Legal Protection in Award Procedures for Public Building Contracts - International Law Office

International Law Office

Construction - Germany

Legal Protection in Award Procedures for Public Building Contracts

November 08 1999

Introduction
Legal Protection for Rejected Bidders
No Legitimate Interest to Take Legal Action
Future Prospects


Introduction


Since the latest relevant European Union (EU) directives were incorporated into German national law in 1999, bidders in award procedures valued above certain threshold sums have had an actionable right with regard to adherence to the award provisions (Section 97 para. 7 of the Restraint of Competition Act). Correspondingly, an award review procedure before the award panel is also provided for. If an application for a review procedure of this kind is filed before the commission is awarded, the award procedure is then suspended. However, the award decision cannot be reversed once it has been made (Section 114 para. 2 of the Restraint of Competition Act). This is a logical consequence of German construction law, under which the building contract is concluded as soon as the commission has been awarded.

The problem is that bidders do not learn whether their bid has been successful until the contract is awarded. If they are rejected and maintain that the award procedure was illegal, it is then too late to take any effective legal action, because the award decision is irreversible. This means that rejected bidders can only assert claims for damages. The federal award panel has dealt with this lack of effective legal protection in two recent decisions.

Legal Protection for Rejected Bidders (VK 1 - 7/99, April 29 1999)

In one recent case, a bidder had asked the public principal to be duly informed as to which offer was to be accepted, so as to avoid the aforementioned lack of legal protection. This was supposed to enable the bidder to take legal action before the award decision could be implemented and, thus, become irreversible. The federal award panel agreed with the bidder, ruling that the principal must inform the bidder of the decision 10 days before the commission is awarded. The rejected bidder was thus given the chance to apply for a review procedure, which automatically suspends the contract's award and provides adequate legal protection (Section 115 para. 1 of the Restraint of Competition Act).

The decision was made with regard to the award of a service contract. However, the award provisions for public building contracts are similar to those for public service contracts. The decision is therefore also important for the award of public building contracts.

No Legitimate Interest to Take Legal Action (VK 1 - 11/99, June 7 1999)

In a similar case one month later, the federal award panel added a specification to the above ruling. The action of a building contractor, who claimed that the public principal was obliged to inform him of an award decision 10 days before the contract's award, was dismissed. The award panel did not reject the idea of a duty to inform as such. However, it dismissed the bidder's claim because the bidder had not asked the principal to supply him with the aforementioned information, and so it was not certain whether the principal would have refused this request. It added that if the request had been refused, the bidder would have had to notify the public principal of this breach of provisions since notification of this kind is necessary for an application to be admissible before the award panel (Section 107 para. 3 of the Restraint of Competition Act).

Future Prospects

The federal award panel's new rulings have already been put into practice. Principals now tend to inform bidders as to who has been awarded a commission 10 days before their decision is implemented.

Austria also has a legal system in which a building contract is concluded as soon as the commission has been awarded. There the problem has come before the federal award office, which has called upon the European Court of Justice to make a decision thereon. The court ruled that the member states must ensure that the public principal’s decision is "open to review in a procedure whereby a bidder may have that decision set aside". It held that the purpose of the applicable EU Directive (89/665) was "to establish effective and rapid procedures to review unlawful decisions (...) at a stage where infringements may still be rectified" (Alcatel Austria AG v Ministry of Science and Traffic, October 28 1999).

This means that, contrary to Austrian and German law, the principal’s decision must be reversible. The award decision and the conclusion of the contract must, therefore, be two separate acts. However, the court did not specify the period of time between these two acts. As for the German legal system, it is clear that the bidders must be given sufficient time to file a review procedure application before the contract is concluded. Adequate legal protection is thus granted as the award procedure is automatically suspended in this case.

This decision by the European Court of Justice may lead to a fundamental change in that part of German law governing the award of public building contracts being required unless the solution proposed by the Federal Award Panel, that is the principal’s duty to inform with regard to the award decision, is considered to offer rejected bidders sufficient legal protection. Further details are expected to be provided in forthcoming decisions.

For further information on the above topics, please contact Eckart Putzier or Lutz Horn at Clifford Chance Pünder by telephone (+49 30 25465 800) or by fax (+49 30 25465 900) or by e-mail (eckart.putzier@cliffordchance.com or lutz.horn@cliffordchance.com).
The materials contained on this web site are for general information purposes only and are subject to the disclaimer.


Comment or question for author

ILO provides online commentaries as specialist Legal Newsletters. Written in collaboration with over 500 of the world's leading experts and covering more than 100 jurisdictions, it delivers individually requested information via email to an influential global audience of law firm partners and international corporate counsel. Please click here to register for the service.

The materials contained on this website are for general information purposes only and are subject to the disclaimer.

ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription. Register at www.iloinfo.com.