Research grants and public procurement law: When is a call for tenders required?

At first glance, the research allowance and public procurement law appear to be two separate issues. This is because the research allowance does not give rise to any direct obligations under public procurement law. Nevertheless, companies that receive a research allowance may, under certain conditions, be obliged to put the work out to tender.

Martin Conrads, a solicitor and specialist in public procurement law, as well as a partner at Bird & Bird LLP, explains when this might be the case. 

Research grants and public procurement law: Why there is no immediate direct obligation

The research allowance under the Research Allowance Act (FZulG) is a tax credit and therefore not a grant from public funding. Consequently, no grant notification is issued which, under the ancillary provisions, imposes public procurement law requirements on the grant recipient. Instead, a certificate from the BSFZ and an assessment notice from the tax office are issued in accordance with Section 10 of the FZulG. These do not refer to the ANBest-P, ANBest-I, etc.

Furthermore, as far as can be ascertained, the research allowance has not yet been ruled on by the highest court and is not to be regarded as a subsidy within the meaning of Section 99(4) of the German Act against Restraints of Competition (GWB). It does not qualify as a direct grant from public funds. Even if it were paid out as a surplus, this should not be assumed, as the legal basis remains one of tax law.

In short: The research allowance itself does not trigger a requirement to issue a call for proposals.

However, this does not mean that the assessment under public procurement law is complete.

When might there be an obligation to put a post out to competition despite the research allowance?

Even if a company receives a research grant, it may still be subject to public procurement obligations. One of the key factors here is whether your company is a contracting authority. Even if a company is not 50 per cent publicly funded, a requirement to put the contract out to tender may still arise if other conditions are met.

Public contracting authority pursuant to Section 99(2) of the German Act against Restraints of Competition (GWB)

Public contracting authorities are other legal entities governed by public or private law which have been established for the specific purpose (which is interpreted broadly in practice) of carrying out non-commercial tasks in the public interest, provided that

• they are predominantly financed by the bodies referred to in points 1 or 3, either individually or jointly, through shareholdings or by other means, 

• their management is subject to supervision by the bodies referred to in points 1 or 3, or

• more than half of the members of any of their bodies responsible for management or supervision have been appointed by the bodies referred to in points 1 or 3.

It follows that: even if a company is less than 50 per cent publicly funded, a tender may be required if it carries out tasks in the public interest and the public sector exercises a significant influence over the company’s management.

Sectoral contracting authorities under Section 100(1)(2) of the Act against Restraints of Competition (GWB) 

Sectoral contracting entities are therefore natural or legal persons governed by private law who carry out a sectoral activity in accordance with Section 102 of the German Act against Restraints of Competition (GWB), provided that

• this activity is carried out on the basis of special or exclusive rights granted by a competent authority, or

• public contracting authorities, in accordance with Section 99(1) to (3), are able to exercise a controlling influence over that person, either individually or jointly.

This may therefore be relevant if the company operates in the energy supply, water supply or transport sectors.

State procurement law may also be relevant

It should also be noted that individual federal states have their own public procurement laws. These may impose tendering requirements even below the EU thresholds and may also apply to private companies where they perform public functions.

Research allowance and the obligation to put projects out to tender: each case is decided on its own merits

The type of financing is therefore merely one possible basis for establishing an obligation to put a contract out to tender.

In particular, the question of whether a contracting authority falls within the functional definition of a contracting authority under Section 99(2) of the German Act against Restraints of Competition (GWB) must be assessed on a case-by-case basis. Furthermore, mixed financing arrangements are common in practice. These too must be considered on a case-by-case basis and may give rise to an obligation to put a contract out to tender.

Consequently, even where funding is provided through a research grant, there may still be an obligation to issue a call for tenders.

An early legal assessment in this regard protects against costly surprises arising from public procurement law, which could jeopardise the entire project.

Preparing and implementing procurement procedures with EurA

In addition to providing specialist advice in collaboration with external experts in public procurement law, EurA also offers practical support to companies, research institutions and public contracting authorities in procurement and tendering procedures.
The EurA Procurement Service assists with procurement projects, including the planning and preparation of calls for tenders, the conduct of the tendering process, the evaluation and selection of tenders, and the preparation of documentation. Particular emphasis is placed on innovation-oriented procurement and contract awards in the context of publicly funded projects.

Find out more about EurA’s procurement service. 

Text: This article was written following a joint event organised by EurA and Bird & Bird. The content relating to public procurement law and the expert assessments were provided by Martin Conrads, a solicitor and specialist in public procurement law, and a partner at Bird & Bird LLP.