Germany: Governmental Draft Bill Contains Legal Basis for “No Spy” Restrictions

international-600The German federal government has added a legal basis for so-called “No Spy” confidentiality requirements to its final proposal for a major public procurement law amendment act (“Draft Bill”).  The new provision explicitly allows public authorities to impose specific contractual obligations designed to protect the confidentiality of information against disclosure to foreign intelligence agencies. If applied by an awarding authority for a certain government contract, contractors have to firmly declare in the tender procedure that they are not obliged to disclose information to foreign government entities.

Awarding authorities can make use of such obligations in particular when purchasing IT or telecommunications hardware and services for government officials, or when tendering specific consultancy contracts.  By explicitly allowing the imposition of additional conditions, the Draft Bill, once adopted, could further encourage awarding authorities to make use of such restrictions.  Depending on whether a company is obliged to disclose certain information to intelligence agencies, these restrictions may affect the ability of non-German companies to successfully participate in public tenders for security-relevant government contracts.

Backup for Existing Administrative Orders

Germany has had some form of No Spy provisions in place since 2014, when the German Federal Ministry of the Interior issued the so-called “No Spy Decree” (see our Global Procurement Quarterly Newsletter, Winter 2015 edition) and several Federal States followed with comparable decrees.  However, in discussions and litigation following the adoption of the decrees, it was questioned whether German public procurement law provides for a legal basis for the implementation of such restrictions.  The updated Draft Bill provides such an explicit statutory provision.

The new draft provision (Sec. 128 of the amended Act against Restraints of Competition/Gesetz gegen Wettbewerbsbeschränkungen, GWB”) generally obliges contractors to comply with specific regulations (such as tax and social security laws, work security, and minimum wage), but also enables contracting authorities to set out additional conditions at their own discretion as long as there exists a nexus to the subject matter of the public contract and it is made transparent.  In particular, contracting authorities can take into account economic, innovation-related, ecological, or social concerns – and the protection of the confidentiality of information.

The new legal basis for No Spy provisions is part of Germany’s overhaul of its public procurement regime, which must be completed by April 18, 2016, in response to EU requirements (see our Global Procurement Quarterly Newsletter, Winter 2014 and Winter 2015 editions). On August 14, 2015, the German government referred its Draft Bill to the German Bundesrat, the legislative body representing the German Federal States.  In this Draft Bill, the German government (in derogation from the initial Ministerial draft of April 2015) included the new language for the protection of the confidentiality of information.

Conclusions

The German government is pushing to meet the April 2016 deadline for the transposition of the EU Public Procurement Directives. Bidders and awarding authorities should adopt their practices to the new regime as soon as possible, particularly because the provisions of the EU Public Procurement Directives are already in effect and may take pre-effect prior to the transposition into EU Member States’ laws.

With respect to the No Spy restrictions, non-German companies will have to carefully analyze whether they comply with the contractual obligations set out by the awarding authority, and whether the authority is entitled to make use of specific confidentiality provisions in the individual public tender.  As the case may be, companies should consider challenging the imposition of such restrictions, for example, if no sufficient nexus to the subject matter of the contract can be established, the conditions seem disproportionate, or the restrictions have an unjustified anticompetitive effect.