Germany: Basis For Fee Claims And Ineffectiveness Of Section 6(3) HOAI 2013 [Fee Structure For Architects And Engineers] ( Section 6(2) HOAI 2009)

Originally published July 9, 2014

Keywords: Fee Structure, Architects, Engineers, HOAI,

Federal Court of Justice, decision of April 24, 2014 – VII ZR 164/2013

Precisely one year after the amended draft bill of the Fee Structure for Architects and Engineers (HOAI 2013) – published in the Official Gazette part I no. 37 on July 16, 2013 and which entered into force a day later – was forwarded to the Bundestag for approval by cabinet decision, the Federal Court of Justice (BGH) handed down its ruling of April 24, 2014 (VII ZR 164/2013), finding inter alia Section 6 para 2 HOAI 2009, which corresponds to the provision in Section 6(3) HOAI 2013, to be ineffective. In the event that no plans had been submitted for a cost estimate or cost calculation at the time of commissioning, according to this provision parties to a contract could agree in writing that the fee would be calculated based on the chargeable costs of a building costs agreement under the terms of the HOAI, whereby verifiable building costs could be determined jointly by the parties.

The HOAI is a federal decree that was enacted on the basis of the Law Governing Engineer and Architect Services (ArchLG), Article 10, Sections 1, 2 MRVG (Act to Improve Tenancy Law and Cap Rent Increases as well as to Govern Engineer and Architect Services). While the primary objective of the reform in 2009 was to simplify the provisions and arrange for greater transparency, to include incentives for cost-efficient construction and, by creating room to negotiate, to enable flexible responses to respective market conditions, the amendments in 2013, in addition to updating the fee table values, were aimed primarily at revising the scope of works from a building expert aspect, taking into account digitised work methods.

In the present case, in addition to the ineffectiveness of Section 6 para 2 (para. 3 as amended), the Federal Court of Justice also had to deal with the question whether ignoring the provisions on the preparation of a budget renders a fee agreement null and void.

FACTS

The State, as the principal, and the agent had agreed a fee of EUR24,478.04 for the planning and structural engineering design of the renewal of a road bridge of federal motorway 65 in a contract dated November 26/December 10, 2009, which falls under the scope of HOAI 2009. The respondent State paid the agreed fee. The appellant, the insolvency practitioner administrating the agent's assets, asserts that the agreement is ineffective and based on an updated cost calculation, demanded payment of an additional fee calculated according to the minimum rate.

CONTENT AND SUBJECT OF THE DECISION

The Federal Court of Justice ruled that the appellant was entitled to an additional fee based on the merits of the case. The Federal Court of Justice deemed the fee agreement concluded based on the building costs jointly determined under Section 6 para 2 HOAI 2009 to be ineffective.

The Federal Court of Justice found that the provisions on the preparation of a budget are not prohibitive laws under the meaning of Section 134 Civil Code, thereby not rendering the fee agreement null and void – in opposition to the decision of the appellate court – due to a breach of Sections 24 and 54 of the State Budget Code of Rhineland-Palatinate. It reasoned that the budget drawn up annually under these provisions served to determine and cover funds required by the State to meet its obligations, but was not intended to prevent the economic success of an agreement concluded under private law.

Rather, the Federal Court of Justice cites as the basis of its decision the ineffectiveness of Section 6 para 2 HOAI 2009 as a basis for calculation. As this provision allows the parties to determine the fee jointly, it permits an undercutting of the minimum rates without the existence of a permissible exception (such as in the case of close legal, economic, social or personal ties). The desire for a price guarantee in particular does not justify an exception. Thus the provision is not covered by the enabling provision of Article 10, Sections 1, 2 MRVG. The spirit and purpose of minimum rates and the impermissibility of undercutting is intended to promote quality competition and to avoid ruinous price competition. This is not only contradicted by the ability to agree a fee below the minimum rates, but also by a provision under which the factors in a calculation of a minimum fee can be negotiated to result in an undercutting of intended rates.

Therefore, the fee should have been calculated based on Section 6 para 1 HOAI, insofar as no cost calculation was available, using the cost estimate for the works as a basis.

The Federal Court of Justice furthermore clarified that a fee agreement may be concluded within the minimum and maximum rates, in which the chargeable costs or their underlying factors have been contractually agreed.

IMPACT ON DAY-TO-DAY BUSINESS

A fee agreement must be concluded within the limits of the decreed minimum and maximum rates in order to be effective. Insofar as a fee agreement was concluded based on Section 6 para 2 HOAI 2009/ Section 6 para 3 HOAI 2013 and is below the minimum rates defined by HOAI, the principal bears the risk that said rates are ineffective and that the agent will be entitled to additional claims pursuant to Section 6 para 1 HOAI. In light of the Federal Court of Justice finding that Section 6 para 3 HOAI 2013 is ineffective, it is recommended to no longer base fee agreements on this provision in future, and instead to include appropriate cost estimates as a basis and/ or to conclude a variable fee agreement taking into account future actual building costs.

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