Reliance on the capacities of other entities in procurement procedures: entities may aggregate their net turnovers to prove their economic and financial capacity

On 27 November 2024, the German Federal Cabinet initiated the legislative process for the public procurement transformation package. However, whether the package will secure the necessary majority in the Bundestag remains uncertain, given the collapse of the German coalition government consisting of the Social Democrats, the Greens and the Free Democrats.

This situation provides a compelling reason to focus on a “perennial favourite” in public procurement law, namely the fulfilment of selection criteria, which can present various challenges for interested entities. To accommodate the reality of a business landscape characterised by a division of labour ‒ with many specialised entities of different sizes rather than a few large all-rounders ‒ public procurement law includes the instrument of reliance on the capacities of other entities. This mechanism allows entities, under certain conditions, to “borrow” technical or financial capacities from another entity, thereby overcoming hurdles related to selection criteria in public procurement law.

However, many detailed questions remain unanswered. For example, review bodies have not clearly indicated whether the turnover required from tenderers and entities that provide their capacities to other entities in public procurement procedures can be combined to demonstrate economic and financial capacity. This article explores various scenarios and evaluates them from the perspective of public procurement law.

I. The principle of “reliance on the capacities of other entities”

Reliance on the capacities of other entities is provided for in the German Procurement Ordinance (Vergabeverordnung ‒ VgV), the German Ordinance on Awards of Public Construction Contracts (Vergabe- und Vertragsordnung für Bauleistungen ‒ VOB/A) and the German Ordinance on Sub-threshold Procurement (Unterschwellenvergabeordnung ‒ UVgO). For example, section 47(1), sentence 1 of the Procurement Ordinance provides that a candidate or tenderer for a public contract may rely on the capacities of other entities to meet the requirements for a particular public contract in terms of economic and financial capacity and technical and professional ability if it can prove that the resources required for the contract will actually be available to it. This can be done, for example, by submitting a corresponding declaration of commitment from these entities. Section 47(1), sentence 2 of the Procurement Ordinance clarifies that the possibility of reliance on the capacities of other entities exists irrespective of the legal nature of the relationships between the candidates or tenderers and the other entities. Only for professional ability does section 47(1), sentence 3 of the Procurement Ordinance impose the restriction that, for a successful reliance on the capacities of other entities, the relevant entity must perform the services for which these capacities are required.

It is not uncommon for entities to be confronted with minimum turnover requirements that exceed their previously generated turnover in tenders for which they are generally eligible in terms of economic and financial capacity. The question arises as to what extent entities can rely on the capacities of other entities in such cases. The question is particularly pertinent where the entity providing capacities does not reach the minimum turnover either, but only the tenderer and the entity providing capacities jointly exceed this threshold.

1. Aggregation of the turnover of members of consortia of candidates or tenderers

A distinction needs to be made between a consortium of candidates or tenderers and where a candidate or tenderer relies on the capacities of other entities. In a consortium, multiple entities submit a joint tender and, if successful, are awarded the contract together. These entities are jointly responsible for fulfilling the contract, meaning it is clear from the beginning that the work will be delivered using the combined capacities of all parties involved. In such cases, there is no reason not to aggregate their turnover, regardless of whether one entity alone or all together meet the required minimum turnover. This approach aligns with the contracting authority’s goal in assessing suitability, which is to ensure sufficient capacity to perform the contract before awarding it. This goal is met when a contract is awarded to a consortium of candidates or tenderers.

2. Crediting the turnover of subcontractors in the case of reliance on the capacities of other entities

While the situation differs, the evaluation remains the same when there is pure reliance on the capacities of other entities. This occurs when candidates or tenderers only provide evidence of available resources through a corresponding declaration of commitment from another entity. One argument for a parallel evaluation is that, for example, combining references between candidates and the entity providing capacities is possible as part of the technical and professional ability assessment. In addition, it is indisputably possible to rely on multiple entities for different capacities (economic, technical, etc.) to exceed the overall selection threshold. However, since combining capacities between the entity providing capacities and the tenderer is required to achieve overall selection, this principle should apply even more strongly to the aggregation of turnover from multiple entities.

Another argument for aggregation is that the contracting authority can require the entity providing capacities to assume joint and several liability with the tenderer for economic and financial capacity (section 47(3) of the Procurement Ordinance). This option, very commonly used in practice, brings the entity providing capacities close to being considered a member of a bidding consortium.

This interpretation is also supported by a decision of Munich Higher Regional Court of 15 March 2012 (case no. public procurement chamber 2/12, at para. 63), according to which entities may not simply rely on the turnover of third-party entities. However, this may be possible if the entity is named as a subcontractor and corresponding proof of suitability is submitted. Although reliance on the capacities of other entities for economic and financial capacity does not necessarily imply their use as subcontractors (as it does for technical and professional ability), the principle established by the Higher Regional Court can still be applied: Turnover from merely affiliated entities cannot simply be added; rather, it must be clear to the contracting authority that third-party resources are to be used. This requirement is met when the candidate expressly relies on the economic capacity of its capacity provider. In this case, too, the public contracting authority’s interest in ensuring that the tenderer is capable of handling the contract volume (even if only together with the entity providing capacities) is safeguarded.

II. Conclusion and outlook

Overall, there are good arguments in favour of allowing a broad aggregation of turnovers from other entities, both in the case of consortia of candidates or tenderers as well as in classic instances of reliance on the capacities of other entities, regardless of whether one entity alone or only with the addition of turnover from other entities exceeds the relevant threshold.

Therefore, affected entities should not be deterred by high turnover thresholds but should assess their ability to meet economic and financial capacity criteria jointly through cooperation with subcontractors. If an entity is excluded from a tender procedure, it would be possible to argue against the illegality of this exclusion with legal assistance.