Amendments to the Public Procurement Act - strengthened measures against labour market crime and social dumping
Recent amendments to the Public Procurement Act, which came into effect 16 June 2023, represent an important first step in the government's efforts to establish a "Norwegian model" for public procurement. These changes provide expanded regulatory powers to promote labour and social conditions, as well as combat labour market crime.
The new regulatory powers related to payment methods and limitations in the supply chain, as well as requirements for ensuring wage and employment conditions, send a clear signal that the government is taking the fight against labour market crime seriously and taking measures to protect workers and promote fair business practices. Contracting authorities and suppliers should be aware of these changes and prepare to implement measures that foster integrity in public contracts.
New Section 5a on regulations regarding employment conditions, social conditions, and labour market crime
According to this provision, the ministry can issue regulations imposing an obligation on state, county, and municipal authorities, as well as public legal entities, to:
- Include contractual provisions regarding payment methods in the execution of public contracts to combat labour market crime,
- Impose limitations on the number of sub suppliers in the supply chain in the execution of contracts in industries with specific challenges related to labour market crime, and
- Verify compliance with contractual provisions and limitations in the supply chain and take action against the supplier in case of non-compliance.
Previously, there was already regulatory powers, according to Section 5, paragraph 3, to limit the number of sub suppliers in the supply chain. However, the previous provision did not provide the authority to issue regulations requiring other types of contractual provisions. Therefore, it was considered appropriate to consolidate the relevant regulatory powers to combat labour market crime in public contracts through contractual provisions concerning specific conditions.
Changes in Section 6 on regulations on wage and employment conditions, etc., in public contracts
According to the first paragraph of this provision, the ministry can issue regulations requiring contracting authorities to include conditions in service, construction, and civil engineering contracts to:
- Ensure wage and employment conditions that are no less favourable than those stipulated in prevailing regulations on universally applicable collective agreements or nationwide collective agreements for the relevant industries,
- Ensure compliance with the provisions of the Working Environment Act regarding employment and wage and employment conditions,
- Ensure compliance with the Mandatory Occupational Pension Act, and
- Ensure health, environment, and safety are safeguarded at each workplace.
Furthermore, according to the second paragraph of the provision, the ministry can, through regulations, require contracting authorities to verify compliance with the contractual provisions and take action against the supplier in case of non-compliance with the contractual provisions. In order for contracting authorities to fulfil their duty to verify compliance with the contractual provisions, the ministry is also granted the authority to issue regulations requiring suppliers and sub suppliers to provide necessary documentation. The background for this change is the proposed amendments to the regulations on wage and employment conditions in public contracts.
What does this mean for contracting authorities and suppliers?
The changes in the Public Procurement Act have already come into effect. However, these are only regulatory powers, which means that new obligations will arise only when the regulations issued under the Public Procurement Act are updated/developed. Nonetheless, contracting authorities and suppliers should be prepared to implement additional measures to ensure that relevant procurements promote and uphold integrity.
We recommend that contracting authorities be mindful of the following points in their procurements, including compliance with applicable regulations:
- Measures to ensure compliance with contractual provisions, including proportionate and suitable control measures.
- Requirements for suppliers regarding payment methods and limitations in the supply chain (where applicable).
- Sanctions for non-compliance with contractual provisions.
Suppliers should be aware of the following points, including compliance with applicable regulations:
- Whether wage and employment conditions are in line with universally applicable collective agreements and the provisions of the Working Environment Act.
- Requirements for documentation to verify compliance with contractual provisions.
- Heightened requirements for suppliers in public procurements and closer monitoring during the contract phase.
- Engaging in ethical business practices and promoting fair working conditions.
Overall, this means that contracting authorities and suppliers must be prepared to take active responsibility in combating labour market crime. Close collaboration between contracting authorities and suppliers may be necessary to fulfil the requirements set forth in the regulations. Implementing measures to address the considerations covered by the regulatory powers will contribute to creating sustainable and ethical business practices.