Procurement and labour objectives: some thoughts on regulatory substitution and competition implications

Procurement and labour objectives – some thoughts on regulatory substitution and its competition implicationsDr Albert Sanchez-GraellsSocially Sustainable Public ProcurementUniversity of Leicester, 16 February 2017

16 February 2017

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Agenda• Reflect on the use of public procurement for the

enforcement of labour (wage/pay) standards from the perspective of regulatory substitution

• Make a competition-based case for a very limited use of contract compliance clauses to enforce labour standards in public procurement settings

Socially Sustainable Public Procurement

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Limits to labour standards’ setting and enforcement in EU economic law• In simple terms, wages cannot be regulated at

EU level [Art 153(5) TFEU], but there has been EU intervention as a result of the financial crisis [see eg Schulten and Müller (2015)]

• Development of EU-wide minimum wage (policy) faces significant constraints and limitations


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Limits to labour standards’ setting and enforcement in EU economic law• De facto, the main instrument against social

dumping in EU economic law has been Directive 96/71/EC on the posting of workers in the framework of the provision of services (PWD)

• There is a pending revision of the PWD to ensure equal pay rather than minimum pay, but the logic of the PWD remains the same


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Transfer of goals of labour standards’ setting and enforcement to procurement• 2014 revision of EU public procurement rules

saw a change in the drafting of rules applicable to special conditions for contract performance• Art 26 Dir 2004/18: “… provided that these are

compatible with Community law …”• Art 70 Dir 2014/24: “ … provided that they are linked

to the subject-matter of the contract … may include … employment-related considerations”


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Transfer of goals of labour standards’ setting and enforcement to procurement• MS are generally adopting a narrative (and

practice?) of using procurement to enforce labour standards• Eg CCS’ Guidance on Social and Environmental

Aspects of the Public Contracts Regulations 2015• Commission has pushed back on basis of PWD

• Eg ‘Scottish letters’


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Limits to transfer of goals of labour standards’ setting and enforcement to procurement• ECJ case law has recently set two clear limits

• Bundesdruckerei (2014): Art 56 TFEU prevents imposing minimum wages for non-posted workers

• RegioPost (2015): consolidates PWD standard analysis for labour (wage/pay) requirements as contract performance conditions. If created by (regional) law, they can apply to public but not to private contracts (see Ølykke, 2016)


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Does this open the door / consolidate the emergence of regulatory hybrids?• De lege data, then, EU economic law shows

some regulatory substitution or, at least, hybridisation and procurement-specific labour standards can now be created by (regional) law

• However, from a competition perspective, this is undesirable and needs to be subjected to additional assessment


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Asymmetry between cross-border & inter-regional provision (of services)• From an economic perspective, the different rules

applicable to the requirement of PWD-compliant minimum (equal) wage to cross-border procurement and to purely internal public procurement make no sense and create difficulties in terms of:• Alternative (non in situ) provision (of services)• Hybrid (in situ + remote) provision (of services)


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FRANCE

GERMANYBELGIUM

NL

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Reconsidering the factual situation of RegioPost, there are a potential competition distortions worth emphasising

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Asymmetry between cross-border & inter-regional provision (of services)• Ultimately, this creates reverse discrimination of

domestic undertakings vis-à-vis intra-EU suppliers • [and foreign ie non-EU suppliers, as a result of GPA?

—Art 25 Dir 2014/24; issue whether Bundesdruckerei and RegioPost are considered part of Directive or not]

• This makes very poor economic sense [this protectionism has severe potential impacts on public sector efficiency] and is likely to trigger further litigation


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Can ‘public’ labour standard clauses be non-protectionist / not anti-competitive?• Structurally, these clauses raise barriers to entry • Almost impossible to disentangle protection from social

dumping and protection from competition/ undertakings in other jurisdictions

• Moreover, special rules for ‘public contracts’ are more likely to have protectionist features (‘good employer’?)

• In my view, this raises complex issues under principle of competition in Art 18(1) Dir 2014/24


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Labour standard [minimum wage or not] clauses and Art 18(1) Dir 2014/24• Art 18(1) Dir 2014/24 prevents any artificial narrowing

of competition• Creation of ‘procurement specific’ labour standards / other

requirements seems to fit this analytical framework• Difficulty of applying Art 18(1) in a RegioPost scenario

-> issue of mis-transposition of Dir 2014/24?• Strict proportionality test to be applied to inclusion of

labour standard clauses [under Art 70 Dir 2014/24]


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Competition law implications• Some general competition law impacts

• Crowding out of SMEs and disadvantage vis-à-vis companies with more ability to delocalise

• Raising participation costs (two-tier industrial relations) + intra-MS barriers to participation (red tape, generally)

• Entrenchment of incumbency advantages • Possibility to cross-subsidise/predate on the basis of different

public/private contract performance cost structures


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Competition law implications from private perspective• If undertakings with strong public procurement position

engage in predation in private markets• Possible application of Art 102 TFEU and domestic equivalents

in case there is a dominant position (big if?)• If undertakings (SMEs?) coordinate their behaviour in

ways that aim to avoid minimum wage clauses• Possible application of Art 101 TFEU and domestic equivalents

to their ‘employment avoidance’ agreements?


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Competition law implications from public perspective• There is no clear way of challenging the anti-

competitive aspects not caught by private behaviour• Issues of ‘State action’ and effet utile of TFEU, but

currently not caught by CJEU case law precisely due to lack of involvement of private parties• Unless, there is significant private involvement (including

trade unions) in the setting up of the wages payable under contract compliance clauses


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Preliminary conclusions• The Bundesdruckerei-RegioPost “system” for the use of

Art 70 Dir 2014/24 to enforce labour standards creates structural restrictions of competition

• Should be controlled under strict proportionality test, ultimately justified by Art 18(1) Dir 2014/24

• Limited scope for application of competition law, in particular to “public-side” competition restrictions


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Law

Procurement and labour objectives: some thoughts on regulatory substitution and competition implications