Use the Lexology Getting The Deal Through tool to compare the answers in this article with those from other jurisdictions.

Legal framework

Relevant legislation

What statutes or regulations govern procurement of defence and security articles?

The basic procurement rules for defence and security articles above the EU thresholds are set forth in Part IV of the German Act Against Restraints for Competition (GWB). Details of procedure are provided by the Public Procurement Regulation for Contracts in the Fields of Defence and Security and, in the case of construction works, section 3 of the Procurement Rules for Public Works (VOB/A). These rules implement EU Directive 2009/81/EC into German law. Procurement in the area of defence and security outside the specific scope of these rules (see question 2) is governed by the general procurement rules of the GWB, the Public Procurement Regulation and, in the case of works, section 2 of the VOB/A.

The award of contracts in the fields of defence and security below the EU thresholds is governed by federal or state budgetary law, the Procurement Rules for Contracts Below the EU Thresholds and, in the case of construction works, section 1 of the VOB/A. In the case of state procurement, state procurement laws and regulations may also be applicable.

Procurement of armaments within the framework of the European Defence Agency (EDA) is subject to the EDA procurement rules, in particular Council Decision (EU) 2016/1353.

Identification

How are defence and security procurements identified as such and are they treated differently from civil procurements?

Defence and security procurements are defined in line with the definition in Directive 2009/81/EC as procurements of:

  • military equipment, including any parts, components or subassemblies thereof;
  • sensitive equipment, including any parts, components or subassemblies thereof;
  • works, goods and services directly related to military or sensitive equipment for any and all elements of its life cycle; and
  • works and services for specifically military purposes or sensitive works and sensitive services.

‘Military equipment’ is defined as equipment specifically designed or adapted for military purposes and intended for use as an arm, munitions or war material; ‘sensitive’ equipment, works or services are defined as equipment, works and services for security purposes, involving, requiring or containing classified information as defined in the German Act on Security Clearance Checks.

Defence and security procurements meeting the above requirements are subject to a special procurement regime (see question 1). Although the regime is similar to the general public procurement rules in terms of structure and basic principles, it differs from the general rules in various aspects. For example, under the special regime:

  • the contracting authority may choose freely between a restricted and a negotiated procedure, while an open procedure is not available;
  • bidders may be excluded from public procurement procedures for lack of reliability and reasons of national security (besides the standard reasons of exclusion or lack of ability);
  • specific rules regarding the protection of classified information and the security of information apply (see questions 34 and 36); and
  • specific rules regarding the security of supply may apply.

Conduct

How are defence and security procurements typically conducted?

German military procurement is based on three pillars. The first is the procurement process defined by the German armed forces’ (Bundeswehr’s) Customer Product Management process June 2016, an internal framework directive for capability-oriented requirement identification, cost-efficient and timely procurement of operational products and services, and their efficient use. Industry is involved in all phases of the process within the limits set by public procurement law. The second pillar is the Bundeswehr Procurement, used for the procurement of standard and military goods and services for military operations, including weapon system spare parts and procurement through international channels. The third pillar is the procurement of complex services, such as maintenance of land-based weapons systems, non-military IT and telecom services, fleet management and clothing, through separate legal entities, some of which are organised as public-private partnerships. Central military procurement is typically carried out by the Federal Office for Bundeswehr Equipment IT and In-Service Support, and the Federal Office for Bundeswehr Infrastructure, Environmental Protection and Services.

Non-military security procurement for federal entities is carried out mostly by the Procurement Agency of the Federal Ministry of the Interior, in particular for federal police, customs and the federal administration in general. At the state level, security procurement is typically carried out through procurement offices or the requesting agency.

The standard procedures for defence and security procurements are the restricted procedure and the negotiated procedure with publication of a contract notice. In both cases, the contracting authority will publish a call for competition by way of an EU tender notice. In a restricted procedure, the contracting authority invites a limited number of candidates who have sought to participate to submit bids. These bids are not subject to further negotiation. In a negotiated procedure, the contracting authority also invites a limited number of candidates to submit offers, which are then subject to negotiation.

A negotiated procedure without publication of a contract notice is only admissible under exceptional circumstances. The contracting authority may choose such a procedure:

  • where no tenders or no suitable tenders have been submitted in a restricted procedure or a negotiated procedure with prior publication of a contract notice;
  • where, for technical reasons or reasons connected with the protection of exclusive rights, the contract may be awarded only to a particular supplier;
  • where the time limits for a restricted or negotiated procedure with publication of a contract notice are incompatible with the urgency resulting from a crisis; and
  • insofar as is strictly necessary when, for reasons of extreme urgency brought about by events that were unforeseeable by the contracting authority and are not attributable to the contracting entity, the time limits for a restricted or negotiated procedure with publication of a contract notice cannot be complied with.

Military and civilian security procurement falling under the national security exemption from EU or GPA procurement law or for the purpose of intelligence activities is usually carried out without a public call for competition. These contracts are awarded by way of restricted negotiated procedures in accordance with the specific security requirements for the goods and services in question.

Proposed changes

Are there significant proposals pending to change the defence and security procurement process?

The Federal Ministry of Defence is currently developing proposals to streamline procurement processes of the German armed forces. According to public sources, one of the proposals includes the establishment of a state-owned commercial company (BWServices) to streamline military purchasing on the basis of new, less stringent procurement rules (still to be enacted). To date, this plan has not been put into practice. It has also been publicly criticised as a misguided attempt to circumvent public procurement rules.

Information technology

Are there different or additional procurement rules for IT versus non-IT goods and services?

There are no specific procurement rules for IT products. At the contract level, however, public purchasers typically use standardised contract templates known as ‘EVB-IT’ contracts. These standard templates are specifically tailored for the purchase of IT goods and services. They usually contain clauses seeking to ensure that the contractor is not subject to foreign laws requiring it to disclose confidential information obtained in the course of the tender process or contract performance to foreign governments or security agencies (no-spy clause). In addition, there are usually contract terms designed to ensure that IT products do not contain any undisclosed access points (backdoors) that would allow access by unauthorised third parties, such as foreign governments or security agencies, to the system or software.

Relevant treaties

Are most defence and security procurements conducted in accordance with the GPA or other treaty-based procurement rules, or does this jurisdiction commonly use the national security exemption to procure them?

Germany is bound by EU and GPA procurement rules. Following the implementation of EU Directive 2009/81/EC on contracts in the fields of defence and security into German law (see question 1), German contracting authorities generally apply these rules to military and non-military security procurement. However, in a significant number of cases, in particular in the field of armament procurement, the national security exemption and the exemption for armament pursuant to article 346 TFEU are still used. In light of strict court review, and owing to a change of political climate, the use of these exemptions is declining.

Disputes and risk allocation

Dispute resolution

How are disputes between the government and defence contractor resolved?

The standard contract terms of the German military and other German security agencies do not contain arbitration clauses. Disputes between the government and defence contractors are therefore generally resolved in civil court.

To what extent is alternative dispute resolution used to resolve conflicts? What is typical for this jurisdiction?

For smaller contracts, the German military will usually not deviate from its standard terms; thus, alternative dispute resolution may only be agreed on an ad hoc basis. For high-volume contracts, on the other hand, the military may agree to arbitration clauses on a case-by-case basis, depending on the circumstances. In subcontractor contracts, arbitration clauses are more common, if compatible with security requirements. For international contracts, the ICC, UNCITRAL, LCIA and Swiss arbitration rules are widely accepted.

Indemnification

What limits exist on the government’s ability to indemnify the contractor in this jurisdiction and must the contractor indemnify the government in a defence procurement?

Under German law, the government - as any private principal - must indemnify the contractor for damages arising from a breach of contract by the government, provided that damages are reasonably and foreseeably caused by the breach. Vice versa, the contractor must indemnify the government for such damages arising from a breach by the contractor.

Limits on liability

Can the government agree to limit the contractor’s liability under the contract? Are there limits to the contractor’s potential recovery against the government for breach?

The government is free to negotiate and accept a limitation of liability of the contractor. There are no statutory or regulatory limits to the contractor’s potential recovery against the government.

Risk of non-payment

Is there risk of non-payment when the government enters into a contract but does not ensure there are adequate funds to meet the contractual obligations?

Under German law, public contracting authorities - as any private principal - are bound by their contracts regardless of whether adequate funds are available. Furthermore, under German law, neither the federal state nor the regional states can go bankrupt. A contractor may take legal action against the government for default and enforce a judgment against the government at any time. Thus, there is no legal risk of non-payment.

Parent guarantee

Under what circumstances must a contractor provide a parent guarantee?

Generally, a contractor only has to provide a parent guarantee if the contractor itself does not meet the minimum requirements of financial and economic standing set by the government for the particular contract. This will often be the case with newly formed companies or, in particular, SPVs. In many cases, the government will also accept a limited bank guarantee as security instead of a parent guarantee.

Defence procurement law fundamentals

Mandatory procurement clauses

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 mandatory procurement clauses that must be included in, or that will be read into, a defence contract as a matter of law, except for certain requirements relating to the protection of classified information as well as certain price control rules described below. However, under German law, contracts are construed in accordance with the provisions of the German Civil Code, including, inter alia, the principle of good faith, which might take precedence over the actual wording of the contract. Moreover, the German military typically uses a set of standardised terms and conditions, which are generally non-negotiable.

Contracts involving access to classified information at levels ‘Confidential’ or higher must contain clauses obliging the contractor to observe the applicable rules and procedures for the protection of such information, including a requirement to pass this obligation on to any subcontractor.

Public contracts are in all cases subject to the price control rules of Pricing Regulation No. 30/53. This regulation contains binding rules on the pricing of public contracts, in particular in the case of cost-plus contracts. Any price in excess of the maximum price allowed by the regulation will, by law, be cut to the maximum price. However, any price cut based on the regulation requires a formal pricing audit and an official finding of an excess price.

Cost allocation

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

Contracts awarded on the basis of competitive procedures usually provide for fixed prices or a mix of fixed and variable price elements. In some cases, contracts may also contain cost pricing elements. Contracts awarded without a competitive procedure more often provide for cost-based fixed prices or cost-plus prices. The actual allocation of costs between the contractor and the government in these cases depends on the individual agreement.

Disclosures

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

Contracting authorities may require tenderers to explain their pricing in the procurement procedure to verify that prices are adequate. In competitive tendering procedures, tenderers are, however, not obliged to fully disclose all details of their cost and pricing calculation. On the other hand, in non-competitive procurement procedures, particularly for cost-based contracts, the government may require the tenderer to disclose details of its costs and pricing. Moreover, in the case of cost-based contracts, contractors must disclose all relevant cost and pricing information, including their method of cost allocation, in the event of a formal pricing audit pursuant to Pricing Regulation No. 30/53 (see question 14). Such audit may be conducted by the pricing control authority at the request of the contracting authority before, during or after contract performance.

Audits

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

Procurement by the military is subject to audits by the Ministry of Defence. Non-military procurement is subject to audits by the supervisory authority, usually the Ministry of the Interior. Procurement at the ministerial level is subject to internal audits by the ministry itself. In all cases, procurement is subject to audit by the Federal Court of Auditors or the relevant state court of auditors.

IP rights

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

The allocation of intellectual property rights created during performance of the contract is determined by the individual contract and may therefore differ from case to case. The standard terms of the German military for industrial research contracts and for development contracts provide that the military is entitled to the ownership of intellectual property rights arising from inventions made by soldiers or other employees of the military. On the other hand, the contractor is entitled to intellectual property rights based on inventions made by its employees.

Under the standard terms for industrial research contracts, the German military is granted a non-exclusive right of use regarding all domestic or foreign intellectual property rights, constructions, procedures and documents created during the performance of the contract. If the purpose of the contract is the development of a specific good or procedure, the military is also granted the right to reproduce the product or to alter and apply the procedure for purposes of national defence, for the protection of the civil population and for the riot police of the federal states.

Under the standard terms for industrial development contracts the military is granted a non-exclusive, irrevocable right to use all technical information or IP rights, including patents, which are created in performance of the contract.

Economic zones

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?

No.

Forming legal entities

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

Limited liability company (GmbH)

This is the most common form of commercial legal entity. Formation of a GmbH requires a notarised shareholders’ agreement. The notary must verify the identity of the shareholders by valid identification papers at the time of notarising the agreement. The minimum share capital of a GmbH is €25,000. The company must be registered in the commercial register. Registration requires confirmation by the managing director that the share capital to be contributed by the shareholders is at the disposal of the company (usually accompanied by a bank statement as proof). Moreover, a list of shareholders signed by the managing director must be filed with the application for registration.

Civil Code partnership

This is a simple partnership based on the provisions of the German Civil Code and the simplest form of company under German law. It is an easy and practical vehicle for temporary joint ventures, in particular, for joint tendering or as an interim step towards the formation of a permanent joint venture structure. There are no formal requirements for its formation, and no capital is required. There is also no need for registration.

Limited commercial partnership

This is a partnership between two or more partners intending to operate a trading business, including a joint venture. It requires one fully liable general partner (which may be a limited liability company), as well as one or more limited partners whose liability is limited to their individual capital contributions. No formal rules exist for the formation and no minimum capital is required. A limited commercial partnership does, however, require registration in the commercial register.

Access to government records

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

Government contracts are usually not published or disclosed to third parties. However, pursuant to the freedom of information legislation of the federal and the regional states, anyone (including foreign nationals) has a right of access to official information held by public bodies. This is generally considered to include records on past public procurement procedures, including past contracts. Access is denied in a number of cases, including where disclosure may adversely affect international relations, military and other security interests or public safety, and to protect classified information, other official secrets or trade secrets, including third party confidential information and intellectual property rights. In many cases, the disclosure of past government contracts will be barred by one of these exemptions.

Supply chain management

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

There are no specific rules regarding eligibility for defence and security­-­related contracts. Suppliers are generally considered eligible for public contracts if they meet the requirements of professional suitability, financial and economic standing and technical and/or professional ability set up by the contracting authority for the contract in question. They must also not be debarred from public contracting for one of the reasons provided by EU general procurement law (such as certain criminal convictions, gross professional misconduct and non-payment of taxes and social security contributions). In the case of defence and security procurement, a tenderer may also be excluded if it is judged to lack the reliability needed to protect public security interests. For contracts involving access to classified information at the level ‘Confidential’ or higher, contractors must fulfil certain security requirements (see questions 34 and 36).

There are no specific requirements regarding supply-chain management. However, the standard terms and conditions of the German military include specific commitments by the contractor to ensure the security of supply in the event of a crisis (if applied to the particular contract). Moreover, the contracting authority may, on a case-by-case basis, impose requirements it deems reasonable to secure the security of supply. In addition, whereas the contractor may, in principle, freely choose its subcontractors, the contracting authority may reject subcontractors on the basis of the same criteria that apply to the prime contractor. The contracting authority may also require the contractor to subcontract up to 30 per cent of the contract value to third parties and to apply competitive tendering procedures when selecting subcontractors.

There are no specific rules regarding anti-counterfeit parts for defence and security procurements.

International trade rules

Export controls

What export controls limit international trade in defence and security articles? Who administers them?

Germany has strict export control regulations and procedures for military equipment and dual-use products. The manufacture, trade, brokering and transport of weapons of war are subject to a government licence pursuant to the War Weapons Control Act. This applies in particular to any export. The export of military equipment and dual-use products is also subject to licence requirements under the Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance (AWV). The goods covered are listed the Export Control List (Annex 1 of the AVW).

The licence under the War Weapons Control Act is issued by the Ministry of Economic Affairs, upon consultation with the Ministry of Defence and the Foreign Office. The decision is a political one taken on a case-by-case basis. No licence is necessary for the supply of weapons to the German military, federal police, customs administration or other law enforcement authorities. Export licences for military equipment and - if applicable - dual-use products are issued by the Federal Office for Economic Affairs and Export Control (BAFA).

Export licences for military equipment are granted on the basis of the ‘Political Principles Adopted by the Government of the Federal Republic of Germany for the Export of War Weapons and Other Military Equipment’ of 19 January 2000 (Political Principles) and the EU Council Common Position 2008/944/CFSP defining common rules governing control of exports of military technology and equipment (EU Council Common Position). In some respects, the German government applies stricter criteria than those imposed by the EU Council Common Position. Export licences for dual-use products are granted by BAFA on the basis of the EU Dual-Use Regulation No. 428/2009 (as amended).

Domestic preferences

What domestic preferences are applied to defence and security procurements? Can a foreign contractor bid on a procurement directly?

German public procurement rules, including in the fields of defence and security, are based on competition, equal treatment and non-discrimination. Hence, German public procurement law prohibits any discrimination against bidders on the grounds of their nationality. This applies to all contractors from EU, EEA and GPA member states. There are no restrictions on foreign contractors bidding on a procurement directly.

Favourable treatment

Are certain treaty partners treated more favourably?

German public procurement law is based on EU law and the GPA, which prohibit any discrimination on the grounds of nationality. However, this applies only to contractors from the EU, EFTA and member states of the GPA. That said, there are no rules providing for more favourable treatment of contractors from any particular country.

Sanctions

Are there any boycotts, embargoes or other trade sanctions between this jurisdiction and others?

Germany adheres to the boycotts, embargoes and other trade sanctions put in place by the United Nations or the European Union regarding defence and security articles.

Weapon embargoes involve the prohibition of or restrictions on the delivery of weapons, ammunition and other military equipment within the meaning of Part I, section A of the national Export Control List and of paramilitary equipment as well as the provision of related technical assistance.

Country-related weapon embargoes to be observed in Germany as of 8 October 2018:

  • Armenia;
  • Azerbaijan;
  • Belarus (including equipment used for internal repression);
  • the Central African Republic;
  • China;
  • Congo;
  • Eritrea;
  • Iran (including equipment used for internal repression);
  • Iraq;
  • Lebanon;
  • Libya (including equipment used for internal repression);
  • Myanmar (including equipment used for internal repression);
  • North Korea;
  • Russia;
  • Somalia;
  • South Sudan;
  • Sudan;
  • Syria (including equipment used for internal repression);
  • Venezuela (including equipment used for internal repression); and
  • Zimbabwe (including equipment used for internal repression).

In addition, there are person-related weapon embargoes. These relate to listed individuals as well as related entities, for example, Al-Qaida, as well as certain entities in Afghanistan, Yemen and other countries.

There are also embargoes on the export (and sometimes also the import) of certain dual-use goods as listed in the respective embargo regulations. This currently applies, for example, to Iran, North Korea, Russia and Syria.

Trade offsets

Are defence trade offsets part of this country’s defence and security procurement regime? How are they administered?

The concept of offsets is incompatible with the EU principle of non-discrimination on the grounds of nationality. Offsets are therefore generally considered illegal under European and German defence procurement rules. While this appears to be common ground regarding contractors from the European Union or EFTA, the situation regarding suppliers from third countries is less clear. That said, offsets do not form part of the German defence procurement regime or general practice even with regard to contractors from third countries.

Ethics and anti-corruption

Private sector appointments

When and how may former government employees take up appointments in the private sector and vice versa?

Current and former members of the federal government must notify the government of intended activities in the private sector if they may give rise to a conflict with the public interest. The notification duty expires 18 months after leaving government. If there is interference with public interest, the government may prohibit the activity for 12 months, which may be extended to 18 months. The government decides about the prohibition based on a recommendation by an advisory board. At state level, several states (Brandenburg, Hamburg, Hessen, Nordrhein-Westfalen, Schleswig-Holstein) have enacted similar legislation to date, others intend to follow (Thüringen).

German civil service law - at the federal and state level - requires retired civil servants to notify the government if they intend to enter into any activity related to their service responsibilities in the five years before retirement. The government may prohibit the activity if official interests are adversely affected. The notification duty expires after five years. No such obligations apply to the proposed principal or new employer.

Addressing corruption

How is domestic and foreign corruption addressed and what requirements are placed on contractors?

Corruption is punishable under the German criminal code. Corruption includes bribery of German and EU public officials and German soldiers (sections 333 and 334), of members of parliament (section 108e) and commercial bribery (section 299). In severe cases, it also covers bribery of non-EU foreign officials (section 335a). Companies may be subject to fines if their employees commit corruption offences on their behalf.

Companies whose employees have been found guilty of corruption on their behalf are debarred from public contracting for a period of up to five years. In the case of other improper behaviour intended to unduly influence the outcome of a procurement procedure, a contractor may be debarred for up to three years. Eligibility for public contracts may be restored if the contractor has taken appropriate remedial measures to ensure future compliance.

Some regional states operate registers of contractors that have been found guilty of corrupt practices. In these states, state government entities must consult the register to check whether a prospective contractor is listed. A federal register is expected to start operation in 2019 or 2020 based on a 2017 statute.

There are no statutory provisions on value-limits of gifts or invitations to meals, travel or lodging for government officials or business partners. Unless government or company internal guidelines provide otherwise, social etiquette is usually the appropriate benchmark. However, most government entities have issued strict internal guidelines on accepting gifts or other benefits. In particular, law enforcement authorities such as the police or customs do not allow their personnel to accept any benefit at all in the discharge of their duties. Other government authorities are also quite restrictive on accepting gifts.

Lobbyists

What are the registration requirements for lobbyists or commercial agents?

Lobbyists and commercial agents are not generally required to register with any government entity (in addition to general business registration requirements). However, a contracting authority may require commercial agents to register for specific procurements.

Limitations on agents

Are there limitations on the use of agents or representatives that earn a commission on the transaction?

Generally, there are no legal limitations on the use of agents or representatives.

The German military has adopted general terms requiring the approval of intermediaries. Approval will only be granted if it is commercially appropriate to use a broker. This is not the case if the contractor can be expected to deal with the procuring department directly. The use of general commercial agents who have due authority to contract on the contractor’s behalf and are instructed to negotiate for the contractor in particular areas of business not specifically related to military or public contracting is usually deemed appropriate. Commissions are only accepted if the military has approved the agent, the contractor discloses the commission, and the amount is fair and reasonable. Commissions are also acceptable if the contract is awarded in an open or restricted (ie, non-negotiated) procedure.

Aviation

Conversion of aircraft

How are aircraft converted from military to civil use, and vice versa?

Military aircraft may be converted to civil use if the military gives up its control, any armament is dismantled, and all certificates and permits generally required for civil aircraft are obtained. The use of a civil aircraft for military purposes requires that the aircraft is under control of the military, and approval by the German Military Aviation Authority.

Drones

What restrictions are there on manufacture and trade of unmanned aircraft systems or drones?

The aviation laws and regulations regulating to the inspection, approval and operation of aircraft generally also apply to unmanned aircraft systems (UAS), subject to certain exemptions and special provisions. Whether a permit is required depends on several criteria, such as the weight (threshold: 5kg), the type of propulsion or engine and the place of operation. Moreover, operators of UAS with a take-off weight above 2kg must hold a proof of knowledge of the use and navigation of UAS and of air traffic basics. All UAS with a take-off weight above 250g must be labelled with the owner’s name and address. The German military has adopted an administrative rule classifying UAS into three categories. Inspection and approval requirements depend on the classification of the UAS in question.

Miscellaneous

Employment law

Which domestic labour and employment rules apply to foreign defence contractors?

Foreign defence contractors must observe German labour and employment rules to the extent that they run permanent operations in Germany or post employees to Germany in the course of contract performance.

Applicable rules for permanent operations include general labour law provisions on hiring and laying off workforce, minimum wages as provided by the Minimum Wage Act and working conditions, such as caps on working hours and minimum paid leave, health and safety measures, protective measures for pregnant women, and equal treatment of men and women and other non-discrimination provisions.

Foreign contractors who temporarily post employees to Germany for contract performance must also observe certain minimum labour and employment standards. Applicable rules include, inter alia, minimum wages as provided by the Minimum Wage Act, and minimum working conditions similar to those applying to permanent operations. Details are provided in the Act on the Posting of Workers. In certain cases, the Act on the Posting of Workers requires foreign employers to also observe collective wage agreements for specific industry sectors. Moreover, some regional states have specific procurement rules requiring contractors to pay minimum wages exceeding those provided by the Minimum Wage Act.

Infringements of applicable labour and employment laws, in particular of the Minimum Wage Act, the Act on the Posting of Workers and regional state minimum wage provisions, may lead to debarment from public contracting. Compliance with these laws is therefore particularly relevant for foreign contractors.

Defence contract rules

Are there any specific rules that contractors, foreign or domestic, are bound by in defence contracts?

There are no specific legal rules for defence contractors. However, in all cases where contracts involve access to classified information, contractors must observe all applicable rules for the protection of such information. If a contract involves access to information classified as ‘Confidential’ or higher, contractors need security clearance by the Federal Ministry of Economic Affairs or the relevant state authority. This requires enrolment in the Ministry of Economic Affairs’ programme for the protection of classified information. Moreover, personal security clearances are required for the owners, managing directors and relevant employees of the contractor (see question 36). Foreign security clearances from most EU and NATO member states are accepted under certain circumstances or case by case. For contracts involving information classified as ‘restricted’ only, simpler procedures apply.

Further, in the case of a contract dealing with weapons, contractors must observe all applicable laws on the production, handling and use of weapons. This notably applies to the War Weapons Control Act, which requires that weapons of war may only be manufactured, transported and offered on the market with permission of the federal government (see question 22).

The standard terms and conditions of the German military for defence contracts contain a number of specific provisions relating, inter alia, to commitments by the contractor to ensure the security of supply in the event of a crisis (if applied to the particular contract), pricing control (see question 15) and certain limitations regarding the use of agents and other intermediaries (see question 30).

Do contractors avail themselves of these rules when they perform work exclusively outside of the jurisdiction?

Foreign defence contractors performing work exclusively outside of Germany are typically bound by the above rules by virtue of the procurement laws and regulations and the standard terms and conditions of the German military. This applies, in particular, to security clearance requirements and pricing control. On the other hand, contractors performing work outside of Germany are not subject to German labour and employment rules.

Personal information

Must directors, officers or employees of the contractor provide personal information or certify that they fulfil any particular requirements to contract with a government entity?

Contractors must generally certify that their directors, officers and responsible employees have not have been convicted of certain criminal offences, including corruption and money laundering. This may involve individual certifications by the directors, officers or employees in question, or excerpts from the national judicial records on the relevant individuals.

For contracts involving access to classified information of the level ‘Confidential’ or higher, personal security clearances are required for the owners, managing directors and relevant employees of the contractor (see question 34). This involves personal security checks on these individuals in accordance with the Act on Security Clearance Checks. The same applies to personnel working in particularly sensitive military areas.

Licensing requirements

What registration or licensing requirements exist to operate in the defence and security sector in the jurisdiction?

There are no general registration or licensing requirements to operate in the defence and security sector. However, the production, acquisition, shipment and transfer of possession of weapons of war require a licence from the Federal Ministry of Economic Affairs pursuant to the War Weapons Control Act (see question 22). The production, import, maintenance and trade of certain arms and ammunition not subject to that act require a prior permit in accordance with the German Arms Act. Further requirements apply if the contractor is to be granted access to classified information or to particularly sensitive military areas (see questions 34 and 36).

Environmental legislation

What environmental statutes or regulations must contractors comply with?

There are no specific environmental statutes or regulations for defence and security contractors at the federal level. A number of regional states, however, require government contractors to observe certain sustainability standards such as the International Labour Organization’s core labour standards. In some states, contracting authorities are required by law to include environmental criteria, such as energy efficiency or emissions, into the technical specifications or the award criteria.

When defining environmental requirements and criteria, contracting authorities may refer not only to laws, regulations and administrative rules but also to eco-labels, provided the labels meet certain standards of transparency, accessibility and non-discrimination.

Must companies meet environmental targets? What are these initiatives and what agency determines compliance?

Contractors are, as a general rule, not required to meet any environmental standards beyond those set by general environmental law. However, contracting authorities may include environmental criteria relating to the subject matter of the contract, such as energy efficiency or emissions, into the technical specifications or the award criteria. Moreover, in the case of works and services, contracting authorities may require the contractor to apply adequate environmental management standards. In this case, the contracting authority may also require certificates of compliance by independent bodies on the basis of the European Eco-Management and Audit Scheme. In defence and security procurements, reference to environmental management standards is not common though.

Do ‘green’ solutions have an advantage in procurements?

Contracting authorities, including the military, may use environmental criteria in technical specifications or award criteria, or require contractors to apply specific environmental management standards. In such cases, any contractor that complies with the requirements will have a clear advantage. On the other hand, if the terms and conditions of the particular tender or contract do not include such environmental aspects, ‘green’ solutions will not be evaluated more favourably than standard solutions.

Updates & Trends

Updates & Trends

Updates and trends

Cybersecurity has become a key focus of German military and security procurement. To protect against cyber attacks on its systems and networks, the German armed forces have set up the Cyber and Information Domain. This new service pools cybersecurity-related operations, which were formerly divided between various military entities. Its tasks include the protection and operation of IT systems, reconnaissance, the supply of geographic information and data, and close cooperation with other national and international institutions.

The Cyber and Information Domain is part of a plan to form a ‘digitised Bundeswehr’, which includes establishing a highly qualified and effective cyber reserve to support the active military cyber personnel. In addition, a ‘cyber innovation hub’ has been set up in Berlin to serve as an interface between the armed forces and the IT community, including start-ups, and to search for ways to implement innovative and game-changing technologies in the German armed forces. Moreover, a ‘cyber cluster’ is being set up at the University of the German Armed Forces in Munich to build further expertise in informatics and cybersecurity in the armed forces.