The public procurement landscape for the skilled trades sector depends heavily on local governments. And those have become more cautious during the pandemic. At the same time, the value thresholds for public contracts have been raised for 2021. Here’s what bidders need to know now.

Price Pressure Is Increasing

Public contracts play a significant role for the skilled trades. The public contract situation in the construction and related trades, however, depends heavily on local governments. It remains unclear how their willingness to award contracts will develop in 2021 given the strain on municipal budgets. In 2020, at least according to the summary by the German Construction Industry Association, local governments’ ability to invest remained largely intact. The feared slump in public construction contracts, according to the association, did not materialize—at least not in the first year of the pandemic. In the first three quarters of 2020, municipal construction spending actually rose by 13.5 percent.

Nevertheless, competition for public contracts is intensifying. Nationwide, the construction industry is reporting a significant increase in the number of bidders in public procurement procedures and, as a result, increased price pressure. This is confirmed by Rainer Mang, a lawyer specializing in construction law at the Baden-Württemberg State Association of the Construction Industry. Private residential construction is currently the driving force behind the industry, while commercial construction has completely collapsed, and the picture in the public sector is mixed.

“Our member companies report that bid prices in public tenders have, in some cases, plummeted dramatically, and that’s not happening without reason,” explains Rainer Mang. Many companies that primarily work for the public sector have already worked through their order backlogs. Competition for the few new contracts coming onto the market has intensified enormously. “Competition stimulates business only up to a certain point. When prices no longer cover costs, it harms the economy and, ultimately, the clients as well,” explains the specialist attorney.

Opportunity for Higher Thresholds

This is likely precisely why the federal and state governments have once again simplified the awarding of public contracts for 2021 in the context of the COVID-19 crisis. Even though the temporary increase in value thresholds is being handled differently across the federal patchwork, the changes overall aim to enable contracts to be awarded more quickly at the federal, state, and local levels. Thus, until the end of 2021, direct awards up to a limit of 100,000 euros are possible for the federal government and in numerous states, and restricted tenders up to a contract value of 214,000 euros. The thresholds for direct purchases have also been raised, from 3,000 to 5,000 euros for construction services.

More Restricted Tenders in 2021

Procurement expert Thomas Ferber therefore told STEIN: “This year, numerous public procurement processes will be streamlined.” The smaller number of bidders in restricted procedures increases the chance for companies to win a contract. However, prequalification—through which companies demonstrate their suitability for public construction contracts—is crucial for restricted procedures. For many public bidding processes, it is a prerequisite or leads to preferential treatment during the award process.

Beware of Formality Errors!

The procurement of construction services by public authorities is governed by public procurement law and its strictly formalized procedures. Formal errors or failure to meet deadlines will inevitably result in disqualification. Tenders are issued in accordance with VOB/A, the general provisions for the award of construction contracts. This is a set of rules with which companies in the construction and related trades are generally familiar. This makes it all the more surprising how difficult many bidders find it to strictly adhere to the process.

Specialist attorney Rainer Mang: “This isn’t about detailed legal knowledge, but about working with precision. Preparing a bid takes time, and before submission, you should have another person review the documents again following the dual-review principle.” In fact, bidders are often disqualified due to simple clerical errors.

Read the preliminary remarks carefully

Often, obvious requirements such as a signature are missing, or forms are not filled out completely. Frequently, the preliminary remarks accompanying the specifications have not been read thoroughly enough. “The information in the preliminary remarks usually affects the correct price calculation,” warns Rainer Mang, adding: “Anyone who doesn’t read the preliminary remarks carefully runs the risk of overlooking basics that apply to all items, causing the bidder to either submit a bid that is out of competition or offer a price that is far too low.”

Read more in STEIN 4/2021.