Tariff compliance in public contracts – New impetus for a balanced competition
The enactment and ongoing revision of tariff compliance laws at both federal and state levels occupy a solid position within public procurement in Germany. The aim is to ensure equal opportunities for all market participants and to counteract social dumping in the government-controlled procurement sector. The new federal tariff compliance law sets new priorities: It obliges contractors to observe the relevant collective agreements when fulfilling public contracts and is guided by overarching socio-political and European law objectives.
Legal foundations and current developments
The legal basis for tariff compliance laws can be found, depending on the sphere of competence, both in the nationwide Act to Ensure Tariff Compliance and Minimum Wages in the Award of Public Contracts and in various forms within the procurement laws of the federal states. The main objective is to prevent distortions of competition through the circumvention of collective agreements and statutory minimum standards, particularly when subcontractors are used and in cross-border situations.
As part of the current legislative initiative, the federal government envisages that public contracting authorities—especially the federal, state, and local governments—should in future primarily award contracts to companies that pay at least the collectively agreed wage. The law differentiates between areas of application and is based on a tiered model that implements industry- and region-specific collective bargaining obligations as a criterion for awarding contracts.
Practical implications for companies and contracting authorities
Requirements for bidders
Public contracting authorities are required to formulate clear tariff compliance clauses in their tender documents. Companies participating in tenders must assure compliance with applicable collective agreements and transparently present this compliance. Regular monitoring is conducted through self-declarations, but it may be subject to random checks and more thorough examination in cases of suspicion. Violations of tariff compliance obligations may result in exclusion from the award procedure or sanctions during the contractual relationship.
Relevance for practice
The new regulations aim to promote fair competition and to ensure high-quality and socially responsible services. In addition to careful calculation of their bids, companies must also make certain that employed subcontractors and downstream contractors comply with tariff obligations. Practical implementation may present challenges in individual cases, for example, when determining the applicable collective agreement and relevant application within multi-local consortiums of bidders or with foreign companies. The federal government emphasizes that all requirements must be in conformity with the relevant EU and procurement law regulations.
Challenges, opportunities, and the legal framework for review
Questions of demarcation and interpretation
In applying the new law, companies and public contracting authorities face challenges in determining the applicable collective agreement, especially where there are competing agreements. Interpretation of the requirements for subcontractors—particularly those based abroad—can also be complex. For transnational situations, it must be considered that the primary law of the European Union and the jurisprudence of the ECJ restrict procurement law discretion.
Legal protection and oversight
The legislator enshrines monitoring mechanisms to ensure compliance, for example through official review powers and the possibility of review procedures in procurement law. Bidders may invoke available procurement law remedies if they consider that tariff compliance obligations have been incorrectly applied or taken into account by the contracting authority.
Political-economic classification
The tariff compliance obligation is not only an instrument for ensuring appropriate wage and working conditions, but also serves to maintain competitive neutrality in the awarding of public contracts. Particularly given the increasing internationalization of procurement markets and the integration of subcontractor structures, the legislator aims to sustainably safeguard social minimum standards.
Outlook
The entry into force and the ongoing implementation of tariff compliance-related procurement regulations will continue to be major topics of political, economic, and legal debate. The concrete design in individual cases depends on numerous factors, including the specific industry-based collective bargaining obligations and the administrative practice of public contracting authorities. Adjustments and clarifications by case law and supervisory authorities are to be expected, especially regarding unresolved questions of interpretation and interfaces with European procurement law.
For companies and institutions involved in public tenders and compliance with labor and procurement law requirements, this results in a comprehensive need for review and adaptation. Should legal questions or uncertainties arise in connection with tariff compliance requirements, we as MTR Legal Rechtsanwalt can provide individual advice regarding further steps.
