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CJEU ruling will impact pricing of engineers' and architects' services in Germany

Out-Law News | 12 Jul 2019 | 9:23 am | 3 min. read

A recent ruling by the EU's highest court is likely to see a shift in the prices charged by engineers and architects, according to Munich-based lawyers who specialise in construction.

Alice Boldis of Pinsent Masons, the law firm behind Out-Law, was commenting after the Court of Justice of the EU (CJEU) ruled that Germany had acted in breach of its obligations under the EU's Services Directive "by maintaining fixed tariffs for the planning services of architects and engineers".

Boldis said: "In our view this ruling will result in a significant market adjustment when it comes to pricing of architectural services in Germany"

Christian Lütkehaus, also of Pinsent Masons, said: "We expect that in particular international developers and investors will welcome this change, as it removes an element of 'science' – and sometimes even surprise – that they would have found difficult to sympathise with."

The case came before the CJEU after the European Commission raised infringement proceedings against Germany over national laws in Germany which restrict the price that engineers and architects can charge for certain land use, buildings and other specialised planning services. Both minimum and maximum tariffs apply under the German law.

The EU's Services Directive permits member states to require service providers to adhere to minimum and/or maximum tariffs so long as the requirements comply with a range of conditions. The conditions include that the measures are non-discriminatory, including in respect of where businesses are located, that the measures are necessary in pursuit of an overriding public interest, and that they are proportionate in that the objective being pursued cannot be achieved through less restrictive measures.

The Commission argued, among other things, that the tariffs applied by Germany represented a restriction on the freedom EU businesses enjoy under EU law to set up operations in any EU member state.

According to the judgment, the Commission said that the system of minimum and maximum tariffs in place in German law for the services of engineers and architects hinders new suppliers from other EU countries from gaining entry to the German market, either to "offer services that are equivalent to those offered by suppliers already established in Germany at prices lower than those laid down by the fixed tariff, or to offer higher quality services at prices exceeding the prescribed maximum tariffs".

Germany claimed that the matter of tariffs in respect of the planning services of architects and engineers was a "purely internal situation" that was outside the scope of the EU rules on freedom of establishment.

It said, though, that even if the Services Directive did apply to the tariffs it set, its national legislation was limited to "fees only for basic services within the fields of land use planning, buildings planning and other specialised planning" and does not restrict the free negotiation of fees for consultancy services.

Germany further stated that the tariffs were justified in the public interest because they ensure high standards of work and the safety of buildings, and that they are supported by property developers and consumer associations. It said the Commission had failed to provide evidence that its tariffs had caused actual restrictions on market access for other businesses elsewhere in the EU, and argued that the tariffs law contains exceptions and that this "enables operators from other member states of the European Union to enter the German market in conditions of effective competition".

In its ruling the CJEU confirmed that the German tariffs were subject to a compliance assessment under the Services Directive.

The court scrutinised the existence of the minimum tariffs first and said that, in principle, they are "capable, having regard to the characteristics of the German market, of helping to ensure a high level of quality of planning services and, consequently, of achieving the objectives pursued by […] Germany".

However, it said Germany's public interest arguments for the existence of the minimum tariffs were undermined by the fact it did not subject the market for the planning services to regulation as professions other than architects and engineers are entitled to provide planning services.

"The fact that planning services may be provided in Germany by service providers who have not demonstrated their professional capacity to do so indicates a lack of consistency in the German legislation in relation to the objective, of preserving a high level of quality of planning services, pursued by the minimum tariffs […] It is clear that such minimum tariffs cannot be suitable for attaining such an objective if, as is clear from the material submitted to the Court, the provision of the services subject to those tariffs is not itself circumscribed by minimal safeguards that ensure the quality of those services," the CJEU said.

In relation to the maximum tariffs, the CJEU said Germany had failed to demonstrate why they could not alternatively make pricing guidance available to help limit the price that planning services are charged at. The court said this was a "less restrictive measure" that Germany could implement and that the setting of maximum tariffs was therefore not proportionate to the objective Germany was pursuing.