What regulations should a foreign contractor in the German market be aware of?
In Germany, all public entities contracting construction work are obliged to apply the “Standardised rules for the contracting and execution of construction work”, the so-called VOB.
An increasing number of foreign construction companies are participating in tenders for public procurement in the Federal Republic of Germany. Foreign companies are successfully taking part in tenders for contracts, tempting construction contracting entities with experience, high quality of their services and better project valuations than those offered by their German competitors.
When deciding to expand into the German market, entrepreneurs should be aware of the conditions and regulations prevailing in the public procurement sector, in which construction works contracts have the largest share. In contrast to majority of european law systems in German legislation there is no comprehensive legal regulation regarding public procurement law. Generally the procurement process, above the EU thresholds (currently standing at €5,382,000 for construction works), is regulated at the federal level in regulations of three different ranks, which are additionally enriched by provincial regulations depending on the specific state law. The key piece of legislative regulation at statutory rank is the law against restrictions of competition, the so-called GWB (Gesetz gegen Wettbewerbsbeschränkungen). This regulation is complemented by the Regulation on the Award of Public Contracts – so-called VgV (Verordnung über die Vergabe öffentlicher Aufträge).
One of the regulations specific to the German procurement law system, that has a major impact on the construction procurement market, consists of the Standardised Principles for the Commissioning and Performance of Construction Works, or, VOB (Vergabe- und Vertragsordnung für Bauleistungen). The body responsible for their elaboration is the German Commission for the Commissioning and Contracting of Construction Works (Deutscher Vergabe- und Vertragsausschuss für Bauleistungen), which is composed of representatives of both the public sector procurement bodies and representatives of the contractors’ organisations.
This framework of standards does not constitute binding law. The VOB are structured as follows:
- VOB/A – regulates the tendering process and the procedure for the award of construction work (its content corresponds to DIN 1960); on the basis of the budget decrees of the federations, states, individual municipalities and provincial laws, the application of this part of the VOB is mandatory for public entities awarding construction works; thus, the first part is most widely used in practice;
- VOB/B – defines the general conditions imposed on contracts for construction works (corresponds to DIN 1961); it defines the rights and obligations of the individual contractual parties and is applicable to both the public and the private sector, whereby in the latter case it shall be stipulated in the contract;
- The VOB/C – regulates the technical conditions for the execution of construction work in the context of public contracts and general construction standards labelled from DIN 18299 onwards; not least, it regulates the scope of individual services, additional services, auxiliary services and important aspects of billing and remuneration.
What is the relevance of the VOB regulations for the contractor?
Depending on the characteristics of the ongoing project the rules in question will apply differently. When taking part in in tender for a public procurement, we will have no alternative, as the regulations of VOB/A will be imposed on contractor by the commissioning authority. The role of these rules in the procurement process is to ensure transparency, equal opportunities and to enable the contracting authority to select the right contractor. Furthermore, the application of the other two parts of the VOB will be relevant, and therefore the standards and derogations from the general regulations contained therein must be anticipated.
However, you may be confronted with these regulations, and in particular when carrying out projects for the private sector. In this case, the formal basis for the provision of services will be the German Civil Code – BGB, the regulations of which, following an express contractual stipulation by the parties, can be supplemented by the much more detailed provisions of VOB/B and VOB/C. This is often the case in larger construction projects, as it provides the parties with clear contractual provisions regarding, among other things, claims for defects, warranty periods and limitations of the warranty.
Our experts have extensive experience in providing foreign construction companies with assistance during the planning and management of expansion into the German market. Please contact us if you require more detailed information or the transfer of general considerations to the reality of a specific case.