Council Proposal of Procedures for Public Procurement, 9270/02 of 28 May 2002
Case C-513/99 on 17 September 2002, Concordia Bus Finland Oy Ab, formerly Stagecoach Finland Oy Ab v Helsingin Kaup Unki, HKL-Bussiliikenne
Case 225/98, Commission of the European Communities v French Republic, 26 September 2000
Posting Directive 96/71/EC
For several years there has been controversy over the Commission's proposals for revision of the EC directives on procurement by public authorities through contract of the supplies, services and works they need, and similarly on the procurement contracts of undertakings in a number of sectors (energy, water, transport).
Formally, the principal concern of the EC in regulating public procurement is only to secure the proper functioning of the single European market. This means ensuring that public authorities do not abuse their contracting power to favour their own national economic operators in obtaining these valuable contracts by direct or indirect discrimination against economic operators from other Member States. Obviously, blatant exclusion of other nationals from access to the public procurement market would violate EC law, but experience shows that many indirect means of exclusion have been used to keep these valuable contracts within the Member State concerned.
One aspect of the revision process concerns whether labour standards, as well as social and environmental criteria, should be included in the form of 'social clauses' in such contracts. This issue has been at the heart of a prolonged struggle. On the one side are those who wish to exclude labour standards (and other social and environmental conditions), either in principle or because they believe that such policies are not the business of the European Union. On the other side are those who regard such social clauses as not only desirable, but necessary in the case of those EU Member States who have ratified ILO Convention No. 94 of 1949 on Labour Clauses (Public Contracts).
The UK was the first ILO member state to ratify the Convention, but the Thatcher government denounced it. Although eight other EU Member States have ratified it, the UK is still holding out. The struggle is not only about sectional interests of those who support labour, social or environmental standards. More fundamentally, it is about the nature of the European Union itself: whether it is to be solely concerned with promoting a competitive European market, or also engaged in promoting social policies of concern to European citizens.
Over the years, the issue of social clauses and public procurement has been the subject of endless documents and innumerable private meetings and public hearings involving the Commission, the European Parliament, national authorities, trade unions at national and EU level, in particular, the European Public Services Union, and many other activists and lobbyists. There have been proposals and Communications by the Commission, by the European Parliament and its various committees, as well as briefing papers from many of those engaged.
One important player has been the European Court of Justice, which has made crucial decisions concerning the use of labour, social and environmental standards in public procurement. The meaning of these decisions has also been the subject of dispute between the various players, often claiming support by the Court for different, and sometimes opposing positions. The most recent example has again inflamed the debate: the Commission claims that the Court's decision in Case C-513/99 on 17 September 2002, the 'Helsinki bus' case, is consistent with its position, when environmental groups claim it requires an important change.
On 28 May 2002, the Council of Ministers adopted a proposal as the Member States' formal position. The text reveals some of the tensions which have emerged in the debate. It reflects the conflicting positions, appearing to make concessions to one side, while qualifying these concessions in order to please others. This text will be the subject of tough negotiations with the European Parliament and Commission over the coming months. Three examples illustrate how the new text reflects conflicting and contradictory positions.
1 'Contract performance conditions' and labour standards The Preamble to the Council proposal, Recital 22, and Article 26A, appear to allow 'contract performance conditions' related to labour standards. However, it has been argued that 'contract performance conditions' are not the same as 'contract conditions'. For example, the Commission interprets the European Court's decision in Case 225/98, Commission of the European Communities v French Republic, 26 September 2000 (the Pas de Calais case) as permitting contract conditions relating to labour, but denies these are conditions in the contract or criteria for the award of the contract. This argument has been criticised as both not consistent with the Court's judgement, and absurd in practice. If contracting authorities can control labour standards by imposing contract performance conditions, then these seem no different from other contractual conditions. Again, on the one hand, the proposal accepts that 'contract performance conditions' include 'basic ILO Conventions', but does not specify which Conventions, so the scope of the labour standards that could be specified as contract performance conditions is not clear.
2 Mandatory labour standards On the one hand, the Preamble, in Recital 22a, specifies that collective agreements apply during performance of a public contract. But, again, it is not clear which collective agreements and what is their permitted scope. Reference is made to the Posting Directive 96/71/EC, which applies in cross-border public contracts, and also allows for collectively agreed standards to apply, but with important limitations. However, the Preamble's promise of mandatory labour standards is not kept in the Articles of the directive. Instead, the closest thing is the option allowed for contracting authorities or Member States to provide information on mandatory labour standards (Article 27). On the other hand, non-compliance with collective agreements may constitute grave misconduct allowing for exclusion of a contractor (Article 46(2)(d)).
3 Award criteria On the one hand, Recital 31 of the Preamble asserts that 'it is appropriate to allow the application of two award criteria only', but offers protection of labour standards as one possible relevant criterion where the contract is awarded on the basis of 'the most economically advantageous tender'. Despite the Preamble's qualified reference to labour standards as a possible criterion for award of a contract, again, Article 53 does not refer at all to labour or social requirements. This despite the European Court's holding in the Pas de Calais case that such additional criteria are not excluded. Yet, on the other hand, the legitimacy of labour standards as award criteria for public contracts may be inferred from Article 54, which allows for rejection of abnormally low tenders after checking 'compliance with the provisions relating to employment protection and working conditions in force at the place where the work or service is to be performed'.
In sum, the Council's proposal is a recipe for future conflict. A commitment to labour standards on public contracts is just about visible, but it is hidden away in options which Member States and contracting authorities can choose. These include (i) observance of labour standards as contract performance conditions, (ii) information on labour standards for tenderers, (iii) exclusion of tenderers for violations of labour standards (grave misconduct), and (iv) labour standards as secondary award criteria. All these are couched in ambiguous language.
It would have been simple to formulate a commitment in unambiguous language to mandatory labour standards. There are a number of provisions in the Council proposal which clearly accept environmental standards (Preamble Recital 2a, Recital 17 and Articles 24(3)(b) and (5a) and Annex VI, paragraph 1, Recital 30b and Articles 49(2)(5A) and 50a)). Perhaps most frustrating is the explicit inclusion of 'environmental characteristics' among possible contract award criteria in Article 53(1)(a), while labour standards and social criteria are not mentioned, although both environmental and social requirements are specified in Recital 31.
The Council's proposed directive could easily be adapted to labour standards. Instead, contracting authorities, tenderers and contractors are left in doubt and the European Court will have to tidy up the mess on a case-by-case basis. This may be better than nothing, but it does no credit to the Council.
A second proposal covering procurement contracts by entities in the fields of energy and transport is also under consideration. The debate will continue into the final months of 2002, when the European Parliament will give these proposals a second reading. This will highlight major differences between the European Parliament and the Council, which will have to be resolved in a Conciliation Committee. The struggle goes on.
Our guest author is Brian Bercusson, Professor of Law at King's College, London and Director of the European Law Unit at Thompsons Solicitors