Most public contracts still chosen based on price alone, study shows

Despite efforts by the EU to make public authorities consider work conditions when choosing contractors for public orders, most public contracts are still awarded to the lowest bidders, a study by the European Parliament shows.

Within the EU, over €2 trillion is spent every year by public authorities to purchase goods and works, such as the construction of roads and schools, or services such as cleaning. Such purchases account for 14% of overall GDP, according to data by the European Commission.

As part of its efforts to ensure free competition, the EU sets rules for public authorities when choosing contractors for such purchases.

“Very basically, public contracting authorities are not allowed a lot of things that a private company would be allowed when contracting out a service,” researcher Karen Jaehrling of German University Duisburg-Essen told a hearing in the European Parliament on Wednesday (25 October).

For example, under EU rules, public authorities would not be allowed to forbid contractors to further outsource work to subcontractors, or interfere with the contracted companies’ inner workings, she said.

The EU updated the rules in 2014 to allow for a consideration of some social aspects, such as favouring companies which pay their employees according to a collective agreement, even if they are costlier than other offers.

In practice, however, most offers are still chosen solely based on the lowest price, according to a new study by researchers for the European Parliament, which was discussed in a hearing of the Parliament’s Committee on Employment and Social Affairs on Wednesday.

In some countries, such as Slovakia, Lithuania, and Cyprus, this would apply to more than 90% of all contracts awarded, the study showed, arguing that there is a lot of unused potential when it comes to social requirements.

One reason for this was legal uncertainty, Jaehrling said, as public authorities fear being sued by unsuccessful bidders when they include criteria other than the price into their consideration.

“Overall, there is a lack of guidance, also from the European level” to make use of social criteria in procurement processes in order to improve working conditions, she said.

Furthermore, “the reason for a limited take-up is a long shadow of the ‘marketised’ procurement law,” meaning that EU rules were for long primarily meant to secure free competition, Jaehrling said.

“There was a ‘social turn’, if you want, in procurement law since 2014,” she said. However, as the inclusion of social criteria was not mandatory, they would now “coexist” with the old rules.

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EU rules prevented obliging higher wages

In 2006, a ruling by the European Court of Justice found it illegal for public authorities to oblige contractors to pay wages set out in a collective agreement when fulfilling public work, as this could hinder the free movement of services guaranteed in the EU.

It is unclear, however, whether this so-called “Rüffert ruling” still applies today, as EU rules have changed since, explained Thorsten Schulten of the Hans Böckler Stiftung, a foundation close to German trade unions.

“There is a majority opinion in Germany saying that due to changes in EU law, in particular the Procurement Directive and the newly revised Posted Workers Directive, we have a new situation so that the old Rüffert case is no longer valid,” he said during the hearing.

However, the German employer association BDA argues that the ruling would still apply today. While Germany plans to introduce a law that would make the application of collective agreements obligatory for all contractors of public works, this would violate EU rules, the association argues.

Some German states have already introduced similar laws, but if the legal view of the employers association prevailed, those would need to be retracted, Schulten said.

“We need a legal clarification that the promotion of collective bargaining with binding labour clauses does not violate EU law,” he said. Ideally, the EU would even make such social criteria mandatory, instead of just optional, he added.

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Left-leaning parties support changing the rules

During the hearing, his view was supported by left-leaning groups within the European Parliament, who called for a revision of the EU directive on public procurement.

“It is just very obvious that the voluntary approach is insufficient,” Dutch EU lawmaker Kim van Sparrentak (Greens/EFA) said during the debate.

“When at the EU level we take a hard stance against precarious work […], public money cannot just be spent as if we are in a Wild West situation where workers pay the price,” she added.

Danish MEP Nikolaj Villumsen from The Left group agreed, arguing that “this is money that is spent anyway, so let’s make sure we spend this money in a way that is not at the cost of working people”.

Nationalist ECR group, however, took a more cautious stance, with Spanish MEP Margarita de la Pisa Carrión warning that “these requirements, supposedly environmentally friendly or social requirements, may offer advantages to some over others”.

“The companies applying for such tenders have to comply with political or ideological requirements,” she said, warning that this could be “instrumentalised to foster an ideological or political position in the EU”.

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[Edited by János Allenbach-Ammann/Zoran Radosavljevic]

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