Under most construction contracts, the contractor takes on the ground conditions risk. However, a recent case has demonstrated that the risk can fall on the employer.
In this case, the contracting authority (City of Dortmund) included a requirement in its EU tender process that the chosen contractor comply (and crucially, that its subcontractors comply) with the local minimum wage required of Dortmund under legislation introduced by the state of North Rhine Westphalia known as the “TVgG-NRW”. One of the bidders (Bundesdruckerei) proposed to use a subcontractor to perform all of the services that were the subject of the procurement. A key point was that the subcontractor was registered and based in Poland, and the work would be undertaken in Poland, meaning the subcontractor’s workers were not by law entitled to the benefit of German employment rights. Bundesdruckerei asked Dortmund to waive the minimum wage requirement. Dortmund refused on the grounds that it considered it was bound to include it by the laws it was governed by.
The ECJ recognised that the requirement to pay a minimum wage could be considered a “special condition” relating to the performance of a contract within the meaning of Article 26 of the Public Procurement Directive. Article 26 allows contracting authorities to impose “special conditions relating to the performance of a contract, provided these are compatible with Community law… [which] may, in particular, concern social and environmental considerations”.
However, because Article 26 requires that any such special condition must itself be compatible with Community Law, the ECJ considered that Article 26 is ‘trumped’ by the general “free movement” principle in Article 56 of the EU Treaty. This was because Article 56 makes paramount the freedom to provide services within EU member states and prohibits restrictions on that freedom. In the light of this, the ECJ concluded that imposing a national minimum wage on an employer in another member state “constitutes an additional economic burden that may prohibit, impede or render less attractive” the provision of services between an employer in one member state and a customer in another and, as such, it was an unlawful restriction on the freedom to provide services.
A previous case  had already decided that, if there is no reason to believe that workers on a public contract are in need of greater protection than those in the private sector, imposing a national measure such as a minimum wage through a public contract was “not appropriate”.
In this case, the ECJ followed that logic and concluded that, if the cost of living in member state “A” is lower than in member state “B”, then there is no need to pay workers in member state “A” a wage that would enable them to live in member state “B”.
It may be questionable whether the ECJ is correct in thinking that employee rights are sufficiently protected by each member state’s national laws to ensure an adequate and equivalent standard of living across member states. This judgment nevertheless concludes that a contracting authority cannot impose a minimum wage on workers that are employed and posted in another EU member state. The conclusion we must draw appears to be that a minimum wage as a requirement cannot be included in a European procurement exercise.
This calls into question the aspirations of many contracting authorities within the UK to pay not just the minimum wage, but a ‘living wage’, to workers under contracts where these are procured under the EU rules. If you cannot specify the payment of the legal minimum wage, how can you justify specifying a ‘higher’ bar that is not based on law or national agreement? And without prejudging the structure that bidders will propose in response to a procurement process, bidders may choose to use subcontractors based and working in another member state.
Contracting authorities must exercise caution in the requirements they impose upon bidders. While it might be lawful, for example, to require each bidder to comply with the law in the member state in which they are based, doing so would have little impact other than to reaffirm what they would anyway be obliged to do. And while the minimum wage might protect workers within the UK, the law does not yet stretch to a ‘living’ wage. This case now brings into question whether EU procurement can be used to seek better working conditions for workers without infringing the fundamentals of EU freedom of movement.
 Bundesdruckerei GmbH –v- Stadt Dortmund, Case C-549/13 18/09/14
 Directive 2004/18/EC, reflected in England & Wales by the Public Contracts Regulations 2006
 Rüffert v Land Niedersachsen, Case C-346/06  ICLR 467 (ECS)
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Gayle advises on all aspects of EU procurement, including achieving social value through public spending. Richard More also advises on EU procurement issues particularly in the construction and IT sectors.
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