Softened tariff compliance rules give German procurement law room to breathe

Dr. Lars Hettich of Pinsent Masons was commenting after the Bundestag passed a scaled-back version of new collective bargaining legislation, resolving a conflict that has for months strained the relationship between the coalition government’s social policy ambitions and the realities of public procurement law.

The Federal Collective Agreement Compliance Act, passed by the Bundestag on 26 February, will require all companies seeking federal contracts to comply with the working conditions set out in collective bargaining agreements.

A draft bill (52 pages/528 KB PDF) was first introduced by the Federal Ministry of Labor and Social Affairs on 22 July 2025 to promote fair competition and prevent ‘wage dumping’ in publicly funded projects. However, the proposals drew criticism, particularly around concerns that they would introduce unnecessary bureaucratic burdens to the public contract procurement system.

Following a consultation, the core objective of the legislation remains intact: to prevent wage dumping, avoid placing collectively bound companies at a disadvantage and to tie the award of public funds more closely to the concept of "decent work".

However, the coalition government has rolled back on certain aspects that were originally included in the draft bill. Although the act still covers contractors and subcontractors in the construction and services sectors, the planned inclusion of supply contracts has now been dropped.

The first ministerial draft also sought to impose uniform collective agreement compliance from a threshold of €50,000 for all federal procurement and to establish a comprehensive supervisory regime through a central monitoring authority. This approach deliberately exceeded the framework of section 128 of the Act against Restraints of Competition (GWB) and was at odds with the objectives of the Procurement Acceleration Act, which is designed to simplify and reduce the burden of procurement procedures.

The final version of the act now departs noticeably from this initial approach, said Hettich, a procurement and regulatory expert with Pinsent Masons in Düsseldorf, and restores considerable “breathing room” for public procurement in the country. “The result is a noticeably more measured piece of legislation, he said. “The social policy objective remains clearly discernible, but the regulatory superstructure that could have placed a significant burden on procurement law has been substantially corrected. The compromise thus preserves the principle of collective agreement compliance, without depriving public procurement of the operational flexibility it requires.”

In particular, the act now completely excludes supply contracts, reducing its scope by approximately one-third. Hettich said this change would be “a significant relief” particularly for those businesses undertaking standardised, high-volume procurement processes, such as for IT hardware and office supplies.

He added that the raising of thresholds – for example, to €100,000 for direct awards by security authorities – and the broad exemption of procurement for the German armed forces or Bundeswehr until the end of 2032 would also help “avoid additional hurdles precisely where the acceleration of procedures is most critical”.”

The compliance architecture has also been streamlined considerably. The digital interface with the pension insurance system, through which wage data is to be retrieved automatically in future, will not be operational until 2028.

Until then, Hettich said there would be no additional audit burdens nor delays to ongoing procurement operations. “The future involvement of the Federal Ministry for Economic Affairs in shaping the legislation should also help to better align social policy requirements with the functional logic of procurement law,” he said.

The legislation comes at a time when Germany’s Federal Statistical Office has reported a decline in the number of companies and employees bound by collective agreements. In a statement announcing the new law, federal labour minister Bärbel Bas said that collective agreements were "the basis for decent wages and good working conditions" and that the legislation was expected to incentivise collective bargaining across the Germany economy.