Concept and Legal Classification of Sector Contracting Entities
The concept sector contracting entity is a central component of German and European public procurement law. It refers to public and certain private contracting entities that, in the course of specific activities – the so-called sectors – award public contracts or concessions. Sector contracting entities are subject to specific procurement law regulations, which differ from the classic public procurement system and are defined particularly in the German Act Against Restraints of Competition (GWB) as well as the Sector Ordinance (SektVO).
Legal Basis and Definition
The statutory definition of sector contracting entity is primarily found in Section 100(1) No. 2 GWB. In implementation of EU Directive 2014/25/EU, German law regulates who qualifies as a sector contracting entity and which activities fall under this category.
Public and Private Sector Contracting Entities
The following can be sector contracting entities:
- Public contracting entities (e.g., the federal government, states, municipalities, other legal entities under public law), if they perform sector activities.
- Private law companies, provided they, in the context of sector activities, possess special or exclusive rights or are controlled by public contracting entities.
The decisive factor is not solely the legal form, but above all the conduct of certain activities or proximity to government authorities.
Sector activities
Als Sector activities are, pursuant to Section 102 GWB and Article 4 of Directive 2014/25/EU, activities in the areas of:
- Drinking water and energy supply (gas, heat, electricity),
- Public transportation services,
- Provision of ports and airports,
- Recovery and redistribution of crude oil/or gas,
- Postal services.
The performance of these activities creates a special market position, which for reasons of competition and equality principles requires specific regulations in public procurement law.
Distinction from Other Contracting Entities
Difference from public contracting entity
Whereas public contracting entities generally include all bodies exercising public authority and equivalent legal entities under public law, sector contracting entities are specifically those entities operating in the named sectors. Where they operate outside those sectors, they are considered merely public contracting entities and are thus subject to the provisions of classic procurement law (Procurement Regulation – VgV).
Private sector contracting entities
Private law companies are classified as sector contracting entities if, in the course of their activity, they receive special or exclusive rights under Section 100(1) No. 2b GWB from an authority or are controlled by public contracting entities. This especially concerns former public companies such as energy suppliers or transport companies, which, after privatization, still hold market-influencing positions.
Legal Obligations and Procedures
Procurement Procedures for Sector Contracting Entities
Sector contracting entities are generally required to conduct a transparent and competitive procurement procedure. The key regulations are set out in Part 4 of the GWB and the Sector Ordinance (SektVO). Compared to the Procurement Regulation (VgV) for classical public contracting entities, the SektVO contains numerous simplifications and special provisions reflecting the competitive environment and economic interests of sector contracting entities.
Key Provisions of the Sector Ordinance (SektVO)
- Scope of application: The SektVO applies exclusively to contracts that reach or exceed the minimum thresholds for sectoral contract awards.
- Types of procedures: Sector contracting entities may choose more open and flexible procedures (open procedure, restricted procedure, negotiated procedure, competitive dialogue, innovation partnership).
- Suitability criteria and selection: The criteria for selection are subject to special requirements for transparency and non-discrimination but are less strictly regulated than in classic procurement.
Exceptions and Exemptions (exception procedures)
Certain sectors or companies can, under Sections 131 ff. GWB, be exempted from the requirements of the SektVO if the sector activity area is subject to direct market opening and is not a monopoly (“direct competitive conditions”). This especially applies to activities where competition demonstrably exists.
Reviewability and Legal Protection
Procurement by sector contracting entities is subject to the review procedures of public procurement tribunals and senates, analogous to classic public procurement procedures (Sections 155 ff. GWB). This allows unsuccessful bidders access to effective legal remedies in case of disputes.
Significance and Practical Relevance of Sector Contracting Entities
In addition to the high economic significance of sector contracts – particularly in energy supply, transport, and water management – sector contracting entities also play a key role in ensuring competition and transparency within the EU internal market. They help prevent competitive distortions in sectors prone to structural monopolies, without unduly restricting companies’ economic freedom of action.
Summary
Sector contracting entities are a group of contracting entities defined by legal criteria in procurement law whose activities are subject to special regulation. Key features are the performance of particular activities (sectors) and the resulting specific competitive market position. Their obligations and procedures are governed by the GWB and the SektVO and differ in important aspects from classical procurement law, both in the definition of the entities and in legal requirements and procedures. The practical distinction is based on economic, organizational, and legal structures as well as the activities performed. Sector contracting entities make a significant contribution to ensuring competitive procurement in the sensitive growth sectors of energy, transport, and water management.
Frequently Asked Questions
What special features apply to sector contracting entities in public procurement compared to classic public contracting entities?
Sector contracting entities engaged in activities in water, energy, transport, and postal services are subject to special rules in the awarding of public contracts, established primarily by the Sector Ordinance (SektVO). In comparison to classic public contracting entities under the German Act Against Restraints of Competition (GWB), sector contracting entities enjoy greater flexibility, particularly regarding choice of procedure, suitability assessment, and drafting contract conditions. For example, sector contracting entities can more frequently use the negotiated procedure without a call for competition and have expanded options to tailor technical specifications and suitability criteria to their needs. Additionally, exemptions are available if the activity in question is subject to direct competition, which is assessed individually. The aim is to account for the special economic framework in sector areas – such as monopoly-like structures with high investment requirements – without violating the prohibition on discrimination or distorting competition.
Are sector contracting entities subject to review by public procurement tribunals and panels?
Yes, sector contracting entities are generally subject to procurement law review. Procurement procedures of sector contracting entities, where the estimated contract value exceeds the EU thresholds, can be reviewed by public procurement tribunals and, in a second instance, by procurement panels if companies allege a violation of procurement rules. However, there are specific features concerning time limits and the course of the review procedures. In particular, the requirements for complaints and filing deadlines are identical to those for classic contracting entities. The decisive factor for reviewability is solely the status of the contracting entity and the threshold value—regardless of whether special rules for sector contracting entities apply.
What threshold values must be observed in sector procurement law?
Different – often lower – thresholds apply to sector contracting entities than to classic public contracting entities. For example, the current (as of 2024) threshold for supply and service contracts is 431,000 euros (net), while for construction contracts the threshold is 5,382,000 euros (net). These thresholds are updated every two years by the European Commission. Once these values are exceeded, an EU-wide procurement procedure must be carried out under the Sector Ordinance. Below these thresholds, national procurement law applies, and federal states may impose additional requirements.
To what extent can sector contracting entities make use of direct awards, and what are the requirements?
Sector contracting entities have greater leeway for direct awards—also known as negotiated procedure without prior competition—than classic contracting entities. However, there must always be specific reasons for this, such as absence of competition for technical reasons, necessity to protect exclusive rights, or a situation where only one company can meet a particular need. In addition, Section 14 SektVO specifies further situations in which direct awards are legally permissible. Even in these cases, sector contracting entities must adhere to transparency and documentation obligations and may not award contracts arbitrarily. In case of doubt, legal review is recommended, and publication of a voluntary ex-ante transparency notice in the EU Official Journal can minimize the risk of subsequent reviews or possible sanctions.
Are there special features regarding framework agreements for sector contracting entities?
Sector contracting entities may conclude framework agreements with one or more companies, with the type and scope of such agreements being regulated less restrictively in the Sector Ordinance than in classic procurement law. In particular, the term can be set more flexibly, and often exceeds the maximum four-year duration prescribed for classic public contracting entities, provided this is justified by the subject matter of the contract, such as investment conditions or technical necessities. Furthermore, call-off and allocation procedures within framework agreements are less formalized, allowing for quicker and needs-based procurement. However, transparency, equal treatment, and non-discrimination must also be observed here.
To what extent are sector contracting entities subject to reporting and documentation obligations?
According to Section 6 SektVO and the relevant EU provisions, sector contracting entities are subject to extensive documentation obligations. They must document all phases of the procurement procedure, especially the selection of participants, the type of procedure, award criteria, and how the final selection was made. There is also an obligation to prepare a procurement memorandum. This documentation serves not only for internal supervision but also forms the basis for any potential review by public procurement tribunals, as well as for reporting obligations to national supervisory authorities and the European Commission. Violations can lead to significant legal consequences, including cancellation of the procurement procedure or claims for damages by bidders.
Are there exemptions from applying sector procurement law rules?
Yes, under certain conditions, sector contracting entities can be exempted from procurement law requirements pursuant to Section 100(2) and Section 143 GWB, if it can be demonstrated that the activity for which the contract will be awarded is directly exposed to competition and access to the market is not restricted. This so-called individual exemption requires approval from the European Commission, which assesses market data and competition analyses to verify the necessary conditions. In practice, such exemptions are particularly relevant in the areas of postal services and freight transport. Once an exemption is granted, the affected contracting entity is no longer required to apply European procurement law in these fields. Until the exemption is granted, the statutory requirements for sector contracting entities continue to apply.
