Sectoral activity to be understood broadly

An indirect connection between procurement and sectoral activities is sufficient: According to the Düsseldorf Higher Regional Court (decision of August 17, 2022 – Verg 50/21), a procurement must enable the contracting entity to reasonably perform its sectoral activities in terms of the customary conditions of performance.

In its decision, the Düsseldorf Higher Regional Court interpreted sectoral activities broadly and confirmed a corresponding directive of the ECJ. With the entry into force of the Utilities Directive 2014/25/EU, the material scope of the directive should not be interpreted more narrowly than that of Directive 2004/17/EC.

The Court thus declared the procurement by a utility company in the water and energy supply sector – a sector contracting entity within the meaning of the German Competition Act (“GWB”) – for a one-year framework contract for the provision of postal services to be lawful. The unsuccessful tenderer had initially filed an application for review with the Westphalian Procurement Chamber on the grounds that the decision had been made without informing the unsuccessful tenderer in advance. The Westphalian Procurement Chamber initially ruled in favor of the unsuccessful tenderer. In the next instance, the Düsseldorf Higher Regional Court overturned this decision.

Facts
The utility company in the water and energy supply sector – a sector contracting entity within the meaning of the GWB had requested two tenderers to submit a proposal for postal services in the amount of ca. EUR 280,060.00 net. As the contract value was below the then applicable threshold of EUR 428,000.00 net and the utility company considered the tendered activity to be within the scope of its sectoral activities, the utility company engaged a tenderer without informing the unsuccessful tenderer in advance. Such tenderer subsequently filed an application for review with the Westphalian Procurement Chamber in order to declare the aforementioned contract to be invalid. 

The Westphalian Procurement Chamber ruled in favor of the unsuccessful tenderer (decision dated October 21, 2021 – VK 2-41/21). The utility company filed an immediate appeal against this decision with the Düsseldorf Higher Regional Court.

OLG Düsseldorf’s argumentation

The OLG Düsseldorf rejected the application for review as inadmissible: 

  • Threshold not reached: The application for review was already inadmissible because the relevant procurement threshold for sectoral activities of EUR 428,000 had not been reached. Consequently, the procurement was not subject to review by the procurement review authorities.
  • Procurement within the scope of sectoral activities: According to the Düsseldorf Higher Regional Court, the postal services constituted a procurement made by the sector contracting entity in order to perform its sectoral activity. In this context, the Higher Regional Court referred to decisions of the ECJ (decision of October 28, 2020 – Rs.C-521/08) and of the Munich Higher Regional Court (decision of March 13, 2017 – Verg15/16). 
  • Indirection connection sufficient: Based upon the Munich Higher Regional Court’s decision, the Düsseldorf Higher Regional Court argued that a mere indirect connection between the procurement and the utilities sector was sufficient in order to assume for the procurement to be a sectoral activity. A differentiation between procurements “directly” serving the sectoral activity and procurements merely qualifying as indirect promotion of the sectoral activity would result in hardly solvable demarcation problems in practice. 

Background to the ECJ case law

With regard to Directive 2004/17/EC, the ECJ has already decided that such Directive, in addition to procurement within the scope of mere sectoral activities, was also applicable to procurement serving to perform sectoral activities. This was not restricted by Directive 2014/25/EU. 

In order to assume for a procurement to constitute a sectoral activity, it is sufficient, according to the ECJ’s case law, that the procurement is made in connection with and for the performance of an activity in such sector. In contrast hereto, it was not sufficient if the procurement only made a positive contribution to and increased the profitability of the exercised sectoral activity. Rather, the procurement had to actually serve the sectoral activities’ performance by enabling such activities’ appropriate performance in terms of its customary conditions of performance. 

Düsseldorf Higher Regional Court’s conclusions in the specific case

In light of the case law, the postal services constituted activities for the purpose of performing the sectoral activities and as such qualified as sectoral activities: 

  • Without any postal communication with suppliers and customers, a water supply network could not be operated properly. 
  • At least at present, maintenance and repair orders are still placed and processed to a considerable extent in analog form by letter. This applies in particular to customer communication for the purpose of initiating, terminating and billing contracts, which was generally still done by letter.
  • Without such communication, the financing and as such the mere operation of water supply was not possible. It is only through the postal services that these activities can be properly performed in terms of their customary conditions of performance. 

Further demarcation issues are to be expected

In its decision, the Düsseldorf Higher Regional Court interprets the term “sectoral activity” quite broadly. However, the Court does not define the point at which the sectoral activity is to be classified as indirect. Thus, in the future, various demarcation questions will arise in individual cases. With regard to these questions, Baker Tilly will be available for you as a competent advisor. Together, we will develop solutions which will legally secure your company’s success. 

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