Unclear financing makes infrastructure project framework agreements risky

Dr Lars Hettich of Pinsent Masons was commenting after a new German law came into effect that aims to help states and municipalities finance and modernise local infrastructure quickly and flexibly.

The Law on Financing Infrastructure Investments (LuKIFG) establishes the framework for transferring €100 billion from the Special Fund for Infrastructure and Climate Neutrality (SVIK), a €500 billion debt-financed special fund targeting a wide range of infrastructure and climate neutrality projects especially across the energy and healthcare sectors.

The funding is designed to finance investments particularly in energy systems, heating networks, hospitals and care facilities and to help accelerate the construction of climate-neutral and resilient infrastructure across Germany.

According to the legislation, states can decide which projects to allocate the funds to and how much will be distributed at the municipal level. The federal states must report annually to the federal government on the use of completed investments, however, details on the exact requirements for those entities wishing to access these funds remain unclear.

Hettich, a procurement expert at Pinsent Masons, said the frequent reliance on framework agreements to secure flexibility carries significant procurement law risks. He pointed to a September 2024 ruling by the Higher Regional Court of Düsseldorf, which clarified that a framework agreement violates procurement law if financing beyond the minimum purchase quantity is unclear and bidders are not informed.

In the case, a shipbuilding company challenged the tender conditions and award of a contract for supplying patrol boats to another entity. The company alleged that the delivery deadlines were unrealistic, optional boats lacked secured financing and the local authority was not procurement ready. The court ruled that the framework agreement had been misused and that public authorities must ensure procurement readiness, including financing, before issuing tenders.

“Procurement readiness means not only complete tender documents but also financing that is essentially secured,” said Hettich. “Missing this and failing to disclose the risk breaches transparency and equal treatment principles. Such project contracts risk being declared invalid.”

Hettich added that both public authorities and private sector participants should pay close attention to financial viability when planning framework agreements for large-scale infrastructure projects.

Regarding the LuKIFG, Hettich said that recipients of funding should pay meticulous attention to the funding conditions and ensure compliance. “If funding is not sufficiently secured, even the use of framework agreements – which naturally offer considerable flexibility in the provision of services – is not a suitable means,” he said. “This has been clarified by the Higher Regional Court of Düsseldorf. Recourse to a framework agreement is inadmissible if the financing of the essential scope of services is not adequately secured and the lack of secured financing has not been transparently disclosed to bidders.”