German Federal Collective Agreement Compliance Act: New Requirements for Companies in Federal Procurement

Since 1 May 2026, the German Federal Collective Agreement Compliance Act (Bundestariftreuegesetz, “BTTG”) has been in force. By introducing the Act, the legislator aims to prevent distortions of competition in public procurement: the higher labour costs that typically result from companies being bound by collective agreements are no longer intended to place them at a competitive disadvantage in federal procurement procedures. Indirectly, the Act is also intended to strengthen collective bargaining coverage as such.

Scope of application

The BTTG generally covers federal public works and services contracts as well as concessions with an estimated contractor concession value of EUR 50,000 net or more. Pure supply contracts are not covered. There are also specific exceptions and special rules, for example for certain defence- and security-specific contracts, for German army procurements until 31 December 2032 and, more generally, for procurement procedures initiated before 1 May 2026. Procurement procedures conducted by the German federal states (Länder), most of which - with the exception of Bavaria and Saxony - have their own collective-agreement compliance rules, remain unaffected.

It is also important that the Act applies only insofar as services are performed in Germany and a formal procurement procedure must be carried out at all. Direct awards are therefore generally outside the BTTG regime. In practice, this calls for an initial screening based on a few key questions: Is there a covered federal contract? Is the value threshold met? Is the relevant service to be performed in Germany? Do any transitional rules or exceptions apply?

Scope of the collective-agreement compliance commitment

The substantive centrepiece of the new Act is the commitment under section 3 BTTG to comply with the applicable collectively agreed working conditions. The federal contracting authority - for example a federal agency - must impose this as a contractual performance condition on its contractor. This means that, for the period during which employees are engaged in the performance of the relevant public contract or concession, the contractor must grant them at least those working conditions that have been specified for the relevant sector by statutory order under section 5 BTTG.

Importantly, the authority cannot determine the relevant working conditions at its own discretion. Rather, the working conditions set by statutory order are derived from the collective agreement that is relevant for the sector in question. The terms of a company-specific collective agreement concluded directly between an individual company and a trade union cannot be adopted in this way. If different collective agreements apply within a sector and their scopes overlap, the competent ministry will specify the working conditions of the more representative collective agreement.

The following working conditions may be covered by the statutory order:

·      remuneration, including collectively agreed minimum wages, pay groups and supplements for night work, shift work and overtime;

·      maximum working time, minimum rest periods and breaks; and

·      minimum annual leave.

However, provisions relating to working time and leave apply only if the estimated contract duration is at least two months.

Because of this mechanism, companies that are not bound by a collective agreement are not excluded from the procurement procedure merely because of that fact. They may still be considered if they grant their employees the conditions laid down in the statutory order. Conversely, an existing collective bargaining commitment does not relieve a company of its obligation under the BTTG to comply with the applicable collectively agreed working conditions. If there is a conflict, the working conditions laid down in the statutory order prevail. More favourable terms arising from the contractor’s own collective bargaining commitments continue to apply, however, insofar as they are more beneficial to employees.

Liability for subcontractors

If a contractor does not perform a contract entirely on its own, the obligation arising from that commitment also applies to downstream subcontractors engaged to perform the contract. The same applies to temporary work agencies that supply agency workers to the contractor or asubcontractor for the performance of the contract.

In that case, the contractor must require and ensure by appropriate measures that the subcontractor or the temporary work agency likewise grants its employees the working conditions laid down in the statutory order. If they fail to do so, the contractor is generally liable for the employees’ payment claims as a directly liable surety under section 12 BTTG. In practice, this means that employees may also enforce their claims directly against the contractor. Because the contractor effectively has to guarantee compliance with the applicable collectively agreed working conditions, this applies even where the contractor itself is not at fault for the subcontractor’s or temporary work agency’s failure to comply with that commitment.

Which obligations companies should focus on now

In addition to actually granting the working conditions set out in the statutory order, contractors are subject to various information and documentation obligations.

The Act requires the contractor to inform its employees about the applicable minimum working conditions laid down in the relevant statutory order no later than the 15^th day of the month following the employee’s first activity in performance of the contract. The competent federal ministry (BMAS) is still expected to provide a template for this employee notice.

Contractors must document compliance withthe applicable collectively agreed working conditions in a manner that can be tracked and verified and must provide evidence to the competent review body on request (section 9 BTTG). Relevant records may include in particular payroll and payment documents, employment contracts and working time records. These documents must permit a reliable review of the extent to which individual employees were involved in performing the contract.

Where contractors grant the working conditions laid down in the statutory order, they may obtain a corresponding certificate. If such certificate is produced, the related documentation obligation falls away.

Monitoring and sanctions

Compliance with the BTTG is monitored centrally by a dedicated review body at the German Pension Insurance institution Knappschaft-Bahn-See. To facilitate its work, an electronic system for retrieving pay data is due to be introduced on 1 January 2028. The review body may act, among other things, on the basis of information provided by employees, contracting authorities or other third parties and may determine breaches by administrative act up to three years after completion of the services.

In addition to the liability for subcontractors and temporary work agencies described above, breaches of these obligations may have further consequences. Under civil law, contractual penalties of up to 1 per cent of the contract value may be imposed; in the event of multiple breaches, this may rise to up to 10 per cent of the contract value. The contract may also be terminated without notice. From a procurement law perspective, a breach may be treated as a ground for exclusion and may furthermore lead to an entry in the Competition Register (Wettbewerbsregister), which in turn can result in further exclusions from future procurement procedures.

Practical takeaways and recommended action

The BTTG materially increases the administrative burden in relation to federal contracts. For companies bidding for federal public contracts or involved in the supply chain as subcontractors or temporary work agencies, it becomes more important to consider procurement and employment law issues together at an early stage. For smaller companies and for companies not bound by collective agreements in particular, bid pricing, documentation and monitoring can become significantly more onerous. Companies that prepare in good time, however, will be better placed to manage the risks.

Companies should focus in particular on the following points:

1.   Check applicability at an early stage

For upcoming procurement procedures, companies should clarify at an early stage whether the BTTG applies at all. What matters is not only the identity of the contracting authority, but also the type of contract, the value threshold and whether a relevant statutory order is already in place for the contractor’s sector.

2.   Align working conditions and bid pricing

Once the relevant working conditions for a sector have been specified, companies should review whether their existing pay and working time models already comply. If not, the need for adjustments must be factored into bid pricing in good time. For companies not bound by collective agreements, this can have a significant impact on pricing, workforce planning and competitiveness.

3.   Prepare certification and evidence in good time

Where certification under the Act may be an option, companies should assess early on whether it makes sense for their own business or for any subcontractors or temporary work agencies involved. Where certification is not available or not feasible, robust evidence and traceable documentation become all the more important.

4.   Review subcontracting chains and contractual arrangements

Particular attention should be paid to liability within the subcontracting chain. Companies should review which subcontractors and temporary work agencies they work with, what contractual safeguards are in place and what the commercial risk profile of those partners looks like. The longer and more complex the performance chain, the more important clear contractual obligations, audit rights and documentation requirements become.

Are you planning to participate in federal public procurement procedures or to perform services with the support of subcontractors or temporary work agencies?

My firm advises companies on how to identify the requirements of the German Federal Collective Agreement Compliance Act accurately and implement them through practical processes.

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