Public Procurement and Property Development in Germany

2. Public Procurement and Property Development in Germany • The Procurement Lawyers‘ Association, London, 29 September 2009 • Dr. Mark Butt, Rechtsanwalt, Munich

3. Topics • Development of (Public) Properties in Germany • Typical situation | Legal Position before Auroux/Roanne • German Court Decisions after Auroux/Roanne • Court Decisions | Criticism • Consequences of Court Decisions • Consequences for Development | Preliminary Ruling Procedure| • Changes in Procurement Law • Position of EU Commission • Infringement Procedure Flensburg • Outlook

4. Development of (Public) Properties in Germany

5. Typical situation SPA Authority Developer LDA • obligation to realise project • certain design • certain uses • social and ecological aspects • costs for planning, ecological compensation, infrastructure etc. • owner of property • planning policies • ideas, know-how • financing

6. Legal Position before Auroux/Roanne • Obligation to invite to competitive tender for sale of property under budget laws; no legal remedies of competitors • No application of EU public procurement rules: • no „procurement“ by public authority, but enforcement of planning policies • generally no consideration paid by public authority (other than La Scala case, ECJ 12 July 2001, C-399/98), because market price is paid for property

7. German Court Decisions after Auroux/Roanne

8. Court Decisions • Upper District Court Düsseldorf 13 June 2007 (Verg 2/07), Airport Ahlhorn • Sale of former military airport by Federal Government Agency, separate contract between Authority and Developer about development • Land transfer from Federal Republic to Developer which is linked to LDA between Municipal Authority and Developer containing a development obligation can be a Public Works contract • No payment by authority necessary; possibility to use property constitutes „consideration“ (works concession) • Upper District Court Düsseldorf 12 December 2007 (Verg 30/07), City of Wuppertal and 6 February 2008 (Verg 37/07), City of Oer-Erkenschwick • Sale of municipal properties, LDAs without development obligation • No expressly stated, enforceable development obligation necessary; right to withdrawal from land transfer constitutes „indirect“ development obligation • No specifications for buildings necessary at time of contract, can be specified later

9. Court Decisions • Upper District Court Bremen 13 March 2008 (Verg 5/07), Wind Farm • Lease of property with obligation to build a wind farm is public works contract • Upper District Court Karlsruhe 13 June 2008 (15 Verg 3/08), City of Wertheim • Confirmation of OLG Düsseldorf in light of strong critizism • GSK acting for plaintiff (competitor for project)

10. Criticism • No procurement situation, but planning policy • Difference between German cases and Auroux/Roanne: No financial risk or economic involvement by authorities -> misinterpretation of ECJ • Different decisions by other courts: Procurement Tribunals of Brandenburg 15 Feb 2008 (VK 2/08), Baden-Württemberg 7 March 2008 (1 VK 1/08), Hessen 05 March 2008 (VK 06/2008), Upper District Court Munich 4 April 2008 (Verg 04/08) • Publications by legal scholars • Federal Government

11. Consequenes of Court Decisions

12. Consequences for Development • Uncertainty of legal situation stopped many developments and transactions: • risk of void SPA and property transfer under Procurement Law and Civil Law • risk of legal action by competitors • risk of legal action by European Commission • Many councils decided to apply procurement rules to sale of properties and even LDAs without land transfer • German procurement rules do not fit development situation • many practical problems with procurement procedures

13. Preliminary Ruling Procedure • Upper District Court Düsseldorf has asked ECJ for preliminary ruling (Decision of 2 October 2008, Verg 25/08) on whether • Public Works Contracts require „physical procurement“ by and „economic benefit“ for authority, • if „procurement“ is necessary, a certain public purpose and the legal authority to secure that the purpose is fulfilled by developing the building constitutes „procurement“, • Public Works Contracts require a direct or indirect obligation to perform works and whether the obligation has to be enforceable, • it is sufficient to assume „requirements specified by contracting authority“ (Art. 1 Para. 2 lit. b Directive 2004/18/EC) if authority examines and approves construction plans for a building, • a Public Works Concession cannot be assumed, if concessionaire is owner of property or concession is granted without time limitation, • under which circumstances separate SPA and Public Works contracts be seen as one contract.

14. Change of German Procurement Law • In force since 24 April 2009 • Clarification that procurement rules only apply when works/services are „procured for direct economic benefit“ of contracting authority • Clarification that „consideration“ is either payment or concession for limited amount of time • Time limitations for complaints according to Directive 2007/66/EC • Risk of void contracts reduced enormously • Conformity with EU Law questioned by Judge of Düsseldorf Court and legal writings

15. Position of EU Commission

16. Infringement Procedure Flensburg • Land transfer from Public Utility Company (100 % City of Flensburg) to Developer • No binding obligation to erect building, only declaration of intention; obligation to organise architectural competition for hotel • Right to buy back property („indirect obligation“) is not sufficient to constitute a works contract; clear, legally enforceable obligation is necessary (letter of 17 April 2009 by COM, published on www.nrw-baurecht.de)

17. Outlook

18. Outlook • ECJ decision expected end of 2009 / early 2010 • Change of law and time passed has helped overcoming fear of void contracts, no major effects on development at the moment

19. Contact Us

20. Contact Details Dr. Mark Butt • Karl-Scharnagl-Ring 8, 80539 Munich • Tel +49 89 288174 – 0 • Fax +49 89 288174 - 44 • Mail butt@gsk.de Munich

21. 43 partners growth and of-counsels, such as for instance Dr. Theo Waigel (former federal minister of finance) and Peter Schmidhuber (EU commissioner under Jacques Delors). from 10 to more than 125 lawyers in 10 years without mergers. Founded as an amalgamation of friendly lawyers from renowned corporate law firms. Germany-wide GSK belongs to the 25 largest law firms. further development of our legalservices is ensured by numerous GSK lawyers as well as newcomers from other law firms. They confirm the attractiveness of GSK as a working environment. GSK at a Glance global network comprised of 40 notable corporate law firms in all economically important countries of the world. European alliance with partner law firms Nabarro (UK), August & Debouzy (France) and Nunziante Magrone (Italy).

22. Practice Areas

23. 7 Branch Offices in the economic centers of Germany Consulting Teams are formed locally and trans-regionally in accordance with your needs Offices Joint Office with Nabarro and August & Debouzy in the EU capital Brussels Major Projects and Transactions can be carried out by us in Germany and in the major markets in Europe Local Know-How as a result of the on-site anchoring and the short way to all participants

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