Academic Board Insight: Labouw law requirements in tender procedures

By Niklas Bruun (University of Helsinki)

The relationship between social and labour law obligations and the EU principles for public procurement has been clarified in a recent judgment from the CJEU on 30 January 2020.

The background is the Article 18.2 in the Directive 2014/24/EU on public procurement. This provision stipulates that Member States shall take appropriate measures to ensure that in the performance of public contracts economic operators comply with applicable obligations in the fields of environmental, social and labour law established by Union law, national law, collective agreements or by the international environmental, social and labour law provisions listed in Annex X.’

There have been different interpretations on the significance of Art. 18.2. Does it only describe a general obligation addressed towards Member States or does it also create an enlarged space for stipulating social and labour law obligations in the context of public procurement and for the exclusion of tenderers when their subcontractors do not fulfil such obligations?

In the present case C-395/18 this issue was addressed. A call for tenders had been published in Italy on 3 August 2016. Tim submitted a tender mentioning three subcontractors whom it intended to use in the event of being awarded the contract at issue in the main proceedings, attaching for each of them the Single European Market Document (SEMD). In the course of the procedure, the contracting authority found that one of the subcontractors mentioned by Tim in its tender did not comply with the standards relating to the right to work for people with disabilities. The Authority therefore excluded Tim from the procedure pursuant to Article 80(5)(i) of the Italian Public Procurement Code.

Tim brought an action before the national court, challenging the claimed unfair and disproportionate nature of this exclusion. According to Tim, it is apparent from Directive 2014/24 that the finding of a ground for exclusion in respect of a subcontractor cannot result in the imposition of a penalty more severe than replacement of that subcontractor. Tim adds that it could, in any event, have had recourse, in order to perform the contract at issue in the main proceedings, to the two other subcontractors in respect of whom no grounds for exclusion were found, especially since recourse to subcontracting was not indispensable for the performance of that contract, since Tim fulfilled all the conditions necessary to perform the services concerned on its own. Tim brought an action before the national court, challenging the unfair and disproportionate nature of its exclusion. In the course of the proceedings the national court asked for preliminary ruling from the CJEU.

The national court asked: Do Articles 57 and 71(6) of Directive [2014/24] preclude national legislation, which requires the exclusion of a tendering economic operator where, during the tendering procedure, a ground is established for excluding a subcontractor forming part of the group of three subcontractors specified in the tender, rather than requiring the tenderer to replace the designated subcontractor? Furthermore, if the option of excluding the tenderer is one of the options open to the Member State, the national court asks whether national legislation requiring that the exclusion of the economic operator takes place automatically in all cases where a subcontractor does not fulfil the requirements.

In this case the subcontractor did not comply with the standards relating to the right to work for people with disabilities which had been stipulated in the call for tender. The court did explicitly discuss the status of Article 18 (2) and its relationship to Article 57(4) (a) and noted that “that provision expressly refers to a failure to fulfil the obligations referred to in Article 18(2) of that directive, namely the obligations applicable in the fields of environmental, social and labour law”. The CJEU continues that Article 18 of Directive 2014/24, entitled ‘Principles of procurement’, is the first article of Chapter II of that directive devoted to ‘general rules’ on public procurement procedures. Accordingly, by providing in that article that economic operators must comply, in the performance of the contract, with obligations relating to environmental, social and labour law, the Union legislature sought to establish that requirement as a principle, like the other principles referred to in paragraph 1 of that article, namely the principles of equal treatment, non-discrimination, transparency, proportionality and prohibiting the exclusion of a contract from the scope of Directive 2014/24 or artificially narrowing competition. It follows that such a requirement constitutes, in the general scheme of that directive, a cardinal value with which the Member States must ensure compliance pursuant to the wording of Article 18(2) of that directive (italic here).

Therefore the need to ensure appropriate compliance with the obligations referred to in Article 18(2) of Directive 2014/24 must enable Member States, when determining the implementing conditions of the ground for exclusion referred to in Article 57(4)(a) of that directive, to consider that the party responsible for the failure to fulfil obligations may be not only the economic operator who submitted the tender, but also the subcontractors which the latter intends to use. 

It follows that Member States may provide that the contracting authority has the option, or even the obligation, to exclude the economic operator who submitted the tender from participating in the contract award procedure where a failure to fulfil the obligations referred to in Article 18(2) of that directive is established with regard to one of the subcontractors referred to in that operator’s tender.

The CJEU however also referred to the principle of proportionality and concluded that such an exclusion cannot be automatic without any regard to the seriousness of the failure to fulfil its obligations.