Germany Said to Review ‘No-Spy’ Buying Rules Amid U.S. Row

Jul 11, 2014 12:23 pm ET

(Updates with professor’s comment in eighth paragraph.)

July 11 (Bloomberg) -- Germany’s Interior Ministry is reviewing rules for awarding government contracts for computer and communications equipment and services as a political rift with the U.S. widens, people familiar with the matter said.

The ministry will probably issue new purchasing guidelines in the coming weeks to replace its “no-spy-order” dated April 30, said the people, who asked not to be named because the deliberations are private. Details are being worked out and may require suppliers of components of a bidder’s goods or services to guarantee they don’t hand over confidential data.

Any tightening of procurement procedures could affect U.S. technology companies such as International Business Machines Corp., Cisco Systems Inc. and Microsoft Corp. as they vie for government contracts. U.S.-German tensions escalated yesterday after Germany expelled a top intelligence officer from the U.S. embassy in Berlin.

“They’ll come under scrutiny, those contracts with U.S. suppliers, as they come up for renewal,” said Andrew Rose, a London-based security and risk analyst at Forrester Research. “There is a definite point here about privacy and respect that Germans are trying to draw a line under.”

Double Agent

German federal and local agencies spend $28 billion on technology and communications hardware and services annually, of which at least 1 billion euros ($1.4 billion) of contracts are handled by the Interior Ministry.

Pamela Mueller-Niese, a ministry spokeswoman, didn’t immediately answer phone calls and an e-mail seeking comment. Marie-Ann Maushart, an IBM spokeswoman, and Nadine Papenfuss, a Microsoft spokeswoman, declined to comment, as did Patrick Rothwell, a representative for Cisco.

The U.S. intelligence official was asked to leave Germany yesterday following allegations that an American double agent leaked information from Germany’s foreign intelligence services. Another espionage suspect worked at the Defense Ministry, according to Spiegel Online.

The cases will probably harm sales of American software and hardware in Germany and across Europe, said Richard Aldrich, professor of international security at the U.K.’s University of Warwick.

“Sneaking and peeking at e-mails is one thing, but this case just pours petrol on the fire because human spying is always more embarrassing,” he said. “Rival companies and rising powers in India, Brazil and China with their own very energetic IT companies will use this to their leverage.”

Edward Snowden

Even before the latest spat, U.S business was being hurt by revelations about espionage. Former U.S. National Security Agency contractor Edward Snowden released information about governments tapping into phone and Internet traffic and as a consequence technology companies stand to lose as much $180 billion in revenue by 2016, James Staten, an analyst at Forrester, said in a blog last August.

The German ministry’s current no-spy order specifies that vendors could be shut out if they can be legally compelled to pass on confidential data. However, the rules aren’t clear enough, causing contract delays as providers often struggle to prove that data will be safe in their hands, the people said.

An overhaul may enable orders to be broken up, making it possible for companies to receive the bulk of a contract and hand over more sensitive parts to a partner who doesn’t fall under rules such as the Foreign Intelligence Surveillance Act or the Patriot Act, said one of the people.

Verizon Contract

U.S. technology companies, including Google Inc., Facebook Inc. and Microsoft, have urged federal lawmakers to curb the NSA’s spying powers and have made efforts to distance themselves from the perception that they have willingly cooperated with the government on surveillance programs.

After Chancellor Angela Merkel’s government said last month it won’t renew a contract with Verizon Communications Inc. that expires next year, the interior ministry said it would probably replace Verizon with Deutsche Telekom AG, Germany’s former state-owned telephone monopoly.

Last month, Verizon said it filed a brief supporting Microsoft’s challenge to U.S. government search warrants seeking information stored overseas. Verizon said it questioned the legality of using search warrants to get customer data stored outside the U.S.

“Clear policies with regard to data security would be a good idea,” said Christoph Luetge, a professor for business ethics at the Technical University of Munich. “Companies should enter the public discussion to state their views as well as their duties with regard to U.S. policy.”

--With assistance from Kristen Schweizer in London and Scott Moritz in New York.