Since 1995, the Berlin Senate has awarded public contracts in the road-building sector only to companies which declare that they pay wages according to the collectively agreed rates for Berlin. On 18 January 2000, Germany's Federal Supreme Court ruled against this practice, arguing that it infringes the law on both collective agreements and competition. The reactions of the social partners and legal experts to this decision differed considerably. The final judgment will be made by the Federal Constitutional Court and is likely to influence a recent proposal by the government to make the promotion of women's employment a condition in the award of public sector contracts.
Early in January 2000 the Federal Ministry for Economy and Technology and the Federal Ministry for Family and Women stated that they were developing a new law for achieving greater gender equality. One crucial aspect of the plan is the intention to fix a framework for the award of public contracts by the federal government, whereby the government would in future be obliged to favour companies which promote women's employment. The Social Democrat-Green government would thereby put into practice a promise made in its coalition agreement (DE9811281F), in the expectation that the measure will induce firms to increase the number of female employees. This concept means a qualitative change in the existing criteria for award of public contracts - which include competence, productivity and reliability - and has therefore been strongly criticised by representatives of the crafts sector, construction industry employers and others. They expect that the measure will not only increase costs, if the most economically reasonable tender is no longer awarded the contract, but also disadvantage small and medium-sized firms. Trade unions, however, have reacted positively to the concept. The federal government has not announced a final decision on the proposals yet, because it wanted to wait until the Federal Supreme Court (Bundesgerichtshof) had presented its decision in a case on the contract-awarding practices of the Berlin Senate. The ruling came on 18 January 2000.
The Berlin case
Since 1995, the Berlin Senate has been following the practice – which was enshrined in a regional law in July 1999 - of awarding public contracts in the road-building sector only to companies which declare that they pay wages according to the collectively agreed rates for Berlin (a practice known as Tariftreuereklärung). In August 1997 the Federal Cartel Office (Bundeskartellamt) challenged this practice (DE9708129N), arguing that it infringes the anti-discrimination provisions of German cartel law. The Berlin Senate rejected this decision and appealed against it in the chamber court (Kammergericht). The appeal was rejected and the case proceeded to the Cartel Senate (Kartellsenat) of Federal Supreme Court, which ruled on 18 January 2000 that linking the allocation of public contracts to the Tariftreueerklärung is unconstitutional. The case has been passed to the Federal Constitutional Court (Bundesverfassungsgericht) for final scrutiny, until which time the Berlin Senate is not allowed to continue its practice. The decision might have consequences for established regulations in regions outside Berlin: according to the Federal Cartel Office, 13 federal states (Länder) have similar regulations which should become laws in 2000. In addition, the federal government's plan to make the promotion of women's employment a criterion for the award of public contracts might be stopped.
Arguments and reactions
The Cartel Senate of the Federal Supreme Court argues that a state court has no jurisdiction over collective bargaining issues, and that the relevant state law of Berlin violates not only the law regulating collective bargaining in terms of the extension of collective agreements but also the law regulating restrictions on competition. It also interferes with the basic law, article 9, which sets out the so-called "negative freedom of association" (negative Koalitionsfreiheit) - ie, the right not to join an association (such as a trade union) - which guards collective bargaining autonomy. This would be the case when bidders wanting to enter a market are required to respect collective agreements. Several legal experts emphasised in relation to the case that the authority of the German collective bargaining system results from the fact that all parties are free voluntarily to become a union member or a member of an employers' association. If there is a state-imposed constraint to follow the terms of collective agreements, it would no longer be necessary to set up associations to negotiate collective agreements. Besides, it is highly questionable if such guidelines fit with EU laws, which do not allow contracts to be awarded for any reasons other than economic ones.
The construction industry employer's association, Hauptverband der deutschen Bauindustrie, welcomed the decision of the Federal Supreme Court. Its president Michael Knipper, stated in a press release that the "federal government and the individual states should stop their plans to bring in social policy aims through the backdoor of allocation rules." In his opinion, every restriction of competition through criteria such as the Tariftreue(ie the respect of collective agreements) or the promotion of women or trainees, hinders the comparison between different bids and results in manipulation and distortion of the market.
In a statement, the construction workers' union IG Bau-Agrar-Umwelt (IG BAU) expressed the opinion that the basic law not only regulates the "negative freedom of association" but also subordinates federal acts to the requirements of the "welfare state". Klaus Wiesenhügel, the IG BAU president, pointed out that the Federal Cartel Office has instituted proceedings only against the city state of Berlin and the road construction and civil engineering sector. In his opinion, the situation in Berlin, where the Senate has some control over the market, is special and cannot be generalised either for other states or for awards of contracts for public structural engineering. Therefore IG BAU and the DGB union confederation have commissioned an expert opinion on the Tariftreue, which will be presented in the near future. Both organisations called for standardised federal laws and state laws, making Tariftreuea criterion for the allocation of public contracts.
Commentary
Through its recent decision, the Federal Court wants to safeguard competition in the construction industry and maintain the framework for collective bargaining. However, it should be taken into account that, especially in the construction sector, illicit work is widespread and workers from other countries are often paid under the minimum wage, a fact which was brought to light because of the numerous current public projects in Berlin, for example. When prices are undercut by some companies, and if others maintain collective agreements, competition is distorted. The decision of the Berlin Senate to apply the Tariftreuereklärungtherefore sent a signal to stop the process of a downward competitive spiral. With regard to the recent plans of the federal government to give public sector contracts only to companies which promote women or fulfil other socially important requirements, it is not clear how these criteria will be measured. It is necessary to rethink this question and also the general issue of the extended use of political criteria, although the concept of sending political signals in economic competition has faced a backlash through the current discussion and the decision of the Federal Court. (Alexandra Scheele, Institute for Social and Economic Research, WSI)