There are two legislative developments in the field of architectural and engineering services to which public clients, but also contractors and bidders, should currently pay particular attention. The first is the new version of the HOAI. According to this, a new HOAI is to be expected as of January 1, 2021. Secondly, the effects of the temporary change in the VAT rate; this is particularly the case because a higher VAT rate generally leads to a higher definitive economic burden for the public sector.
New authorization basis for the enactment of the HOAI
Initiated by the ECJ ruling of July 4, 2019 (Case C‑377/17), the German legislature is currently in the process of rewriting the enabling basis for an amendment to the HOAI. This is also necessary. The HOAI is a statutory ordinance, and statutory ordinances require a formal statutory authorization basis that regulates the content, purpose and extent of the statutory ordinance to be issued, cf. Art. 80 (1) sentence 2 GG. In the meantime, a “draft law amending the law regulating engineering and architectural services and other laws” has been presented by the Federal Government; it has even already been passed by the German Bundestag (BT-Drucks. 19/21982). An essential component of this new version of the enabling legislation is the elimination of binding minimum and maximum rates. On the one hand, the future HOAI is intended to provide orientation for the amount of the fee in individual cases; on the other hand, it is still intended to serve as a basis for calculating the fee, which can then be changed by means of additions or deductions. How strict the guideline character of the HOAI fee is to be is still unclear. The Federal Council, to which the draft has also already been submitted, seems to want a detailed regulation of the appropriateness requirements. It takes the view that an “explicit appropriateness provision in the statutory enabling statute itself” could “facilitate the judicial review of fee claims and help to avoid protracted disputes” (statement of September 18, 2020, BR-Drucks. 445/20). So it remains to be seen how strict the guiding regulations will ultimately turn out to be.
HOAI Amendment Regulation
In the meantime, a draft of an “Ordinance amending the Fee Regulations for Architects and Engineers (HOAI Amendment Ordinance)” (hereinafter: HOAI‑E) dated August 7, 2020 by the Federal Ministry for Economic Affairs and Energy is also available. Interesting is already the future § 1 HOAI‑E, according to which the regulations of the HOAI “can” be taken as a basis — thus not “must”. This provision is therefore along the same lines as the enabling legislation currently going through the parliamentary procedure. Section 2 (12) HOAI‑E is also along the same lines. The provision stipulates that the fee scales shall show “orientation values” that are “geared to the type and scope of the task as well as to the service.” Furthermore, the “basic fee rate” is mentioned, which, according to Section 2 (13) HOAI‑E, is “the respective lower fee rate contained in the fee tables of this ordinance.” Furthermore, among other things, § 7 HOAI‑E replaces the written form with the text form and provides in paragraph 1 that in the absence of an “agreement on the amount of remuneration in text form”, the base fee rate is deemed to be agreed. Section 7(2) HOAI‑E is also interesting, as it states that the contractor must “inform the client, if he is a consumer, in text form at the latest when submitting an offer” that “a higher or lower fee may be agreed than the values contained in the fee tables of this Regulation.” For the inclined reader, the following thought may be instructive in this context: consumer protection can be ensured through information or through authoritative rulemaking. One can speak simplistically of the information model on the one hand and the social model on the other. While the information model assumes that consumers are mature and capable of being informed, and therefore want to be informed, the social model assumes that consumers are less willing to be informed and need to protect themselves. Accordingly, the information model works with information, labeling and education obligations, whereas the social model works with the law on general terms and conditions, the ordering of the mandatory or semi-mandatory validity of legal norms and close-meshed judicial control powers. As mentioned above, the Bundesrat — and not only the Bundesrat — would like to see guidelines on the appropriateness of fees; from the point of view of consumer protection, this is an approach that is more in line with the social model. The legislator of the ordinance, on the other hand, apparently relies more on the information model, whereby the current wording is very reduced. The legislator also has something to gain from the social model when it speaks of “orientation values” in Section 2 (12) HOAI‑E, but does not explicitly limit this orientation function to consumer protection — at least in the text of the draft, but not in the explanations on this. Ultimately, care must be taken to ensure that the social model is not misused for the sake of argument to protect established market participants — and precisely not consumers — from a supposed drop in prices. Particularly when the text of the regulation seems to opt rather for the information model.
Reduced VAT rate of 16% and the billing of architectural and engineering services
A completely different, currently even more important topic is sales tax. As is well known, the general sales tax rate has been reduced from 19% to 16% for the period from July 1, 2020 to December 31, 2020. Some time ago, the Federal Ministry of Transport and Digital Infrastructure issued a circular on the effects of the sales tax reduction for the federal trunk roads sector (cf. General Circular Road Construction No. 16/2020 “Temporary change in sales tax rates in the period from 01.07.2020 to 31.12.2020” dated 09.07.2020 — Ref.: StB 14/7131.4/026–3341053). The instructions given there are of interest not only to the federal administration, but also to every public contracting authority that awards contracts for architectural and engineering services, as well as to every architectural or engineering firm. We summarize them in keywords, however — if you have specific questions — you should consult the circular directly, consult application aids in your area and, of course, also seek legal assistance in cases of doubt:
- In principle, the question of which VAT rate is applicable depends on the time at which the services were performed. If the services were performed after June 30, 2020, but before January 1, 2021, the sales tax rate is 16%. Value added tax is not included in the fees calculated in accordance with the HOAI.
- In the case of “contracts for work and services including architectural and engineering services”, the period of performance shall generally be the time of completion of the work. This is because completion regularly coincides with acceptance.
- The services which are based on the service specifications of the HOAI are “in principle” uniform services, even if the overall service is “divisible according to the description in the HOAI, in particular through the breakdown of the service specifications into service phases”. The “breakdown of the service profiles for the purpose of determining the (partial) fee” alone does not lead to the assumption of partial services within the meaning of Section 13 (1) no. 1a UStG.
- However, partial services are to be assumed if “additional agreements on the separate execution and remuneration of individual service phases have been made within the framework of the overall contract for a service profile”. “Otherwise”, reference is made to No. 2 of the circular; there it is stated that the reduced tax rate for services rendered after June 30, 2020 also applies insofar as advance payments or payments on account have been made before July 1, 2020.
- Also of interest are the notes concerning the implementation of new award procedures, which will not be reproduced here but are best consulted directly.
*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.