Collective bargaining agreements in public procurement

The purpose is to strengthen collective bargaining/tariffs autonomy, collective bargaining/tariffs partners and collective bargaining/tariff coverage, and to ensure fair remuneration. The reason for this is the long-standing decrease in the number of employees covered by collective agreements/tariffs.

The draft bill on the Tariff Compliance Act

1. Scope of application

All public contracts with an estimated value of EUR 10,000 or more will be covered. In principle, the draft of the BTTG-E is not restricted to a specific Industry Sector and applies accordingly to all award procedures. However, sec. 1 para. 3 BTTG-E in conjunction with sec. 107 to 109, 116, 117, 137 to 140, 145, 149 and 150 Act Against Restraints of Competition (GWB) stipulates extensive exceptions. Examples include legal services pursuant to sec. 116 para. 1 No. 1 GWB, employment contracts under public law pursuant to sec. 107 para. 1 No. 3 GWB and financial services relating to securities according to sec. 116 para. 1 No. 3 GWB.

2. Promise to comply with collective agreements/tariffs

In the future, a promise to comply with collective bargaining agreements/tariffs will be a prerequisite for awarding contracts to contractors. With this, the contractors undertake to comply with the working conditions stipulated by the BMAS for the duration of the services provided and must ensure that any subcontractors and temporary employment agencies commissioned by them also comply with these working conditions.

3. Determination of the mandatory working conditions

At the request of a union or an employer’s association, the BMAS shall determine the working conditions applicable to the execution of public orders and concessions by statutory order, if these are the subject of a collective agreement/tariff concluded by the applicant with a union or an employer’s association. This answers the question:

"What applies to sectors without collective agreements/tariffs?"

Since no collective agreements/tariffs exist for these, no application can be made accordingly, which is why it is not possible for the BMAS to establish binding working conditions by legal order.

4. Inspections

Pursuant to sec. 7 para. 1 BTTG-E, random checks are carried out by the contracting authorities of the federal contracting authority to determine whether contractors and their subcontractors also guarantee these working conditions. A check must be carried out in any case where indications from third parties suggest a violation.

5. Duties

In the future, companies will also be required to provide evidence of compliance with the promise of loyalty. The obligation to provide evidence pursuant to sec. 8 para. 1 BTTG-E also applies to subcontractors and contracted lenders for the conditions applicable to them. According to sec. 8 para. 1 BTTG-E, documents that prove compliance are suitable as evidence. However, this draft does not specify any further details, so it remains unclear to what extent the contractor must submit documents. Pursuant to Sec. 9 BTTG-E, the companies concerned are given the option of exempting themselves from the obligation to provide evidence by means of a prequalification procedure. Here, too, the draft leaves open the extent to which the contractor must prove compliance.

6. Violations

To ensure compliance with the relevant working conditions, the draft establishes a three-tier system of sanctions for violations.

1. Civil sanctions

   According to sec. 10 para. 1 BTTG-E, the federal contracting authority is obliged to agree a reasonable contractual penalty in the contract. This penalty is to become due in the event of breaches of the promise to comply with the collective agreement/tariff and culpable breaches of the obligation to provide evidence. When a penalty is considered "appropriate" according to the draft will be determined on a case-by-case basis.

2. Subcontractor liability

   According to sec. 11 BTTG-E, the contractor is liable like a guarantor, without plea of anticipation, for the subcontractor's failure to comply with the representative collective agreement. In concrete terms, this means that if the subcontractor pays a wage that is too low, the contractor must compensate for this by paying the net wage.

3. Exclusion from award procedures

If an infringement pursuant to sec. 12 BTTG-E is established by an administrative act, the contractor has to be excluded from all award procedures pursuant to sec. 13 para. 1 BTTG-E. In order to be considered again in an award procedure, either three years must have passed since the infringement pursuant to sec. 13 para. 2 BTTG-E or the company must carry out so-called self-cleaning measures within the meaning of sec. 125 GWB. Self-cleaning measures are understood to mean compensation payments, clarification of the facts and measures to avoid a future infringement.

Effects of the Tariff Compliance Act

The new draft BTTG-E will pose some challenges for affected companies. It is not only the economic burden of the prescribed working conditions that will cause problems. The creation of new bureaucracy through the obligation to provide evidence will also represent an immense effort, especially because it is not yet foreseeable what scope these will take up.

Companies should find out in advance which collective agreements apply to their industry and which working conditions they will have to guarantee in the future. Early action is also necessary since companies are liable for their subcontractors. In this way, they can prevent an early exit from the award procedure.

On the positive side, the law does not provide for an obligation to the company for collective sectors without collective bargaining agreements that they comply with any tariff agreement, then the law has no effect on them.

According to the BMAS, the law should come into force by 1 January 2024. However, a precise timetable is not yet foreseeable. The legislative process will show whether and to what extent changes will be made to the draft.