During the preparation for a procurement procedure, the contracting authority is recommended to conduct a market analysis in order to get a broad overview of the offers available on the market. In this way, a smooth flow of competition can be achieved and all bidders are given equal opportunities. It is therefore important to provide sufficient reasons as to which manufacturer can best implement the client’s ideas. Direct awarding of contracts plays a major role for some customers. This involves negotiating with just one bidder. However, this could have serious consequences for review bodies and cause a kind of discrimination against other bidders.
What exactly is a market investigation and how does it work?
There is no precise specification of how a market investigation is carried out. One can say only that one investigates, collects and documents relevant information for procurement objects (goods, commodities, services) during a market investigation. Thus the determined offers of the existing market can be taken as a basis for the calculation of the client, in order to be able to adapt invitations to tender in the best possible way to the procurement desires of the public clients.
In most cases, a market investigation is carried out prior to an award procedure. When conducting an award procedure, it must be strictly observed that it is not only a cost and price determination for the purpose of market reconnaissance. Otherwise, its implementation is inadmissible.
In addition, a market investigation must not be confused with a procurement. Therefore, it is essential to clearly communicate the non-binding nature of the exploration from the outset and to keep documentation to back it up during the process. It is important not to unintentionally cross the threshold into a procurement process. Obtaining information is not a problem if it does not result in the award of a contract or concrete negotiations. This is to prevent a competitive advantage in favor of a particular bidder.
Why conduct a market investigation at all?
In principle, it is important for the client to obtain the advantages and disadvantages of various products and to compare them conscientiously in order to obtain a suitable offer. This information can be researched by the client on the Internet or requested directly from companies. It is important to seek the advice of independent experts, authorities, etc., in order to rule out discrimination against bidders. There are many reasons for conducting a market survey.
Among other things, a market investigation is very useful for determining procurement needs. How exactly this need is defined always depends on the conceptions of the respective clients themselves. It is important for the client to describe the contract items in detail and clearly in order to compare the offers of the bidders with each other in the best possible way.
Furthermore, the market investigation helps in the preparation of the tender documents. Not only can it simplify the drafting of a specification, it can also help to determine and define the relevant suitability criteria of the companies to be involved in the procedure.
Furthermore, through the analysis of the market, the best price-performance ratio is to be determined. This is achieved by determining award criteria, such as quality, price, profitability, technical value, etc.
Another reason is the contract value estimate. This involves determining whether the contract value is above the threshold value (EU procurement law) or below the threshold value (national procurement law). Based on the expected total remuneration, the contract value of the services to be procured is estimated.
Last but not least, it should be mentioned that a market investigation is also important for determining the right type of award procedure and the possible group of candidates and/or bidders.
Duty or no duty?
Whether or not there is an obligation to conduct a market investigation is highly controversial in case law, particularly if the contracting authority wishes to invite tenders on a manufacturer‑, process- or product-specific basis.
On the one hand, the Rostock Higher Regional Court and the Düsseldorf Higher Regional Court decided not to assume any obligation to conduct a market investigation. On the other hand, the Jena Higher Regional Court, the Celle Higher Regional Court and the Lower Saxony Procurement Chamber have decided the opposite. They are of the opinion that it is essential to obtain an overview of the market and finally to document the decision in detail on this basis.
The prevailing opinion does not require the contracting authority to conduct market investigations or market analyses prior to a contract specification with the aim of investigating whether other products are possible or “whether other — alternative — technical approaches are conceivable”. If, however, a negotiated procedure without a competitive bidding process is to be carried out, stricter requirements must be imposed due to the special justification requirements for the choice of this procedure, according to which a market investigation must always be carried out. In this respect, the efficiency effects of the free market must be utilized in order to have extensive knowledge of alternative products. However, there may be a negotiated procedure without a competitive bidding process in which no obligation to conduct a market investigation is required. This occurs in exceptional circumstances where there are no alternatives with regard to the subject matter of the procurement.
In principle, there is no standardized obligation for a market investigation, but it should nevertheless be carried out and documented in detail prior to the initiation of an award procedure.
What is the IBV?
The IBV (Interessenbekundungsverfahren or Expression of Interest Procedure) has many meanings, which is why the connection to the market investigation must be made clear here. On the one hand, it describes an informal procedure for market exploration, in which concept proposals or solutions are presented by interested parties. Here an instruction is essential, with which it emerges that it concerns no procurement intention, but only a market analysis.
On the other hand, the IBV means that public contracting authorities consider having future tasks performed by private parties. Therefore, private providers are given the opportunity to demonstrate whether and to what extent they can perform public tasks or economic activities serving public purposes as well or better than the public sector itself.
What is direct procurement and when may it be used?
In the case of direct award, negotiations are conducted exclusively with one bidder, which means that no competitive bidding process is carried out. This makes it all the more important to be able to show good reasons for awarding the contract. There are indeed some possibilities where a direct award is recommended or even necessary. For example, if no suitable bid is submitted in a procedure or if the requirements of the contracting authority are not met, the contract can be awarded by direct award. The same applies to urgent awards, to supplies for research and development purposes, and to contracts which could lead to disproportionate difficulties (e.g. the purchase of different technical features). Another reason could arise if only one company can fulfill the order (e.g. unique work of art).
As a matter of principle, you should always ensure that there is enough evidence of the exceptional situation and detailed documentation in the case of a direct award. It is important to avoid unlawful direct awards. However, if this is the case, claims for damages may have to be expected.
How do I compensate for a competitive advantage?
A client is free to decide how to obtain an overview of the market. For example, information can be obtained from companies or researched on the Internet. In doing so, it is important not to violate the principle of competition. This is because the principle of competition states that a fair market can only exist with equal opportunities and that the procurement process should be unbiased and free from distortion. If a company obtains special knowledge, either intentionally or unintentionally, as a result of the market investigation prior to the award procedure, appropriate compensatory measures must be initiated by the contracting authority. There are a number of ways to compensate for these advantages. For example, the results and how they were obtained can be disclosed to all potential bidders and the bid deadline extended accordingly. Likewise, the contents of the discussions between the respective companies and the contracting authority should be comprehensively documented. If this information is disclosed in the award procedure, it is no longer possible to speak of a company having an advantage. If all possibilities for compensation fail, the prequalified company can be excluded from the award procedure as a last resort.
*This legal tip is no substitute for legal advice in individual cases. By its very nature, it is incomplete, it does not relate to your case, and it also represents a snapshot, as the legal basis and case law change over time. It cannot and does not cover all conceivable constellations, serves maintenance and initial orientation purposes and is intended to motivate you to clarify legal issues at an early stage, but not to discourage you from doing so.