The Federal Collective Agreement Compliance Act: What does this mean for businesses?

Greater collective bargaining coverage, fairer competition: from May 2026, federal government contracts will only be awarded to companies that comply with the terms of collective agreements. For tenders worth €50,000 or more, businesses must prepare for new reporting requirements and liability rules. The following article explains the key points of the legislation and provides practical guidance for affected companies.

What began in September 2024 with a draft bill from the Federal Ministry of Labour and Social Affairs (BMAS) has now been enshrined in law since the end of February 2026: The Federal Collective Agreement Compliance Act (‘BTTG’) stipulates that, at federal level, contracts with an estimated value of 50,000 euros or more (excluding VAT) shall, as a general rule, be awarded exclusively to companies that comply with collective agreement working conditions. The following provides a brief overview of key aspects and an initial practical assessment of the BTTG.

1. Area of application

The BTTG does not apply to procurement procedures initiated before 1 May 2026. This means that nothing changes for procedures ongoing or already concluded by that date, as the transitional provision in Section 16 of the BTTG makes clear.

In substantive terms, the BTTG applies, as a starting point, to the award and performance of public works and service contracts with an estimated contract value of 50,000 euros or more excluding VAT, in particular by the Federal Government, by public contracting authorities with funding approved by the Federal Government, and within the framework of a so-called ‘organ loan’ for the Federal Government (Section 1(1) sentence 1 no. 1, 4, 5 BTTG).

In the case of joint procurement by the Federal Government and a federal state, the aim should be to apply the BTTG at least. In the absence of agreement, however, it is possible to deviate from the BTTG (Section 1(7), second sentence, BTTG). The legislative pressure to reach agreement is therefore low if the legal consequence of a lack of agreement permits a deviation from the BTTG.

• Special provisions regarding the contract value and the applicability of the BTTG are also set out in Section 1(5) BTTG. In particular, the provisions of the BTTG must be observed in the case of direct contracts awarded by security authorities for construction works and services with an estimated contract value of 100,000 euros excluding VAT, which directly serve civil defence, internal security, civil protection or intelligence purposes (Section 1(5), second sentence, BTTG).

The BTTG does not apply, inter alia, to defence- or security-specific contracts (Section 104 of the Act against Restraints of Competition (“GWB”)) or to contracts awarded to meet the needs of the Bundeswehr that are initiated by 31 December 2032. The BTTG also does not apply in the case of specific statutory exemptions from Part 4 of the GWB.

With the exception of Section 14 BTTG, the BTTG applies geographically only to cases in which the service for the performance of the public contract or concession is provided within the Federal Republic of Germany (Section 1(3) BTTG).

2. Obligations on the part of undertakings

Companies wishing to be awarded public contracts in future must comply with various obligations in accordance with the BTTG. These obligations include, in particular, the following:

• Companies must provide a commitment to comply with collective agreements (Section 3 BTTG) and apply and adhere to the collective agreements customary in the sector for the duration of the respective contract. This also applies to subcontractors and temporary employment agencies.
   
• Upon being awarded a contract, companies – including subcontractors and temporary employment agencies – must undertake to comply with the relevant collective agreements. This must be ensured through appropriate measures (Section 3(2) BTTG).
   
• In addition to the mandatory application of collective agreements, binding working conditions may also be laid down by statutory regulations. The provisions of the Posted Workers Act (‘AEntG’) are utilised to establish these binding working conditions (Section 5 BTTG).
   
• Compliance with these requirements is monitored by the “Federal Collective Agreement Compliance Monitoring Body” (Section 8(1) BTTG). This body assists contracting authorities with monitoring and carries out independent checks. 
   
• The private contractor is obliged to provide suitable documentation, upon request by the monitoring body, to prove that the so-called collective agreement compliance undertaking (Section 3 BTTG) is being observed. Accordingly, companies must guarantee compliance with the working conditions laid down in collective agreements for themselves, their subcontractors and temporary employment agencies, and provide evidence of this upon request. The collective agreement compliance undertaking is a key prerequisite for participation in procurement procedures.
   
• The BTTG provides for exceptions for contractors, for example where a certification procedure under Section 10 BTTG has been successfully completed. In this case, proof of compliance with collective agreements may be provided by submitting a corresponding certificate.

3. Sanctions and (subcontractor) liability

In the event of breaches of the obligations regarding compliance with collective agreements, the contractor faces contractual penalties, extraordinary termination and exclusion from future procurement procedures. In this respect, the BTTG stipulates that the federal contracting authority and the contractor shall agree on an appropriate contractual penalty “amounting to a maximum of 1 per cent, or a maximum of 10 per cent of the contract value in the event of multiple breaches”. This contractual penalty is forfeited if the inspection body has established a breach (Section 13 BTTG). Exclusion from future procurement procedures is optional and is linked to the existence of a breach that has been established beyond dispute (Section 14 BTTG).

The contractor is liable for compliance with the collective agreement working conditions by subcontractors and temporary employment agencies in the same way as a directly liable guarantor. This liability relates to net remuneration. It does not apply if certification under Section 10 BTTG is in place and no insolvency proceedings have been opened.

Conclusion

The BTTG entails significant new obligations and risks for companies bidding for federal public contracts. Compliance with and documentation of collective agreement working conditions becomes a key prerequisite for participation in tendering procedures. Its practical implementation involves considerable bureaucratic effort, without any substantial strengthening of collective agreement coverage being expected. At the same time, it is clear that the BTTG must be taken into account for future contract awards. With regard to the necessary individual assessments, we particularly recommend keeping in mind the close interconnection between the BTTG and the requirements of the GWB.

Overall, however, the BTTG is unlikely to prove to be the legislative instrument needed to counter the steadily declining level of collective bargaining coverage among companies in Germany. The practical relevance of the BTTG for companies stems from its broad scope of application and from the convergence of the persistently weak economic situation with domestic demand in Germany, which is characterised by massive government investment.

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