Non-exclusive framework agreements in Germany?
Written By
Dr. Alexander Csaki
Partner
Germany
Working as a partner in our Regulatory and Administrative Practice Group, I mainly advise clients in the healthcare, transport and security and defence sectors, where my everyday practice centres around public regulatory, social, health and European law issues.
Public procurement is a fundamental component of government operations. But there is always one question: How can we implement a legal system of public procurement law to get exactly what we want in a flexible way? One good option is the institute of framework agreements. This article will focus on the special nature of non-exclusive framework agreements.
German law recognises various legal bases for framework agreements, such as section 21 VgV or section 15 UVgO. The respective regulation depends on the estimated order value in total. In fact, the basis of framework agreements offers a flexible way to get what the specific contracting authority needs. Framework agreements are contracts designed to set out the general conditions for future procurement during a given period and especially defines the cost of those procurements. Furthermore, there must be an anticipated order volume. The aim of this is to simplify procurement practice. It is important that the contracting parties to the specific framework agreement may not be subsequently changed.
This article will deal with the topic of non-exclusive framework agreements. With this type of agreement, the contracting authority makes it clear that it reserves the right to award any services outside of the specific framework agreement in a normal competitive process. Recital 61 of Directive 2014/24/EU, on which German public procurement law is based, speaks in favour of this approach, according to which "Contracting authorities should not be obliged pursuant to this Directive to procure works, supplies or services that are covered by a framework agreement, under that framework agreement." This objective would be thwarted if a blanket obligation to conclude a framework agreement were to be assumed (see in detail: Beck VergabeR/Biemann, 3rd ed. 2019, VgV Section 21 para. 27 with further references). In our view, it can be argued with good reason that the national legislator did not intend to tighten up the European Directive in Section 21 (2) sentence 2 VgV - it states: "Individual contracts shall be awarded exclusively between the contracting authorities named in the contract notice or the invitation to confirm interest and those companies that are parties to the framework agreement at the time the individual contract is concluded."
On the one hand, the provision is almost identical in wording to the directive. Secondly, in our view, the provision can be interpreted with good reason to mean that a contracting authority may only award individual contracts based on the framework agreement to framework agreement partners and not directly to any other companies outside the framework agreement. However, this does not mean that procurement requirements covered by the framework agreement cannot be put out to public tender again in accordance with procurement law. The framework agreement partner also could be awarded the contract again.
However, it is necessary that the non-exclusivity is publicised to the bidders in a transparent manner. The following wording in the EU Contract notice and the framework agreement terms and conditions is therefore suitable, for example: "The present framework contract is non-exclusive. The contracting authority reserves the right to put the performance in question out to public tender and award them on a competitive basis."
In practice, such an approach can lead to bidders offering higher prices than in the case of an exclusive framework agreement. This is because the discount that may be granted for the security of being the only one to cover the client's procurement requirements for the tendered contract term does not apply in this system. This is further emphasised by the fact that most framework agreements do not provide for a minimum purchase quantity.
In fact, this case has not yet been conclusively decided by case law. However, in the case of the transparent announcement of non-exclusivity, we consider such a model to be justifiable and it remains to be seen how the case law will develop. As always, transparent criteria are the most important in public procurement law.
This article will deal with the topic of non-exclusive framework agreements. With this type of agreement, the contracting authority makes it clear that it reserves the right to award any services outside of the specific framework agreement in a normal competitive process. Recital 61 of Directive 2014/24/EU, on which German public procurement law is based, speaks in favour of this approach, according to which "Contracting authorities should not be obliged pursuant to this Directive to procure works, supplies or services that are covered by a framework agreement, under that framework agreement." This objective would be thwarted if a blanket obligation to conclude a framework agreement were to be assumed (see in detail: Beck VergabeR/Biemann, 3rd ed. 2019, VgV Section 21 para. 27 with further references). In our view, it can be argued with good reason that the national legislator did not intend to tighten up the European Directive in Section 21 (2) sentence 2 VgV - it states: "Individual contracts shall be awarded exclusively between the contracting authorities named in the contract notice or the invitation to confirm interest and those companies that are parties to the framework agreement at the time the individual contract is concluded."
On the one hand, the provision is almost identical in wording to the directive. Secondly, in our view, the provision can be interpreted with good reason to mean that a contracting authority may only award individual contracts based on the framework agreement to framework agreement partners and not directly to any other companies outside the framework agreement. However, this does not mean that procurement requirements covered by the framework agreement cannot be put out to public tender again in accordance with procurement law. The framework agreement partner also could be awarded the contract again.
However, it is necessary that the non-exclusivity is publicised to the bidders in a transparent manner. The following wording in the EU Contract notice and the framework agreement terms and conditions is therefore suitable, for example: "The present framework contract is non-exclusive. The contracting authority reserves the right to put the performance in question out to public tender and award them on a competitive basis."
In practice, such an approach can lead to bidders offering higher prices than in the case of an exclusive framework agreement. This is because the discount that may be granted for the security of being the only one to cover the client's procurement requirements for the tendered contract term does not apply in this system. This is further emphasised by the fact that most framework agreements do not provide for a minimum purchase quantity.
In fact, this case has not yet been conclusively decided by case law. However, in the case of the transparent announcement of non-exclusivity, we consider such a model to be justifiable and it remains to be seen how the case law will develop. As always, transparent criteria are the most important in public procurement law.
