Key Takeaways

• The control criterion requires supervision equivalent to that over internal departments

• At least 80 percent of activities must be performed for the contracting authority

• Direct private capital participation in the contractor is fundamentally excluded

• In-house procurement under § 108 GWB enables legally compliant direct contracting

Introduction

According to the 2024 annual report of the Bundeskartellamt, public contracts worth around 45 billion euros are awarded annually without prior competition. For you as a bidder, this means: A massive part of the market evades your direct access.

In-house procurement refers to the lawful direct contracting of a legally independent company by a contracting authority without conducting a regular procurement procedure. When an agency chooses this route, you as a company miss out on potential revenue.

For Bid Managers and CEOs, it is therefore essential to know the strict legal limits of this exception. If you understand when procurement law permits an in-house procurement, you can identify inadmissible direct awards and challenge them legally.

Contents

• What is an in-house procurement?

• How does § 108 GWB regulate in-house procurement in detail?

• How do you verify the three mandatory criteria for direct awards?

• What advantages and risks arise for you as a bidder?

• Checklist: Systematically verifying in-house eligibility

• How Forgent approaches this

• Frequently asked questions about in-house procurement

What is an in-house procurement?

At its core, in-house procurement is an instrument with which the state procures services within its own structures. Instead of issuing a tender for the contract on the open market, the agency contracts its own subsidiary or a municipal company.

For you as a bidder, this represents a breach of the fundamental principle of competition. Every contract awarded in-house is a contract you cannot compete for. The following overview shows the central differences for your sales strategy:

Agencies frequently use this instrument for critical infrastructure, IT services, or waste disposal. However, if the legal requirements are not fully met, it constitutes an illegal de facto award.

This knowledge secures your market position.

How does § 108 GWB regulate in-house procurement in detail?

The legal hurdles for direct contracting are high. With § 108 GWB, the German legislature transposed the requirements of the European Directive 2014/24/EU into national law. This standard defines exactly when a contracting authority may waive a public contract notice.

While generic AI like ChatGPT often remains imprecise during the legal review of procurement notices, domain-specific AI systems immediately recognize when an agency incorrectly attempts a direct award. The AI analyzes the published prior information notices and compares them against the criteria of § 108 GWB. The Bid Manager then decides based on this data whether a review procedure will be initiated.

According to a 2023 analysis by the Deutsches Vergabenetzwerk (DVNW), around 15 percent of planned in-house procurements fail due to the strict interpretation of this standard. For you, this means concrete points of attack when an agency attempts to bypass the market.

Precise verification protects your revenue.

How do you verify the three mandatory criteria for direct awards?

For an in-house procurement to be legal under procurement law GWB, three requirements must be met cumulatively. If even one is missing, a regular tender must be issued for the contract. Here is how you verify the criteria from a bidder's perspective.

Step 1: Analyze the control criterion

The contracting authority must exercise control over the contracted company equivalent to the control over its own departments. This means the agency must have decisive influence over the strategic objectives and important decisions of the company.

Tip: Check the articles of association of the contracted company in the commercial register to uncover the actual control structures.

If the contracted company enjoys extensive market freedoms or the supervisory board is not majority-staffed by the agency, the control criterion fails. In this case, you can file a formal complaint against the direct award.

Step 2: Calculate the materiality criterion (80 percent rule)

The contracted company must not primarily operate on the open market. According to § 108 Para. 1 No. 2 GWB, the legal entity must perform more than 80 percent of its activities in the execution of tasks entrusted to it by the controlling agency.

As soon as the municipal company generates more than 20 percent of its revenue with third-party customers on the open market, it is a normal market participant. An in-house procurement is then inadmissible. Analyze the company's annual financial statements to verify these quotas.

Step 3: Exclude the participation of private third parties

There must be no direct private capital participation in the contracted legal entity. As soon as even a small portion of the company shares is held by a private company, in-house procurement is excluded under § 108 Para. 1 No. 3 GWB.

There are rare exceptions for legally mandated private participations without a control function, but these are negligible in practice. If you find a private shareholder in the structure, a tender must mandatorily be issued for the contract.

Every mistake by the contracting authority opens your opportunity.

What advantages and risks arise for you as a bidder?

For contracting authorities, in-house procurement offers flexibility and the retention of expertise within their own ranks. For you as a private company, however, the risks of market foreclosure outweigh the benefits. According to the procurement statistics of the Federal Ministry for Economic Affairs and Climate Action (BMWK) for the 2023 reporting year, around 12 percent of the total procurement volume is accounted for by intra-group or in-house procurements.

A direct advantage only arises for you if you position yourself as a subcontractor with the in-house company. Although the municipal company may accept the main contract without competition, it must apply procurement law for its own purchases.

The greatest risk remains the loss of market share due to unlawful direct awards. A precise Bid/No-Bid analysis must therefore also include the prior information notices (ex-ante transparency notices) of the agencies. If an agency plans an in-house procurement, it must publish this in advance for above-threshold procurements.

Your vigilance prevents unlawful market foreclosure.

Checklist: Systematically verifying in-house eligibility

Use this checklist to examine planned direct awards by agencies for their legality:

• Check prior information: Has the agency published an ex-ante transparency notice?

• Evaluate control: Does the agency exercise control equivalent to that over its own departments?

• Calculate revenue limit: Does the company generate over 80 percent of its revenue with the agency?

• Clarify shareholder structure: Are private capital participations completely excluded?

• Observe formal complaint deadline: Are you keeping an eye on the deadline for submitting an application for a review procedure?

Before any waiver, check the prior information against these criteria.

How Forgent approaches this

The manual monitoring of prior information notices and the legal review of direct awards cost countless hours in Excel. As a domain-specific AI platform for tenders, Forgent covers the entire process: from discovery to management. The platform analyzes tenders with over 10,000 pages and 50 files and delivers a well-founded Bid/No-Bid decision in under 5 minutes. You still make the final legal decision. In a short demo, you can see how Forgent handles this for your next tender.

Request a demo →

Frequently asked questions about in-house procurement

Can an in-house procurement also occur with multiple contracting authorities?

Yes, procurement law also permits so-called joint in-house procurement. Under § 108 Para. 4 GWB, multiple contracting authorities can jointly exercise control over a legal entity. The requirements (control, 80 percent criterion, no private participation) must then be met in the overall assessment of all participating agencies.

What happens if the 80 percent limit is not met?

If the contracted company falls below the 80 percent limit (meaning it generates more than 20 percent of its revenue on the open market), the in-house privilege immediately ceases to apply. The contracting authority may no longer make direct awards to this company. All future contracts must be tendered in a regular, competitive procurement procedure.

How can bidders defend themselves against inadmissible in-house procurements?

If you as a bidder determine that the requirements for an in-house procurement are not met, you must act quickly. For above-threshold procurements, the agency publishes a prior information notice. You then generally have 10 to 15 days to file a formal complaint against the planned direct award and initiate a review procedure before the competent procurement chamber.

Book a Demo →