International Construction Law Review
GERMANY ADOPTS NEW PROCUREMENT CODE
WILLIAM KARL WILBURN* AND DR INGRID REICHLING**
* Senior law partner, Government Contracts and Construction Practice Group, Seyfarth, Shaw, Fairweather & Geraldson, Washington, DC and Brussels. ** Rechtsanwältin (lawyer); Partner, BBLP Beiten Burkhardt Mittl & Wegener, Munich.
On 1 January 1999, Germany—the world’s third largest economy—adopted a new government procurement code, the Vergaberechtsänderungsgesetz
(Act to Revise the Legal Basis for the Award of Public Procurement Contracts) (Act).1
The Act will govern the way all federal and subfederal agencies in Germany will spend an estimated DM 200 billion (about $130 billion) annually in their purchase of various governmental goods and services.2
The change has been greeted as a positive step by Germany to open its lucrative procurement market to increased domestic and foreign competition. The changes establish innovative measures to provide participants in the procurement process with greater fairness and legal protection.
The change was hardly voluntary. For years, the European Community and the United States have claimed that the old German procurement system violated the General Agreement on Tariffs and Trade (GATT)3
and discriminated against foreign bidders. Threatened with sanctions, Germany knuckled under, scrapped the old procurement system, and adopted the Act, which is designed to enhance transparency and to provide bidders and other parties to a government contract with the right to independent judicial review. On its face, the Act goes far in remedying these past inequities; however, it is still too early to determine the actual effect which the Act will have in changing a procurement practice and culture that had thrived in Germany for over five decades.
This article:
- I. briefly examines the domestic German procurement market;
- II. discusses the previous German procurement system;
- III. reviews the international economic and political pressures exerted on Germany which led to passage of the Act;
- IV. discusses the Act itself; and
- V. concludes with some general observations.
The authors also provide an English translation of the new Act in the Appendix to this article.
I. MARKET CONTEXT
As discussed in III below, one of the goals of the GATT is to unify the procurement systems of the international trading community. Among the benefits of this global harmonisation is the opening of an individual country’s previously closed domestic procurement market to foreign competition. Other benefits include a more efficient allocation of global resources, enhancement of the quality of public facilities and services, job creation, and economic growth in general. Thus, because both domestic and international interests have a stake in Germany’s previously protected procurement market, a brief empirical overview of the German procurement market is in order. Specifically, how large is the German market for government purchases of goods, services and construction works? What are some of its basic characteristics?
Precise figures are difficult to determine, but since 1994 the German Federation of Industry (BDI) has estimated that the public procurement market for the entire European Community was annually €720 billion Euro or about $940 billion. Within the European Community (EC), Germany’s procurement market was estimated to be about DM 400 billion, or $270 billion annually. This comprises 30% of the overall EC procurement market. Within this German market, local authorities purchased half of all procured goods and services; the Länder (i.e. States) purchased 26%; the federal government 19%; and social security the remaining 5%. Collectively, contract awards fell into the following categories: utilities 38%; public works projects 21%; services 21% and supplies 20%.4
II. GERMANY’S PREVIOUS PROCUREMENT SYSTEM
Except for the years immediately preceding adoption of the Act, it would serve no illuminating purpose to discuss exhaustively the legislative origins of the former German procurement system which has now been replaced. “Procurement system” is a more appropriate designation than “procurement law”, because for decades there was no discrete body of law which regulated
[2000
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