Franz Damm Managing Partner at Keller Damm Kollegen, Munich
On July 4, 2019, the European Court of Justice (ECJ) announced its ruling in the HOAI infringement proceedings. As a result of the ruling, the legislator of the HOAI must immediately abolish the binding minimum and maximum rates for engineering and architectural services. Even if we do not yet have any reliable information on how this will be implemented, we can already reflect on the consequences of the ruling. We have asked for opinions from the profession.
The 2009 amendment to the HOAI was the legislator’s response to European criticism. Since then, foreign architects and engineers are no longer bound by German pricing law if they provide their services in Germany from abroad rather than from a local branch. The European Commission criticized this restriction and ultimately complained that the free market could no longer come into play if the foreign service provider established itself in Germany, as it would then have to observe the permissible minimum and maximum rates of the HOAI. In its ruling of July 4, 2019, the ECJ disapproved of the obligation to adhere to minimum and maximum rates as an unjustified competitive disadvantage for foreign market participants.
As a result of the ECJ ruling, we office owners will in future have to focus much more on the entrepreneur than on the designer, which we would perhaps prefer to be. The amount of work involved in the tendering phase will increase, as it will be necessary to determine at an early stage which specific services and plans will be provided. Clients also have to think carefully about which services they need when awarding contracts. This is because only a truly specified service profile makes it possible to price a project appropriately.
It is essential to precisely define the interfaces to other planners and to delimit services, i.e. to ask exactly: Who does what?
The offer must precisely define these interfaces and also which tasks and planning bases are included in the calculated price and which will be re-priced if they are added later. After all, it makes a difference how many variants you deliver and how many meetings you attend. In other countries, for example, there are plan lists that define exactly which plans are to be created within a project.
Such clear guidelines can also bring advantages: If we work together as a profession to ensure clearly defined service profiles and, in case of doubt, even define these through general terms and conditions. Discussions that are due to the sometimes vaguely formulated service profiles of the HOAI will then become obsolete. In future, it should be possible to read in black and white which services are to be included or paid for separately.
Dieter Pfrommer
publicly appointed and sworn expert for fees for landscape architecture services, IHK Region Stuttgart
First of all, the few positive aspects: the fact that the capping of fees by maximum rates is no longer binding enables clients and contractors to be able to adequately calculate and remunerate fees that were previously bindingly priced in HOAI fee tables but were too low – above the maximum rates. Scarce or inadequate maximum table values, for example for area planning with small chargeable areas or for object planning in the lower range of chargeable costs, are no longer decisive.
As a result of a withdrawal of the binding of fees between the minimum and maximum rates of the fee tables, public awarding authorities could be forced in future to examine and evaluate fee offers for appropriateness and adequacy. It remains to be seen how this will become established and whether speculative bids will be recognized, evaluated accordingly and such bidders excluded if necessary (analogous to the award of construction contracts).
Those who should get on well with the ruling are service providers who provide high quality and are not prepared to offer below price, as well as clients who respect or expect this.
Now to the expected negative effects of the ruling: Among other things, the ECJ disapproved of the principle in Section 7 (5) HOAI that the permissible minimum rates must be remunerated unless otherwise agreed in writing when the contract was awarded. It is therefore no longer possible to refer to binding minimum rates. As with lawyers, there will have to be preliminary contractual agreements before services are provided. Or: a service will only be provided once the contract has been signed.
Experience in neighboring countries with comparable “deregulation” suggests that the fee level for many planning tasks in Germany will at least temporarily move downwards. Architects and engineers who have so far paid little attention to this will have to become more involved in calculating and negotiating in the future. Clients who see new fee ranges that need to be negotiated will – at least initially – find many a service provider who has no skill in such negotiations. After a learning phase of probably a decade, prices will have leveled off according to the “allocation effects of supply and demand”.
Architectural and engineering competitions could also be affected: Because successful participation no longer promises a contract with appropriate remuneration, they could become less important. In future, chambers of engineers and architects, competition consultants and other administrators on the part of the awarding authorities will have to work harder to ensure that a concrete promise of remuneration, such as the average rate, is declared in addition to the contract.
Thus, after more than 40 years of binding minimum and maximum rates, it will be left to the “market” to decide how much landscape architecture costs. A structural change is foreseeable. The number of offices will decrease. Some will switch to other fields of activity. Others will merge into larger structures in order to be more successful with more power. However, these and other mechanisms of market consolidation have always existed. In terms of planning culture in Germany, it is to be hoped that competence and creativity will continue to be the top priorities in the future, and not only or only secondarily the price.
Alexander Gutzmer
Editorial Director Callwey and Editor-in-Chief Baumeister
As expected, the profession is critical of the ECJ ruling. The outcry was huge and unanimous. I understand the concerns. But it must also be said that free markets are a key objective of European policy. Most of us probably approve of this in principle (although the fundamental failure of market mechanisms is often proclaimed, especially in architectural discourse). However, if this declared goal of the EU is generally considered to be sensible, we should continue to do so as those directly affected.
The basic fear of many architects: The new free pricing opens the door to dumping offers. And one thing is clear: there will be new providers who offer their own services below the previous HOAI minimum rates. This is a challenge – for every architectural practice, but also for professional representatives (chambers, etc.). The challenge now is to promote the quality of one’s own services with renewed vigor. But above all, it is also important to explain one’s own understanding of quality.
It is true that up to now, consumer protection and quality assurance have also been pursued via the fee structure. We now need new mechanisms for this. However, contrary to what some prophets of doom would have us believe, this is possible. Incidentally, the purchasers of architectural services, i.e. clients, developers and investors, also have a role to play here. They themselves must (and will) realize that awarding the contract to the cheapest provider does not automatically lead to the best result – not even economically. They need to become more competent. Sorry to have to use this unpopular word again, but this is how the market works.
The president of the Federal Association of Liberal Professions called the ruling “disappointing”. “Cutting quality in favor of price is also a mistake in the construction sector,” he criticized. And he is right about the latter. For me, however, this means above all that it is now up to the entire architectural profession and the construction industry to ensure that this does not happen.
Jens Henningsen
bdla economics spokesman, treasurer
The ECJ ruling has a drastic effect on our fees and therefore on the economic success of our offices. A long-established basis of our work with fixed minimum and maximum rates of the HOAI is no longer valid.
The bdla will react to the ruling in several ways in order to support the landscape architecture profession in this situation. Firstly, we will take action at a political level together with the chambers of architects and the AHO. The aim is to maintain the HOAI as a national legal regulation and as a framework for fee agreements. In terms of appropriate and adequate fees and quality assurance, this is also in the interest of clients. We agree that the awarding of planning services must continue to be about more than just the price. Quality criteria must continue to play a role. The bdla is currently developing award recommendations for open space planning services, which are being coordinated with representatives of our public clients.
The loss of fixed minimum and maximum rates now requires regulations for contract design and project-related fees. The bdla will offer assistance with various training courses. The seminar “Consequences of the ECJ ruling for the application of the HOAI” on September 23, 2019 in Berlin will kick things off. Here we want to bring the participants up to date on the legal and professional policy consequences. We will also take the opportunity to share initial experiences with colleagues and discuss further activities.
Nevertheless, the offices will probably have to adjust to increased competition. With the current good order situation, this may be bearable. When times get worse again and economic pressure increases, there may be real price competition. Those who are not yet doing so will now have to calculate and record their hourly expenditure. The topic of controlling will become more important. The bdla also offers assistance in this area. Business management topics will be addressed at the bdla business forum in particular. We will go into more detail about the risks and consequences of the ECJ ruling, but also highlight the opportunities.