The document discusses the implications of socially sustainable public procurement on labor standards and competition law within the EU context. It highlights the limitations of enforcing minimum wages at the EU level and the challenges posed by varying regulations across member states for cross-border procurement. Additionally, it emphasizes the need for a strict proportionality test when applying labor standard clauses in public contracts to avoid structural competition restrictions.

1. Procurement and labour objectives –
some thoughts on regulatory substitution
and its competition implications
Dr Albert Sanchez-Graells
Socially Sustainable Public Procurement
University of Leicester, 16 February 2017
16 February 2017
1Socially Sustainable Public Procurement

2. 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
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3. 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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4. 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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5. 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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6. 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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7. 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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8. 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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9. 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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10. Socially Sustainable Public Procurement 10
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FRANCE
GERMANYBELGIUM
NL
6
5
LUX
4
1
2
3
Reconsidering the factual
situation of RegioPost,
there are a potential
competition distortions
worth emphasising

11. 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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12. 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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13. 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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14. 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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15. 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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16. 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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17. 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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