In brief: defence procurement law fundamentals in Germany

Defence procurement law fundamentals

Are there mandatory procurement clauses that must be included in a defence procurement contract or that will be read into the contract regardless of their actual inclusion?

There are no procurement clauses that must be included in a defence contract or that will be necessarily implied. However, there are a great number of varying standard terms and conditions and legal regulations that are commonly included in the contract by the contracting authority. In any case, the Defense and Security Procurement Regulations refer to the obligation to take into account the rules on prices in public contracts. Thus, the contracts are also subject to the price control provisions of the Price Regulation No. 30/53, which contains binding rules for the pricing of public contracts. This regulation was amended with effect from 1 April 2022.

Among other things, it now contains provisions on the definition of marketable performance and the market price as well as clearer requirements for the proof of a market price. If there is no market price on the market, it is assumed that a price established under competitive conditions (at least two valuable offers) is to be regarded as usual in the market. Other changes include an extension of the minimum retention period for documents from public contractors to a total of 10 years, the requirement that the decision to carry out a price review is at the discretion of the price review authority, an estimation power for the price review authority and the fact that price reviewers are now explicitly permitted to make photocopies, printouts, photographic images, electronic data and files.

How are costs allocated between the contractor and government within a contract?

Where contracts are awarded on the basis of a competitive procedure, the contracts in question generally contain fixed prices or a mix of fixed and variable price elements. Cost accounting elements can also be included. In the case of contracts that have been awarded without competitive procedures, most contracts contain cost-oriented fixed prices or extra cost prices, and the distribution of costs between the contractor and the state depends on individual agreements. The actual distribution of costs between the contractor and the state in these cases depends on the individual agreement.

What disclosures must the contractor make regarding its cost and pricing?

To verify that prices are reasonable, contracting authorities may require tenderers to explain their prices during the award procedure and during price controls and sometimes many years after the contract has been fulfilled.

If during the bid evaluation there is a deviation of more than 20 per cent (this is not a rigid limit, but a guideline that has emerged from national case law) between the price of the best bidder and that of the second-best bidder in terms of price, the contracting authority shall provide price clarification. This clarification concerns not only arithmetical ambiguities, but also all price-relevant aspects of the offer. The bidder shall be obliged to prove accordingly:

• whether its offer is adequate in the light of the prices stated by it in the offer;
• whether and how reliable performance of the contract can be expected at the offered prices;
• whether the applicable environmental, social and labour law regulations are complied with;
• that its bid has not been submitted specifically with the intention of displacing the market; and
• whether state aid has been granted to the company.

How are audits of defence and security procurements conducted in this jurisdiction?

The Ministry of Defence reviews procurements for the military. On the other hand, in the case of non-military procurements, audits are the responsibility of the supervisory authority, which is usually the Ministry of the Interior. The relevant ministry also reviews procurements at the ministerial level in internal audits. In other situations, the Federal Audit Office or the competent State Audit Office is responsible for audits.

Who gets the ownership rights to intellectual property created during performance of the contract? What licences are typically given and how?

The ownership of intellectual property rights is individually governed by the contracts.

Are there economic zones or other special programmes in this jurisdiction commonly utilised by foreign defence and security contractors for financial or other procurement related benefits?

We are not aware of any such economic zones or programmes in Germany.

Describe the process for forming legal entities, including joint ventures, in this jurisdiction.

The limited liability company (GmbH) represents the most common form of commercial legal personality. A notarial shareholder agreement is a prerequisite for the formation of a GmbH, whereby the notary must verify the identity of the shareholders by means of valid identification documents at the time the agreement is notarised. In addition, the minimum share capital of a GmbH is €25,000 and the company must be registered in the commercial register. The entry in the commercial register requires the confirmation of the managing director to the effect that the share capital to be contributed by the shareholders is available to the company. This is usually combined with an account statement as proof. A list of shareholders signed by the managing director must also be submitted with the application for registration.

The Civil Code Partnership (GbR) is a simple partnership based on the provisions of the German Civil Code and the simplest form of company under German law. It can be described as a simple and practical instrument suitable for temporary joint ventures, in particular for tenders or as an intermediate step in the formation of a permanent joint venture structure.

The changes to the law on partnerships as a result of the Act to Modernize the Law on Partnerships (MoPeG), which came into force on 1 January 2024, are of importance for the GbR. Until the end of 2023, the existence and proper representation of the company in legal proceedings could not be proved reliably. To create more transparency and security, the 'company register' has been set up, which is maintained at the local courts and in which companies can be registered in order to prove their existence and their legal representation. Even if registration is not mandatory, it is a prerequisite for obtaining various special rights, such as the possibility of being entered in a land registry. The direct personal liability of the partners, which was previously only recognised on the basis of the case law of the Federal Court of Justice, is now legally anchored in section 721 (1) German Civil Code with the MoPeG. These were just a few examples of the changes that the MoPeG has brought about for the GbR. Overall, the amendment has strengthened the legal position of the civil-law partnership. In addition, individual requirements that had only resulted from the case law of the national courts are now enshrined in law.

Are there statutes or regulations enabling access to copies of government records? How does it work? Can one obtain versions of previous contracts?

As a rule, government contracts are not published or passed on to third parties. However, everyone (including foreigners) has the right to access official information held by public authorities under the Freedom of Information Act of the Federation and the states. In addition to the right to information, there may also be a right to inspect files held by the authorities. It is generally believed that this should include records of previous procedures for awarding public contracts, including previous contracts. However, access may be denied, among other things, in cases where disclosure could prejudice international relations, the military, public safety or other security interests, or to protect classified information and other official secrets or trade secrets (including confidential information and intellectual property rights of third parties). The disclosure of past government contracts will often be barred by one of these exemptions.

What are the rules regarding eligible suppliers and supply chain management and anti-counterfeit parts for defence and security procurements?

There are no special defence and security procurement-related rules regarding eligible suppliers, supply chain management and anti-counterfeit parts.

Economic operators will be considered eligible to participate in public procurement procedures if they meet the eligibility criteria named by the tendering authority in the tender notice. Eligibility criteria in accordance with EU and national regulations may include requirements of professional suitability, financial and economic standing and technical or professional ability and certain compliance self-declarations. All criteria must be connected with the tendered goods, services or construction work. If the tendering procedure or the contract requires access to classified information in accordance with the German Security Clearance Act bidders must also fulfil certain security requirements.

Regulations on supply chain management (especially commitments by the contractor to ensure the security of supply for the duration of the contract and even in the event of a crisis or war) are included on a case-by-case basis in the tendering authorities’ standard terms and conditions.

In Germany, the Supply Chain Duty of Care Act, or Supply Chain Act for short, also came into force with effect from 1 January 2023. This is intended to regulate corporate responsibility for compliance with human rights in global supply chains, including protection against child labour, forced labour and discrimination, the right to fair payment of wages and the right to form trade unions, as well as environmental protection.

An entrepreneur is responsible both for its own business area and for the activities of its contractual partners and other indirect contractual partners and must implement appropriate preventive and remedial measures, set up complaint channels for people in the supply chains and report on supply chain management at regular intervals.

Since 1 January 2023, companies with at least 3,000 employees in Germany have been affected by the personal scope of application. As at 1 January 2024, companies with at least 1,000 employees in Germany will also be affected.