CJEU continues reducing the scope of minimum wage laws when public contracts are subcontracted (C‑549/13)

In its Judgment in Bundesdruckerei, C-549/13, EU:C:2014:2235, the CJEU continued the development of its case law on the interaction between public procurement and labour law. In this area that was revolutionised by the Viking and Laval cases (although Viking was not about procurement), and then expanded in Rüffert and Luxembourg (idem), every decision of the CJEU is highly sensitive and likely to be received with as much praise as criticism [see, eg, Zimmer, 'Labour Market Politics through Jurisprudence' (2011) 7(1) German Policy Studies 211-234, or Bücker and Warneck, 'Viking-Laval-Rüffert: Consequences and policy perspectives' (2010) 11 European trade union institute report].

 

The Bundesdruckerei Judgment will surely be no exception, given that the CJEU has ruled that if a tenderer intends to carry out a public contract by having recourse exclusively to workers employed by a subcontractor established in a Member State other than that to which the contracting authority belongs, article 56 TFEU precludes the application of legislation of the contracting authority's Member State that requires the subcontractor to pay a minimum wage to its workers.

 

It specifically determines the incompatibility with EU law of the Law of the Land of North Rhine-Westphalia on compliance with collective agreements, social norms and fair competition in the award of public contracts of 10 January 2012 and, particularly, its paragraph 4(3), which foresaw that:

Public service contracts which are not covered by [rules on posted workers, or on the public transportation of passengers by road and rail] may be awarded only to undertakings which, at the time of the submission of the tender, have agreed in writing, by means of a declaration made to the contracting authority, to pay their staff …, for the performance of the service, a minimum hourly wage of at least EUR 8.62. The undertakings shall, in their declarations, state the nature of the commitment adopted by their undertaking in the context of the collective agreement and the minimum hourly wage which will be paid to the staff engaged for the performance of the services. The amount of the minimum hourly wage may be adapted in accordance with Paragraph 21, by means of a regulation adopted by the Ministry of Labour.

 

Hence, Bundesdruckerei is different from previous cases because it does not involve posted workers, but exclusively the recourse to a fully-owned subsidiary in a different Member State by the main contractor. Hence, the relevant situation is that in which ‘the subcontractor is established in another EU Member State and the employees of the subcontractor carry out the services covered by the contract exclusively in the subcontractor’s home country’ (para 26).

 

Issues of abuse of internal market rules aside [for a very interesting discussion, see Sayde, Abuse of EU Law and Regulation of the Internal Market (Oxford, Hart Publishing, 2014)], the legal question was relatively straightforward: does 'Article 56 TFEU preclude the application of legislation of the Member State to which that contracting authority belongs which requires that subcontractor to pay those workers a minimum wage fixed by that legislation'? (para 29).

 

The CJEU had no doubt about the incompatibility of the minimum wage requirement, even if it could be considered a 'contract compliance clause' under article 26 of  Directive 2004/18, which foresaw that

Contracting authorities may lay down special conditions relating to the performance of a contract, provided that these are compatible with Community law and are indicated in the contract notice or in the specifications. The conditions governing the performance of a contract may, in particular, concern social and environmental considerations (emphasis added).

 

The CJEU hence focussed on the compatibility with EU law of the minimum wage requirement. In very clear terms, the CJEU has ruled that

By imposing, in such a situation, a fixed minimum wage corresponding to that required in order to ensure reasonable remuneration for employees in the Member State of the contracting authority in the light of the cost of living in that Member State, but which bears no relation to the cost of living in the Member State in which the services relating to the public contract at issue are performed and for that reason prevents subcontractors established in that Member State from deriving a competitive advantage from the differences between the respective rates of pay, that national legislation goes beyond what is necessary to ensure that the objective of employee protection is attained (C-549/13, at para 34, emphasis added).

 

This is bound to be a truly relevant case, as it can effectively deactivate all attempts by Member States to impose minimum wages being paid in public procurement settings, even under the revised rules for 'contract compliance clauses' in art 70 of Directive 2014/24. This provision has now substituted art 26 of dir 2004/18 and indicates that

Contracting authorities may lay down special conditions relating to the performance of a contract, provided that they are linked to the subject-matter of the contract within the meaning of Article 67(3) [ie linked to the specific process of production or a specific process in another stage of the life-cycle] and indicated in the call for competition or in the procurement documents. Those conditions may include economic, innovation-related, environmental, social or employment-related considerations (emphasis added).

There are two important changes to note in the Drafting of art 70 dir 2014/24 when compared to art 26 of dir 2004/18.

 

The first one is that art 70 dir 2014/24 attempts to swap the general criterion of compatibility with EU law with a requirement for the conditions to be linked to the subject-matter of the contract. Generally, this is simply laughable, as the general obligation to comply with EU law does not need to be written in a Directive, but derives generally from the supremacy of EU law and, in particular, of TFEU provisions (as art 56). However, in a more possibilistic reading, the requirement of link to object of the contract may be reinterpreted as establishing a tight proportionality test, in which case the change of drafting will not have any meaninguful legal consequences (either).

 

The second change is the explicit inclusion of employment-related considerations, as a specification of social issues. This change is also bound to be significantly ineffective, as the CJEU did not contend that employment-related considerations could be the object of contract compliance clauses.

 

Generally, I think that the case law of the CJEU is consistent and very clear in imposing restrictions to any deactivation of (labour) competitive advantages. And I think that it will be very difficult to avoid that approach under art 70 dir 2014/24, unless contracting authorities smarten up in the way they impose minimum wage conditions [for a general discussion on the likelihood of this, see Jaehrling, ‘The state as a “socially responsible customer”? Public procurement between market-making and market-embedding’ (2014) European Journal of Industrial Relations (forthc)]. More generally, this could put pressure on the development of a European minimum wage (see discussion here), but the analysis of the (undesirable) effects of such policy exceed our time and space.

 

However, as public procurement is concerned, the Judgment of the CJEU in Bundesdruckerei should be welcome, as it stresses that the main goal of public procurement rules are to ensure economic efficiency by a deepening of the internal market and a protection of undistorted competition (even by means of regulation). Some may like it (I do), and some may hate it (as Arrowsmith and, particularly, Kunzlik seem to do), but this is what it is.

GC sets burden of proof of conflicts of interest in procurement too high (T-4/13)

In its Judgment in Communicaid Group v Commission, T-4/13, EU:T:2014:431, the General Court (GC) decided another appeal against EU Institution's public procurement decisions. In this case, the procurement was for language training services for staff of the institutions, bodies and agencies of the European Union in Brussels, and the appellant challenged the rejection of its tender on several grounds, including violations of the principles of transparency and equal treatment.

 

The case raises a number of issues, but I think that it can be particularly interesting from the perspective of conflicts of interest in the evaluation of tenders, since the appellant submitted that "one of the seconded national experts who had been employed by the Commission in its Directorate-General (DG) for human resources (‘Commission unit B.3’) in the months prior to publication of the contract notice at issue and who had sat on a tender evaluation committee in a similar award procedure was now employed by the successful tenderer, and had played a role in the preparation of the latter’s tenders." In the appellants view, this situation resulted in a breach of the principle of equal treatment and, in the end, should be sufficient grounds for the annulment of the negotiated procedure for language training services framework contracts.

The GC framed the analysis of this situation in the following way:

53 [...] according to the case-law, the fact that a tenderer, even though he has no intention of doing so, is capable of influencing the conditions of a call for tenders in a manner favourable to himself constitutes a situation of a conflict of interests. In that regard, the conflict of interests constitutes a breach of the equal treatment of candidates and of equal opportunities for tenderers (Joined Cases C‑21/03 and C‑34/03 Fabricom [2005] ECR I‑1559, paragraphs 29 and 30, and Case T‑160/03 AFCon Management Consultants and Others v Commission [2005] ECR II‑981, paragraph 74).

 However, that situation is slightly different from the one at hand in Communicaid, given that the advantage that the tenderer would have had would not derive from the ability to influence the terms of the call (as was the issue in Fabricom), but from the fact that it had access to 'privileged'/'insider' information about how to respond to the tender. Hence, this creates a factually different scenario, which analysis will be interesting.

 

Before looking at the analysis that the GC carried out, and further to the precedent concerned with the prior involvement of consultants that then become tenderers in Fabricom, Joined cases C-21/03 and C-34/03, EU:C:2005:127 [for discussion see S Treumer, "Technical Dialogue and the Principle of Equal Treatment: Dealing with conflicts of Interests after Fabricom" (2007) Public Procurement Law Review, No. 2, 99-115]; it is worth noting that conflicts of interest are now regulated in Art 24 of Directive 2014/24 (not directly applicable to EU institutions procurement, but with a clear potential to work as guidance for the EU courts in the future). According to this new provision:

Member States shall ensure that contracting authorities take appropriate measures to effectively prevent, identify and remedy conflicts of interest arising in the conduct of procurement procedures so as to avoid any distortion of competition and to ensure equal treatment of all economic operators.
The concept of conflicts of interest shall at least cover any situation where staff members of the contracting authority or of a procurement service provider acting on behalf of the contracting authority who are involved in the conduct of the procurement procedure or may influence the outcome of that procedure have, directly or indirectly, a financial, economic or other personal interest which might be perceived to compromise their impartiality and independence in the context of the procurement procedure.

The new rules, then, seem to set out a rather demanding obligation to avoid conflicts of interest in the members of evaluation teams. Under the 'minimum' definition in the second paragraph of Art 24 dir 2014/24, it is clear that contracting authorities must avoid Fabricom-like conflicts of interest. However, the case of Communicaid was concerned with a 'bordeline' situation of potential conflict of interest, which subsumption under the 'minimum' definition of conflicts of interest will need to be tested. I would argue that they are caught by the general mandate of the first paragraph, but I am sure that there is scope for much discussion on the interpretation of this provision [and recital (16) dir 2014/24 does not shed any bright light: "Contracting authorities should make use of all possible means at their disposal under national law in order to prevent distortions in public procurement procedures stemming from conflicts of interest. This could include procedures to identify, prevent and remedy conflicts of interests."].

 

In my view, however, given the permissive treatment applied by the GC in Communicaid, these situations are unlikely to be effectively covered by Article 24 of Directive 2014/24--unless the CJEU develops a more stringent approach when it interprets that provision. Indeed, the GC considered that:

57 The applicant also argues that the successful tenderer enjoyed an unfair advantage because of the former seconded national expert’s participation in a previous call for tenders as a member of the evaluation committee.

58 In that respect, it must be pointed out that, according to the Commission, the applicant has not proved that the former seconded national expert participated in the drafting of the successful tenders for Lots 1 to 9. In order to prove that he did, the applicant has produced statements prepared by three of its employees, describing conversations they had with the former seconded national expert at the dinner on 13 November 2012 [...]. However, it must be noted that those statements do not show conclusively that the former seconded national expert participated in the drafting of the successful tenders for Lots 1 to 9, since the impressions of the applicant’s employees as to whether that was the case have been expressly contradicted by the person concerned himself. In any event, even if those statements did prove such participation by the former seconded national expert, it must be noted that their probative value is weak since they were made by the applicant’s employees, who have a particular interest in the contract being awarded to the applicant.

59 In the present case, even supposing that the former seconded national expert did participate in the drafting of the successful tenders, it must be pointed out that the applicant, by the evidence which it has submitted, has proved neither the participation of the former seconded national expert in the preparation of the call for tenders at issue, nor the unfair advantage that the successful tenderer allegedly enjoyed because its new employee was a member of a tender evaluation committee in a previous, similar procurement procedure. Furthermore, as the Commission rightly points out, the applicant has provided language training services to the EU institutions since 2008 and collaborated with the Commission in the context of the contract previous to the call for tenders at issue, with the result that it had information on the needs and requirements of the European institutions, notwithstanding the fact that the contract previous to the call for tenders at issue, contrary to the present call for tenders, did not include blended learning.

60 It follows from all the foregoing that the applicant has not proved that the fact that one of the successful tenderer’s employees worked at the Commission as a seconded national expert gave it an unfair advantage in the procurement procedure at issue of such a kind as to infringe the principles of non-discrimination and of equal treatment. Nor, moreover, has the applicant proved the infringement of the principle of transparency (T-4/13 at paras 57-60, emphasis added).

In my view, the GC has applied an excessively demanding burden of proof of not only the existence of a conflict of interest, but of its effects (ie of the existence of an actual de facto advantage derived from the existence of the conflict of interest). Such a high burden will result in a very weak effectiveness of the rules on conflicts of interest, given that they tend to involve the need to resort to indirect methods of proof and to indicia of advantage. Hence, this should not be welcome as a functional approach to adjudication of instances of (evident) conflict of interest and, at some point, it would have been necessary to resort to the techniques of presumption of advantage or, at least, reversal of the burden of proof. When conflicts of interest are concerned, it is worth remembering that Caesar's wife must be above suspicion...