Term and Definition: Public Contracts
Public contracts refer to legal agreements between public contracting authorities, i.e., governmental or government-related institutions, and companies, through which the procurement of supplies, construction, or services for public purposes is carried out. In a legal context, a public contract is understood as a remunerated agreement through which the public sector procures goods, construction works, or services. Public procurement is an essential tool for ensuring public infrastructure, administrative activity, and public services.
Public contracts are subject to complex legal requirements, which ensure, among other things, transparency, non-discrimination, and fair competition. The goal is the economical use of public funds and achieving political and social objectives such as environmental protection, innovation, and social aspects.
Legal Foundations and Areas of Regulation
European Law Provisions
The awarding of public contracts is shaped by a multitude of European legal requirements. The most important foundations are:
- Directive 2014/24/EU on public procurement (core instrument for supply and service contracts)
- Directive 2014/25/EU on procurement in the fields of water, energy, transport, and postal services (sector-specific procurement law)
- Directive 2014/23/EU on the award of concession contracts
These directives must be transposed into national law and, in particular, establish thresholds, procurement procedures, selection criteria, and avenues for legal protection.
National Regulations in Germany
In Germany, various laws and regulations form the basis for the awarding of public contracts:
- Act against Restraints of Competition (GWB): In particular, Part 4 (§§ 97 et seq. GWB) regulates the law of public procurement.
- Procurement Regulation (VgV): Contains additional procedural rules for the award of public supply and service contracts.
- Sectors Regulation (SektVO): Governs procurement in the fields of energy, water, and transport supply.
- Procurement Regulation Defence and Security (VSVgV): For defence and security-related contracts.
- Procurement and Contract Procedures for Construction Works (VOB): For construction contracts.
- Sub-threshold Procurement Regulation (UVgO): For contracts below the EU thresholds.
These regulations ensure a transparent, non-discriminatory, and competition-oriented procurement process.
Public Contracting Authorities
Public contracting authorities are legally obliged to comply with applicable procurement regulations. This term mainly includes:
- Territorial authorities (federal government, states, municipalities)
- Special funds of the public sector
- Other legal entities under public and private law, insofar as they perform specific public tasks or are subject to controlling influence by the public sector
Depending on the nature and scope of the project, different procurement law requirements arise.
Types of Public Contracts
Public contracts are differentiated by their subject matter and are regulated by specific provisions:
Supply Contracts
These include contracts for the acquisition of movable goods (goods, products, materials, machines, etc.), including installation and fitting.
Construction Contracts
Contracts involving the execution or planning of construction works. These are extensively regulated in the VOB/A.
Service Contracts
These are contracts for the provision of services, such as consulting, cleaning, IT, or security services.
Award of Concessions
Concessions are public contracts in which the contractor is granted the right to collect fees from users and thus assumes operating risk.
Procurement Procedures
Different procurement procedures are used depending on the type and value of the contract. Basically, three main procedures are distinguished:
Open Procedure
In the open procedure, any interested bidder can submit a tender. This is the standard procedure, offering high transparency.
Restricted Procedure (Non-open Procedure)
Here, the contracting authority invites only selected companies to submit a tender, often after a preliminary participation competition.
Negotiated Procedure
The negotiated procedure allows the contracting authority to negotiate offers with selected companies. It is intended for particularly complex or innovative projects.
Other Procedures
- Competitive Dialogue: Suitable when the contracting authority wishes to develop requirements and solutions together with the bidders.
- Innovation Partnership: For the development of innovative supplies, construction works, or services in cooperation with one or more economic operators.
Thresholds and Application of Procurement Law
The relevant regulations distinguish between the European (at or above threshold) and the national (below threshold) level of procurement. The thresholds are adjusted by the European Commission every two years. If these values are reached or exceeded, the full EU procurement law applies with increased requirements for transparency and legal protection.
Principles for the Award of Public Contracts
Key procurement principles are:
- Transparency: Disclosure of procurement decisions and procedures
- Non-discrimination: No unjustified exclusion or disadvantage
- Equal Treatment: Equal opportunities for all bidders
- Competition: Promotion of the broadest possible competition
- Economic Efficiency and Frugality: Optimal use of public funds
These principles govern all stages of the procurement process, from the tender notice through tender evaluation to contract award.
Participation Requirements and Suitability Assessment
Public contracting authorities assess the suitability of bidders with regard to:
- Professional Qualification
- Economic and Financial Capacity
- Reliability (e.g., no involvement in cartels, no serious misconduct)
- Proof of technical and organizational resources
For this purpose, bidders must provide various declarations and evidence.
Legal Protection in Procurement Procedures
Under certain conditions, bidders have the opportunity to have procurement decisions reviewed by the courts.
Primary Legal Protection
Above the EU threshold, companies may approach the review bodies (procurement chambers and procurement senates at the Higher Regional Courts). In this procedure, faulty award decisions can be challenged before a contract is concluded.
Secondary Legal Protection
For contracts below the thresholds, a formal review process is excluded. However, affected companies may assert civil claims for damages.
Special Aspects and Socio-political Objectives
In public procurement, social, environmental, and innovative aspects are increasingly being considered. These include in particular:
- Consideration of collectively bargained wages and minimum wage
- Promotion of small and medium-sized enterprises (SMEs)
- Environmentally friendly procurement (Green Public Procurement)
- Innovation and digitalization
The consideration of these criteria is based on statutory requirements and can be set as an award or suitability criterion in the procurement process.
Practical Relevance, Significance, and Challenges
Public contracts represent one of the largest procurement markets in Europe and form a central element for implementing governmental and municipal strategies. They are associated with considerable economic, social, and political impacts. Current challenges include, in particular:
- Digital transformation of procurement procedures (e-procurement)
- Implementation of sustainable and social procurement objectives
- Combating corruption and restraints of competition
- Harmonization of national and European requirements
Literature and Further Information
- Act against Restraints of Competition (GWB)
- Procurement Regulation (VgV)
- EU Procurement Directives
- Procurement and Contract Procedures for Construction Works (VOB)
- Sub-threshold Procurement Regulation (UVgO)
Conclusion
Public contracts form the legal framework for procurement by public authorities and are comprehensively regulated by law. They serve both the efficient use of funds and the achievement of social, ecological, and economic objectives. Due to the continuous development of social and political requirements, procurement law is an extremely dynamic area of law.
Frequently Asked Questions
How is the awarding of public contracts performed in a legally correct manner?
The awarding of public contracts in Germany and the EU is governed by a multitude of statutory provisions, aiming for a transparent, non-discriminatory, and open competition process. The legal foundation at federal level is, above all, the Act against Restraints of Competition (GWB), supplemented for contracts of a certain value by the Procurement Regulation (VgV), Sectors Regulation (SektVO), Concession Award Regulation (KonzVgV), and provisions for the awarding of public supply, construction, and service contracts. For contracts below the EU thresholds, the respective budgetary provisions and state procurement laws apply. The procurement procedure typically follows several mandatory steps: publication of the contract notice, suitability and award criteria, solicitation of bids, examination and evaluation of the bids, and selection of the most economically advantageous offer. In the event of infringements of procurement provisions, review and legal protection options are available for bidders.
Which legal requirements must be observed in the choice of procurement procedure?
The choice of procurement procedure depends on the services to be awarded, the estimated contract value, and urgency. Procurement procedures include the open and the restricted procedure, the negotiated procedure, the competitive dialogue, and the innovation partnership. The open procedure has priority; exceptions are narrowly defined by law (e.g., urgency, special services). The decisive criteria are, in particular, transparency, equal treatment, and non-discrimination. The specific choice must be documented and justified; arbitrary or inappropriate deviation is inadmissible and can lead to the invalidity of the procurement procedure.
What are the essential components of a legally compliant contract notice?
A legally compliant contract notice is a core element of public procurement and must contain all information required by law and regulation. This includes, among other things, the name and address of the contracting authority, a description of the subject of the contract, contract conditions, submission deadline, suitability and award criteria, and, if applicable, details of review bodies. The notice must be published in the relevant media (e.g., EU Official Journal, procurement platforms). Formal errors may, in some circumstances, render the entire procurement process void or subject to challenge.
Under what circumstances can bidders be excluded from participating in the procurement procedure?
Exclusion of bidders is permitted only under narrowly defined legal conditions. Mandatory exclusion grounds include, among others, criminal convictions (e.g., for corruption, fraud, money laundering), serious violations of labor, environmental, or social obligations, and submitting false declarations in competition. Discretionary exclusion grounds—such as severe professional misconduct or insolvency—require individual examination and an opportunity for the bidder to undertake “self-cleaning” measures. Any exclusion must be properly documented and communicated to the bidders, if necessary, with information on legal remedies.
How is legal protection structured in procurement procedures?
Various forms of legal protection are available to bidders against unlawful decisions and procedural errors. For contracts above the EU thresholds, review proceedings are provided before procurement chambers and senates (§§ 155 et seq. GWB). Affected companies can lodge complaints within specified deadlines, request access to files, and apply for review, provided they assert a violation of their rights. Below the thresholds, the possibilities vary depending on the state and administrative level, ranging from supervisory review to municipal complaints.
What obligations exist regarding documentation and access to records in public contracts?
Procurement law requires comprehensive documentation of the entire procurement process, from the determination of needs through evaluation and award, in a continuous, seamless, and comprehensible manner (§ 8 VgV). Documentation serves both internal control and forms the basis for review procedures. As part of legal protection, bidders are generally entitled to inspect files during the procedure, whereby business and trade secrets of third parties must be protected.
What must be observed under law when awarding contracts to group-affiliated and closely related companies?
The awarding of public contracts to companies affiliated with the contracting authority (in-house award) is only permissible under strict conditions. According to EU case law and national law (see § 108 GWB), control over the affiliated company must, in particular, be comparable to that over one’s own departments, and the company must conduct at least 80% of its activities for the contracting authority or public sector. Violation of these requirements regularly leads to the invalidity of the contract and may give rise to claims for damages.
