts since increased opportunities to deliver public services are expected to be open to suppliers in the future.

The Government saved £800m from renegotiating contracts "in the short financial year to March" and is committed to cutting out further "wasteful spending" in order to "protect front line services," Maude said.

Maude said he would attempt to negotiate "a radical simplification" of EU laws on public procurement with the European Commission in order "to reduce costs for business and for procurers". He added that the bidding process for public sector contracts would be streamlined using such measures as "breaking up large contracts or inviting explicit commitments from bidders about their supply chain". He said the Government was "committed" to ensuring that "all but the most complex procurement" was determined within 120 working days.

Maude banned central Government from hiring external consultants to handle complex contract procurement without his "express agreement" and said that the focus instead would be on prescribing less detailed instructions to suppliers based on what Government would like to see delivered at the end of projects. He said central Government staff involved in "running a significant procurement" would be trained in the skills they need to do so "swiftly and efficiently" and that he wants to establish a 'virtual Commissioning Academy' to "drive the necessary commercial skills and confidence" in the wider public sector.

Page 18: German Procurement

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European Commission consults on procurement law overhaul 01 Feb 2011 Government to examine public procurement practices 22 Dec 2010 Guide: Green procurement in the public sector Guide: The Public Procurement Regulations of 2006: an introduction

Often architects deal directly with subcontractors who are more susceptible to changes

in building technology and contractual procedures (Ehrenkrantz 1989). The architectsubcontractor

relationship under a construction management procurement method has

proved successful in Germany, where architects act as construction managers and have

separate contracts with specialist contractors, trade contractors, consultants and clients

(Boemke 1993). The German experience, strongly characterised by the architect-led

Page 19: German Procurement

construction management procurement method, is perhaps the best model for

architects to adopt in order to facilitate a more extensive process of integration.

Germany

Current national procurement legislation/standards

One general procurement legal standard exists in Germany for public procurement. It includes procurement procedures for all product groups covered in “Buy Smart”.  The “interpretative” communication on 4th July 2001 of the European Commission (EC) with the member states as well as the judgements of the European Court of Justice on 17 September 2002 (Case C-513/99 - Concordia Bus, Finland) and 4 December 2003 (C-448/01 – Wienelectricity, Austria) have opened up procurement standards for green procurement on European level. The framework for the national legislation on public procurement is the European Directive 2004/18/EC (on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts) and the European Directive 2004/17/EC (procurement procedures of entities operating in the water, energy, transport and postal services sectors). The directives enlarge the possibilities for adopting environmental considerations in the selection of technical specifications, award criteria and also contract performance clauses for public procurement. The EC directives only apply to public procurement contracts that will probably exceed fixed thresholds as stated in the EC directives (regulation 1422/2007):

for construction works: 4.845.000 Euro For products and services:

              - 125,000 Euro for federal state authorities               - 193,000 Euro for other public authorities and entities               - 387.000 Euro for water, energy, transport and postal services sectors.

Below the threshold values mentioned in the EC Directives the procurement procedures are laid down in the German competition law. Germany has transposed the Directives 2004/18/EC and 2004/17/EC into German law. For procurement procedures important are:

fourth chapter of the competition law against distortion of competition (Gesetz gegen Wettbewerbsbeschränkungen, GWB),

award ordinance (Vergabeverordnung VgV), contracting rules for awarding public services and works (Verdingungsordnungen VOL/A,

VOF and VOB/A), and law on budgetary funds.

The possibility to implement green criteria into the procurement process is laid down in national law in:

Page 20: German Procurement

§ 97 Abs. 4 GWB § 8 a Abs. 3 VOL/A § 25 a Abs. 1 VOL/A.

In January 2008 the Federal Ministry of Economics and Technology enacted a regulation which states, the federal institutions have to procure products and services with criteria of environmental labels and with regarding life-cycle-costs.  All legal principles like equal treatment, transparency, as well as free movement of goods have to be respected by the procurement procedure.

Current national practice

In Germany there are about 30.000 contracting authorities. The procurement standards vary widely according the purchasing policies of the institution and individuals. If an administration wants to consider environmentally criteria for goods, services and materials it has to set out the criteria clearly in the tender documents. It’s necessary to avoid discrimination of products or goods or supplier from abroad. Depending on the threshold values mentioned in the Directives and respectively in the German ordinances there is a difference whether the tender documents are published in national official journals or in the European Tenders Electronic Daily (TED).

Recognised barriers

The good news first: There are virtually no legal or institutional barriers preventing green procurement praxis. It is up to the individual decision makers to choose whether to include green criteria or not, and to evaluate the outcome. However, green procurement has some own specifics, and cannot be conducted completely in the same way as “standard” procurement. Specific issues demand specific legal and operational knowledge. Therefore trained personnel is needed to set targets, use developed criteria and tools. Green procurement is often more or less formally encouraged, but - being not compulsory - the neglecting of green issues often does not bring any consequences. The main barriers can be summarised as follows:

Scarce diffusion of a co-ordinated green public procurement among public authorities. The culture of filing a formal protest in procurement process by those who did not win it

lead to the fact that procurers are rather cautions and prefer to define their specifications very detailed, which can lead to a lack of products on the market.

Environmental aspects need to be integrated into strategic goals, procurement policies and practices more systematically.

The responsibilities for purchase costs and operational costs in public administrations are often still shared between different public departments.

Specific issues on green procurement demand specific knowledge, that is why trained personnel is needed to be able to identify opportunities, set targets, and draw out the most promising options.

Green procurement is seen as extra work, resulting in resistance to change habits and procedures of procurement.

Low level of awareness regarding life cycle costs and the idea of receiving benefits later in time. This is a difficult perspective especially for administration staff in public institutions.

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There is not sufficient or widespread enough information available; targeted promotion activities are needed, led by recognized institutions. Purchasers need information, guidance and training on the environmental aspects of products and services, life cycle costs analysis and the possibilities and limitations of integrating environmental aspects into procurement.

Developed tools are not easy to implement into daily purchasing procedures without additional support and tenders preparation time.

Even when using the criteria of well-established environmental and energy labels, the availability of updated criteria and databases on efficient products is still very limited; respective information has to be adapted and updated since.

              - Label criteria are sometimes being updated, resulting in the need to adapt guidelines and tools               - Label criteria are not being updated, although the technical developments would ask for it, resulting in the need to look for different, more up-to-date criteria from other or own sources.

Opportunities

Additional Political Support

Additional legal requirements, beginning with public authorities, should push professional purchasers to give systematically more attention to green procurement. The European Energy Star regulation is a good example for the product group of IT equipment and the Directive 2009/33/EC for road vehicles. Similar initiatives should be considered for further product groups. In the context of the National Energy Efficiency Action Plans in the context of the Energy Services Directive, requirements on the national level could be foreseen additionally. National and international agreements, policies and programmes (both compulsory and voluntary) help to push the agenda and raise awareness.

Institutional responsibility

Needed are more good examples of institutional role models. If some governmental body formally supports green procurement, but its own procurement criteria consist only of the lowest price request, then this green proclamation is probably not a good example. Pilot projects should be implemented in influential institutions. More institutional encouragement and additional institutional support from central and regional authorities is needed. Good practice cases with the procedures, advantages, results, impacts of green procurement should be promoted and disseminated. The implementation of green procurement (although usually gradually introduced) may require the re-organisation and re-definition of the overall purchasing policy. This must be done with a good knowledge of the real qualitative and quantitative needs and of the (green) criteria to be considered.

Trained personnel

Since green procurement is voluntary action, strong emphasis must be put on motivation of the procurement actors. Convincing and motivating the responsible staff to engage in a new approach may be the most difficult but at the same time the most promising strategy to boost green procurement. In many places, where green procurement is implemented successfully, there is committed personnel, willing to make a difference.

Page 22: German Procurement

To enable these implementers to implement green procurement more easily, to provide them with the necessary knowledge and tools, and to offer to them information sources with good practices and personal advice, is at this stage still indispensable. Respective trainings must be broadly organised and promoted, also for multipliers, who will in turn transport it to their clients. Since many procurement activities are today increasingly organised with the help of external service providers, e.g. professional e-procurement platforms, these service providers can be important promotional partners and multipliers for green procurement. The respective electronic support infrastructure offered by these platforms could be amended with electronic procedures for green procurement, including web-based tools for life cycle costs analysis. Through the establishment of strategic partnerships with such service providers, the transaction costs of green procurement would clearly decrease, scepticism towards legal risks would be minimised, and a large multiplication effect could be achieved.

Knowledge about environmental and cost benefits

The awareness on green procurement and its benefits must be further increased. The life cycle cost approach should be strongly promoted and tools for the evaluation of offers with regard to life cycle costs should be made widely available. It must be easy for the procurers to prove, that the greener choice is also the more economical choice. It is for them the most important justification for choosing the green approach and engaging in higher initial costs. Some experience show that when green criteria are correctly selected, green procurement can result in a 15-20 % cost reduction.

Building up green markets

One of the barriers is that for some products no or only niche markets for green products and services exist. However, the existence of at least a niche market for greener products of a certain product group is essential for engaging into green procurement. A tender that does not attract any offers is counterproductive. It is true to a certain extent, that demand creates supply. However, in today’s world with the strong position of large multinational companies, it needs very strong purchasing power to make a large company develop a new or redesign an existing product.

This is an area, where again political initiatives are needed, and some very promising ones are under way. The implementing measures in the context of the Energy-using Products (EuP) Directive and the reorganisation and reclassification of the European Energy Label will help enormously to ban inefficient products from the markets and highlight excellent appliances and products for the customer.

Apparently the situation which has normally prevailed in Germany is quite different.There, the standard form of contract - the VOB (“Verdingungsordnung fürBauleistungen”) form - requires the successful tenderer to provide the detailed backup for its pricing and permits adjustment of the unit rates should quantities changein either direction by 10% or more. These provisions contemplate that unit ratescould and should be reduced to reflect economies of scale in the event that thequantities of a particular category of work increases28. This approach is at leastsuperficially similar to that adopted in the JCT Standard Form of Prime Cost Contract

Page 23: German Procurement

1998 edition for adjustment of the contract fee where a fixed fee is agreed (seeclause 4.10 of that form). There is insufficient experience of this form to draw anyclear conclusions as to whether this represents a “harmonisation” of contract27 Clause 56(2) of the ICE standard form of Contract (7th ed.)28 See Duncan Wallace, Construction Contracts: Principles and Policies in Tort and Contract, para. 27-22EU Procurement

DGNB

The DGNB (Deutsche Gessellschaft fur Nachhaltiges Bauen) certification system was developed in 2009

by the German Sustainable Building Council.

As with the other systems described here, the DGNB covers all the relevant issues of sustainable

construction. DGNB is organised around six so-called qualities: ecology, economy, socio-cultural and

functional issues, techniques, processes, and the site.

To date, 155 buildings have been certified or pre-certified using DGNB, including those located in Austria,

Switzerland and Luxemburg. Some countries, such as Hungary, have developed their own rating based

on DGNB. The certification fee varies from €1600 to €20 000. As with BREEAM, other fees such as

registration may apply.

In Germany, only some parts of the Directives have been transposed into national law, even though all EU member states should have implemented them before January 1st, 2006. The current German procurement law makes no mention of the possibilities to include social and environmental criteria in public tenders. In Germany it is still controversial at to whether it is appropriate to introduce such criteria in procurement. Germany has included the Directive thresholds in its procurement laws. The thresholds are used to determine which national laws or regulations are applicable. The federal procurement law is only in force for procurements above these thresholds, applying both to federal institutions and states and their institutions. The federal law has a so-called “opening paragraph”, allowing states to implement their own procurement laws, as long as they complement the federal law. This makes the current situation highly complex, as there are significant differences between the laws in different states, and because these state laws are also applicable below the thresholds. The federal legislation was in the process of being reformed in 2004, but the proposed law was not followed up by the next government, after the elections in 2005. A new law proposal has recently been drafted, and is expected to pass parliament before the end of this year. This new draft does allow for environmental and social criteria being taken up in the procurement process. This will be described in greater detail in the next section.The main reason for the delay of full implementation of the Directives lies in a lack of political will. Over the years, there has been a prolonged debate surrounding the purpose of government procurement, and its role regarding sustainability. The recent proposal signifies a shift in attitude, and a possible breakthrough in Germany’s approach to the Directives.

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7In Germany, social and environmental considerations are not mentioned at all in federal procurement law. However, supplementary regulations that govern the procurement process point to some possibilities to include environmental criteria in accordance with certain eco-labels while social criteria are not mentioned.Although sustainability considerations are not specifically mentioned in German federal procurement law and are referred to only marginally in supplementary regulations, social and environmental criteria can nevertheless be included in public tenders. While defining the subject matter of the tender, the purchasing agency is theoretically free to choose any article or service needed, including those that abide by social and ecological criteria (e.g. fair trade coffee, green energy), as long as this does not contradict the principle of non-discrimination in EU law and the principle of equal treatment under the German constitution. Once defined in the subject matter, there is also room to apply sustainability criteria to a certain extent in other phases of public tenders (technical specifications, selection criteria, contract awarding criteria).However, regarding sustainable procurement practice, uncertainty and diffidence is prevalant among public purchasers in Germany as the opportunities for using sustainability criteria are not explicitly stated. Further sources of uncertainty are the highly complex structure of German procurement law and its legal interpretation as well as a strong lobby against the application of social and environmental criteria in business associations and among conservative legal experts. As mentioned before, the adoption of the German law into the European Procurement Directives, which is due to take place in November 2008, will alter this contradictory situation to some extent as it is expected that the explicit passages on sustainability criteria will be introduced in German federal law. Legal uncertainty will therefore probably be reduced in the future.17

In Germany public procurement above the thresholds is regulated mainly by federal law. Thefederal “Länder” have introduced only a few additional directives and decrees that apply abovethe thresholds. In Germany public procurement above the thresholds is based on the followinglaws and regulations:−• Das Gesetz gegen Wettbewerbsbeschränkungen (GWB) - Act Against Restraints ofCompetition−• Die Vergabeverordnung (VgV) - Regulation on Public Procurement, and−• Die Verdingungsordnung für Leistungen (VOL) - Regulations on Tender Procedures forSupplies and Services,−Die Vergabe- und Vertragsordnung für Bauleistungen (VOB) - Regulations on TenderProcedures for Public Works,−Die Verdingungsordnung für freiberufliche Leistungen (VOF) - Regulationson TenderProcedures for Services by Free-lancersThe VOL, VOB and VOF are particularly important for bidders as they provide detailed rules fortenderprocedures.Which regulations apply below the thresholds?Public procurement below the EU thresholds is determined by budgetary law. Usually budgetarylaw refers to the VOB and the VOL so that in the area of supplies, services and works there isuniform procurement legislation. The VOF is not relevant.In addition there are areas in which no specific procurement legislation applies. For example,below the thresholds, the Bavarian communities are not affected by the VOL, but the VOBapplies. Furthermore many bodies under public law that are defined as ‘contracting authorities’do not apply public procurement legislation to contracts below the EU thresholds. However,competition must be assured even in the areas in which no specific public procurementlegislation applies and which are only subject to budgetary law. Usually prices from several

Page 25: German Procurement

suppliers must be ascertained; however, the suppliers can then be freely selected.Below the thresholds a number of regional regulations supplement the budgetary law and theregulations on public procurement, among them Public Procurement Directive for Small andMedium-Sized Enterprises, Public Procurement Directives on the Environment etc.2. What are the national and regional media for the publication of contract notices?Above the thresholds:Contract notices that are subject to EU regulations must be published in the Supplement to theOfficial Journal of the European Communities and in the TED database and can be obtained forexample via the ETIS database.Below the thresholdsContracting authorities in Germany are usually also obliged to publish those contract notices thatare below the EU thresholds. However, the contracting authority has the right to choose thepublication medium. Calls for competition that can be used as a first stage for restricted ornegotiated procedures are also published to some extent. If the contracting authority decides topublish a tender notice, the medium can be freely selected. The ETIS database covers a widerange of German tender notices below the thresholds.3. Which procurement procedures are used?Above the thresholds:All procurement procedures that are forseen on European level are mentioned in German publicprocurement law for contracts above the EU thresholds. Hence, German public authorities canchoose between the ‘open procedure’, the ‘restricted procedure’, the ‘negotiated procedure’ andthe ‘competitive dialogue’. Since the competitive dialogue is a rather new procedure it is, for themoment, not widely used in Germany.Below the thresholds:Below the thresholds, German procurement legislation basically stipulates the same procedures,but under different names.‘Öffentliche Ausschreibung’ (public tender) corresponds to the ‘open procedure’,‘Beschränkte Ausschreibung’ (limited tender) includes the same steps as the ‘non openprocedure’. A call for competition can be used as a first stage.on public procurement in thealpine regions‘Freihändige Vergabe’ (free tender procedure) can be equated with the ‘negotiated procedure’. Acall for competition can be used as a first stage.For the time being, the competitive dialogue doesn’t exist below the thresholds.4. Which time-limits must be considered?Which limits apply above the thresholds?The time-limits that are to be observed for tenders above the thresholds are specified in the EUdirectives.Public Procurementin Germany© October 2006 3Auftragsberatungszentrum Bayern e.V. (ABZ)Orleansstraße 1081669 MunichGermanyphone: +49 89 5116475Which limits apply below the thresholds?No specific time-limits apply below the thresholds. The Regulations on Contract Proceduresmention only "appropriate time-limits“. In practice the time-limits below the thresholds are usuallyshorter than those provided in the EU directives.Tip:In addition to the above time-limits, contracting authorities in Germany may set a deadline forrequesting the contract documents. Keep in mind that you can no longer participate in aprocedure if you miss this deadline and have not requested the contract documents on time.Which evidence can be requested in the course of an application?In Germany suppliers must submit the evidence specified in the EU public procurementdirectives both for tenders above and below the EU thresholds. The qualification criteria that arechecked with the requested documents are listed in the VOL (§ 7 and 7a), the VOF (§ 7) and the

Page 26: German Procurement

VOB (§8 and 8a). In addition specific regional evidence may be requested.5. Who wins? Which award criteria apply?Which criteria apply above the thresholds?In principle the contract is awarded to the most economically advantageous tender. The mosteconomically advantageous tender does not necessarily correspond to the lowest price. It isusually determined on the basis of price, quality and various criteria according to the contract inquestion. In Germany the weighting of the criteria is now obligatory, however, not alwayspublished in the tender notice. In addition the supplier is to be selected according to expertise,financial capacity and reliability. According to the principle of open competition, as manyapplicants as possible should have the chance to make a bid. All bidders (which of courseincludes suppliers from other EU member states and from third countries) must be treatedequally. The public procurement regulations explicitly forbid contracting authorities to negotiatewith potential suppliers. However, talks with bidders with the purpose of dispelling any doubts onsuppliers and their bids are permitted. It is not allowed to consider criteria that are unrelated topublic procurement when contracts are awarded.However, there are some specific provisions that may be taken into account when awardingcontracts on a European or regional level. Thus it is permissible, for example, to consider smalland medium-sized enterprises as well as members of the liberal professions to a reasonableextent when public contracts are awarded. Various regional procurement regulations in positivestatements on the award of contracts in lots. When public contracts that may have an effect onthe environment are to be awarded, it will be determined whether and which environmentfriendlysolutions suppliers offer.