Munic­i­pal hous­ing asso­ci­a­tions as pub­lic clients?

On March 13, 2024, the High­er Region­al Court of Ros­tock ruled (case ref­er­ence: 2 U 10/23) that a de fac­to award of a con­tract below the thresh­old val­ues can also be stopped by means of an inter­im injunc­tion if the actions of the con­tract­ing author­i­ty can be clas­si­fied as arbi­trary.

Our video dis­cussing the judg­ment:

The facts of the case

At the heart of the dis­pute was the fiber optic expan­sion (net­work lev­el 4) in around 2,400 apart­ments of a munic­i­pal hous­ing asso­ci­a­tion. Although a pri­vate net­work oper­a­tor (the lat­er plain­tiff) had expressed inter­est sev­er­al times, the hous­ing asso­ci­a­tion con­clud­ed con­tracts with a com­peti­tor with­out any com­pet­i­tive pro­ce­dure.

When asked, the com­pa­ny untruth­ful­ly informed the plain­tiff that no agree­ments exist­ed. It was only through legal action against the city as a share­hold­er that the plain­tiff became aware of the actu­al agree­ments and sought pri­ma­ry legal pro­tec­tion by way of a pre­lim­i­nary injunc­tion.

Key point of the deci­sion: When “arbi­trari­ness” makes con­tracts void­able

The OLG Ros­tock first clar­i­fied that a hous­ing asso­ci­a­tion orga­nized under pri­vate law acts as a con­tract­ing author­i­ty with­in the mean­ing of pub­lic pro­cure­ment law if it per­forms tasks of a non-com­mer­cial nature that are in the pub­lic inter­est (e.g. social hous­ing pro­vi­sion with­out the pri­ma­ry inten­tion of mak­ing a prof­it) and is con­trolled by the pub­lic author­i­ties.

The deci­sive legal deci­sion con­cerns legal pro­tec­tion below the thresh­old val­ues: Nor­mal­ly, pri­ma­ry legal pro­tec­tion in the sub-thresh­old area is as good as exclud­ed after the con­tract has been con­clud­ed. How­ev­er, the court deemed the pro­ce­dure here to be arbi­trary, as com­peti­tors were ignored with­out objec­tive rea­son and infor­ma­tion was delib­er­ate­ly con­cealed. Despite the fact that the con­tract had already been con­clud­ed, the court ruled that the com­pa­ny was not allowed to con­tin­ue with the unlaw­ful­ly con­clud­ed con­tract. A new con­tract requires a trans­par­ent and non-dis­crim­i­na­to­ry selec­tion pro­ce­dure.

Tips for pub­lic clients:

Even if you oper­ate in the sub-thresh­old area or are orga­nized as a munic­i­pal com­pa­ny in pri­vate legal form, this does not release you from the prin­ci­ples of fair com­pe­ti­tion.

• Check your sta­tus: Do you per­form tasks of a non-com­mer­cial nature? Then you are most like­ly bound by pub­lic pro­cure­ment law.
• Avoid de fac­to con­tract awards: A “short offi­cial route” with­out com­pe­ti­tion car­ries the risk of projects that have already been start­ed being stopped by the courts, which can lead to con­sid­er­able delays and claims for dam­ages.
• Com­mu­ni­ca­tion: The delib­er­ate con­ceal­ment of con­tract con­clu­sions from inter­est­ed par­ties can be seen as evi­dence of arbi­trari­ness in court.

Tips for bid­ders and fund­ing recip­i­ents

Don’t be dis­cour­aged if an order has already been placed “under the table”.

• Use your right to infor­ma­tion: If you sus­pect a com­mis­sion, demand trans­paren­cy. If nec­es­sary, you can also take legal action to obtain doc­u­ments from the local author­i­ty involved.
• Speed of reac­tion: As soon as you have reli­able evi­dence of an infringe­ment, you must react quick­ly, oth­er­wise there is a lack of urgency, which will thwart inter­im legal pro­tec­tion.