Grants do not fall within the meaning of 'active-related value' with regard to Inhouse procurement

Exciting decision on in-house procurement: Institutional and project-related funds are not to be taken into account when determining the proportion of delegated activities pursuant to Section 108 (7) of the German Act against Restraints of Competition (ARC).

Pursuant to Section 108 (1), (4), (5) ARC, in-house awards are not subject to public procurement law if the conditions for exemption pursuant to Section 108 (4) No. 1, (5) ARC are met. In addition to the fact that the contracting authority exercises a control over the legal entity similar to that which each contracting authority exercises over its own departments, it is also required under Section 108 (4) No. 2 ARC that more than 80 per cent of the activities of the legal entity serve the performance of tasks assigned to it by the contracting authorities or by another legal entity controlled by these contracting authorities.

The Senate of the Higher Regional Couof Düsseldorf recently dealt with these two conditions and, with regard to one of them, set an important course for the future.

Facts

The Federal Government, as contracting authority, announced that it intended to award a framework contract for the assumption and implementation of project sponsorship for federal research tasks to a legal entity without a call for competition. The reason given was that the contract was to be awarded in-house, which is exempt from public procurement law under Section 108(1), (4) and (5) of the ARC. The legal entity is a non-profit research company in the legal form of a limited liability company. It is wholly owned by the Federal Government and the Land of North Rhine-Westphalia. According to the Articles of Association, the bodies of the legal entity are the Management Board, the Supervisory Board and the Shareholders' Meeting. The legal entity is mainly financed by institutional grants and project-related funding, which it receives from the Federal Government and the State of North Rhine-Westphalia in the form of grant notifications.

Following the unsuccessful complaint, the bidder requested a review on the grounds that the conditions for an exemption under Section 108 (4) No. 1, (5) ARC were not met. The Federal Procurement Chamber considered the request for review to be admissible and well-founded. Institutional funding cannot be attributed to the value of the activity pursuant to Section 108 (7) ARC, as institutional funding is not granted for tasks with which the legal entity has been entrusted by the contracting authority, Section 108 (1) No. 2, (4) No. 2 ARC (materiality criterion).

Both the contracting authority and the legal entity lodged an immediate appeal against this decision, as they were of the opinion that, to the extent that the legal entity had received institutional funding, this was an act of entrustment in the form of a funding decision.

The immediate appeal was unsuccessful on the merits. The conditions for a direct award outside the scope of public procurement law were not met.

Decision of the Senate

The Senate found that the grants received from the Federal Government and the State of North Rhine-Westphalia did not constitute an "activity-related value" within the meaning of Section 108 (7) of the ARC, since there was no "entrustment" within the meaning of Section 108 (4) No. 2 of the ARC. According to the Senate, it is necessary for the contracting authority to transfer a task that was previously within its own sphere of responsibility to the legal entity under its control by means of a recognisable, concrete act. In the context of an interpretation in conformity with the Directives, the meaning of "entrusting someone with a task for execution" can be derived from the wording, the case law of the ECJ and Article 2(1)(2) of the Concessions Directive 2014/23/EU. It follows that the task must, in any event, have originally fallen within the scope of the controlling contracting authority. Institutional and project-related subsidies granted to the legal entity by the Federal Government and the State of North Rhine-Westphalia are not included. The object and purpose of the company as defined in the articles of association prove to be insufficient with regard to the transfer of tasks, since a specific research task or a specific research project is not transferred. Nor is basic research one of the tasks of the Federal Government or the Land of North Rhine-Westphalia. By awarding a grant, the Federal Government does not transfer any of its own tasks, but provides financial support for an institution operated by the funding recipient or for a project initiated by the funding recipient. However, the funding provider does not actively transfer a task to the funding recipient, as is required for an entrustment. An entrustment must therefore be rejected.

It is also interesting to note that the Senate cannot come to a clear conclusion on the question of whether the requirement of joint control under Section 108 (5) no. 1 ARC is not met because the supervisory board of the legal entity, as the decision-making body, includes not only representatives of the public client but also other external persons with voting rights.