Public procurement law: possible exceptions to the product neutrality requirement

If a contracting authority has been using certain hardware and software products for a long time, the relevant processes are set up accordingly. The employees are trained in using the product. If it has generally proven its worth, the contracting entity often does not want to change the successfully introduced product in the event of a necessary follow-up or supplementary procurement.

The following article briefly presents a recent decision by the Düsseldorf Higher Regional Court, which provides more clarity in this practice-relevant field of procurement.

Private autonomy versus the requirement of product neutrality

If a contracting authority wishes to meet an anticipated demand with a specific product from a specific manufacturer, there is a conflict between its procurement wishes and the general competition principles defined by the German Act against Restraints of Competition (GWB).

On the one hand, the principle of private autonomy also extends to a contracting authority, i.e., it is free to determine what it needs in order to fulfill its tasks. Its decision as to whether and, if so, what it wishes to procure is influenced by numerous factors, including technical, economic, design-related factors or factors of social, ecological or economic sustainability.

The choice is subject to the contracting authority’s freedom of determination, the exercise of which is upstream of the award procedure. Public procurement law does not regulate what the contracting authority procures, but only the manner of procurement, i.e., the procurement procedure (see, for example, Celle Higher regional court, decision of March 31, 2020, 13 Verg 13/19, juris para. 39).

On the other hand, the prior determination of a certain object of procurement has a certain restrictive effect on competition, as the decision “for” something simultaneously implies the decision “against” something else that might also have been suitable in order to cover the underlying demand.

Public procurement law at Union and national level sets limits to the contracting authority’s right of determination

With the requirement of product-neutral tendering as a concrete form of the general competition principle of Art. 97 (1) GWB, European and German public procurement law therefore set limits to the contracting authority’s right of determination, which is in the interest of both the desired opening of the procurement system to competition, but also the effective enforcement of the free movement of goods (see VK Bund, decision of May 9, 2014, VK 2-33/14). 

According to Art. 31 (1) of the German Public Procurement Ordinance (VgV), the contracting authority must, as part of the procurement procedure, formulate the specification in such a way “that it grants all companies equal access to the procurement procedure and does not unjustifiably impede the opening of the national procurement market to competition”.

In addition, Art. 31 (6) sentence 1 VgV stipulates that the specifications “must not refer to a specific production or origin or a specific process that characterizes the products or services of a specific company, or to industrial property rights, types or a specific origin, if this favors or excludes specific companies or specific products, unless such reference is justified by the subject matter of the contract”.

Public procurement regulation: specifications must not favor or exclude certain companies and products

Art. 31 VgV thus contains, on the one hand, the requirement to formulate the specifications in such a way that all market participants are granted equal access to the award procedure. On the other hand, it contains the prohibition of designing a tender for a specific (single) product. This is because it restricts both the competition that is fundamentally required as well as the expected variety of offers and therefore often also the economic efficiency of the procurement.

According to case law, a product- or manufacturer-specific invitation to tender is therefore only justified (in exceptional cases) if the contracting authority has given comprehensible objective and contract-related reasons and the determination has therefore been made without arbitrariness, such reasons actually exist (to be determined and, if necessary, proven) and the determination does not discriminate against other economic operators (Brandenburg Higher Regional Court, decision of July 8, 2021, 19 Verg 2/21; Düsseldorf Higher Regional Court, decision of October 16, 2019, Verg 66/18; Munich Higher Regional Court, decision of March 26, 2020, Verg 22/19; Jena Higher Regional Court, decision of June 25, 2014, 2 Verg 1/14).

Case law: Düsseldorf Higher Regional Court approves product-specific invitation to tender for hardware and software

In an as yet unpublished decision dated July 10, 2024 (VII-Verg 2/24), the Düsseldorf Higher Regional Court commented in detail on the requirements for a permissible deviation from the requirement of product-neutral tendering in the procurement of hardware and software (interactive displays for schools). In the case decided, it approved the product-specific tendering of hardware and software and thus confirmed its previous case law, which provides a fundamental understanding of the public contracting authority’s interests in this context.

In its opening remarks, the court emphasizes that “the contracting authority has a margin of discretion in assessing whether the specification of a particular manufacturer is justified”. Whether the contracting authority stayed within the legal limits of this discretionary scope in its procurement decision is, however, subject to judicial review. The burden of demonstrating the necessity – not merely the expediency – of a manufacturer-related specification lies with the contracting authority; it must provide comprehensive, objective and comprehensible evidence and documentation of its (exceptional) reasons.

Product specification justified in the event of error and compatibility risks

If this is taken into account, a product specification can be justified for technical reasons “if, in the interests of system safety and function, a significant reduction of actually existing potential risks that can be averted, such as the risk of malfunctions and compatibility problems, is achieved”.

Particularly in security-relevant areas, contracting entities should “take the safest route and thus exclude any potential risk”. In the case of other compatibility problems, which can regularly occur when procuring new system components – especially IT components – “the contracting entity must, on the other hand, demonstrate that changing the system or the product-neutral addition would result in disproportionate additional costs or would impair the functionality in an unacceptable way”.

Continued use justified to avoid training costs and disruption to daily work processes

Against this background, the Düsseldorf Higher Regional Court considers the contracting entity’s wish for a continued use of an introduced software in the school sector, which is used by a large number of people with different levels of knowledge, to be justifiable under public procurement law; the decision in favor of a uniform software environment for a heterogeneous group of users was – as required by law as a prerequisite for an exception to the requirement of product- and manufacturer-neutral tendering – objectively justified and made on the basis of objective and order-related reasons in a comprehensible and non-discriminatory manner.

The court thus accepted the contracting authority’s reasoning that it could not reasonably be expected to accept mixed software operation in view of the increased training required for various manufacturer-specific software systems and in view of the permanent impairment of daily work processes and considerable additional work for users.

Hardware and software from the same manufacturer permitted under public procurement law

With similar considerations, the court considers the decision to procure the required hardware and software “from a single source”, i.e. from the same manufacturer, to be permissible under public procurement law; especially in a user environment in which the uniform function of a large number of devices for different user groups must be guaranteed, concerns about compatibility problems, which would impair functionality in an unacceptable manner and would result in disproportionate additional costs for use and support, should be the decisive factor when deciding to procure the hardware and software from one (single) manufacturer.

While the Düsseldorf Higher Regional Court’s decision is generally positive for the contracting authority, the considerable and case-specific effort required to justify a deviation from the principle of product- and manufacturer-neutral tendering, also in the area of EDP and IT, should not be ignored.

Many thanks to Dr. Peter Czermak for his valuable support in writing this article.