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Lawsuit on requirement for public enterprises to invite tenders: Hamburg housing company wins case with CMS support

12/02/2019

Hamburg – Hamburg Higher Regional Court has dismissed an action for public award of a contract brought by a painting contractor against a housing company (GWG) belonging to the SAGA Group.

The background to the case was the claimant’s assumption that GWG had to put construction contracts out to public tender before awarding them. The claimant’s view was that GWG, as a public enterprise owned by the City of Hamburg and with an obligation to perform public duties, is thus also a “public contracting authority” that is subject to formal public procurement law. The court took a different view and ruled in favour of the public housing company as the defendant. 

The court reasoned that the housing company, GWG, operates commercially and can therefore not be regarded as a public contracting authority as defined in the case law of the European Court of Justice (ECJ). The court held that GWG effectively competes with other suppliers in a market (albeit an imperfect one), is profit-oriented and indeed generates substantial profits. It distributes them to its shareholders and does not access public funds.

Furthermore, the performance of public duties by a public enterprise is not sufficient to justify an obligation to invite tenders, the court added. Any other interpretation would result in practically any private company becoming a public contracting authority as defined in formal public procurement law in cases where a (majority) stake is held by the state. The mere pursuit of state objectives does not make GWG a public contracting authority, the court said.

It also pointed out that the claimant had failed to challenge GWG’s systematic, profit-oriented entrepreneurial activity, which was set out in the proceedings. The aim of making a profit should not be confused with profit optimisation or profit maximisation; the latter is not required of public enterprises. Such behaviour, which ignores genuinely public objectives, would also be questionable under constitutional law and is not a requirement for a public enterprise being able to procure services in the market without being subject to formal public procurement law.

The SAGA Group is a municipal housing company. According to its own data, it rents out more than 130,000 apartments and 1,500 commercial properties in Hamburg.

Public Procurement Senate of the Hanseatic Higher Regional Court, ruling of 11.02.2019, case reference 1 Verg 3/15

Presided over by: Panten, Presiding Judge at the Higher Regional Court

CMS Germany

Dr Hermann Müller, Lead Partner, Real Estate & Public
Dr Heidi Wrage-Molkenthin, Partner, Competition & EU
Dr Heino Büsching, Partner, Tax 

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Related people

Dr. Hermann Müller, LL.M. (The University of Edinburgh)
Partner
Hamburg
Heidi Wrage-Molkenthin
Dr. Heidi Wrage-Molkenthin
Of Counsel
Hamburg
Dr. Heino Büsching
Partner
Hamburg