1. Introduction
After meticulous negotiations, the final text of the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) has finally been approved by the European Parliament. The long-awaited Directive introduces obligations for companies meeting certain thresholds (obliged companies) regarding actual and potential human rights and environmental adverse impacts, with respect to their own operations, the operations of their subsidiaries, and the operations carried out by their business partners in the chains of activities of those companies.
The legislative journey took more than two years, but the need for hard law at the Union level has long been recognised. The interplay of the obligations foreseen under the CSDDD with the Public Procurement Directive was not straightforward in the legislative process. Our article titled “Bridging the gap between corporate sustainability due diligence and EU public procurement” (published in the Maastricht Journal of European and Comparative Law) assesses the relationship between corporate sustainability due diligence and public procurement. It further analyses whether and how due diligence could be requested from economic operators participating in public procurement in EU member states and meet the link to the subject matter. Below, we summarise the main takeaways from our paper complemented by the recent updates on the CSDDD.
2. Public Procurement in the CSDDD
The link between due diligence and public procurement is underpinned by the United Nations Guiding Principles (UNGPs). States have the duty to protect human rights from business-related abuses through all their activities, including public procurement. A way in which states can operationalise this duty is by requesting due diligence from their tenderers or contractors, which has gained momentum in Europe. In particular, it has been included in procurement legislation and practices in Nordic countries and Germany, and in the recently adopted CSDDD.
During the law-making process, the various drafts of the CSDDD referred to public procurement differently. The Parliament’s Recommendation for the Directive provided that businesses in breach of their due diligence obligations could be temporarily or indefinitely excluded from public procurement. Whereas the Commission’s proposal omitted this provision, and the Council’s approach had no reference to public procurement at all except that due diligence obligations would fall under the obligations set in Article 18(2) of the Procurement Directive.
Despite the struggle, the final adopted text of the CSDDD gives wide attention to public procurement. To start with, recital 92 emphasises the role of due diligence in public procurement and provides that obligations arising from the transposition of CSDDD can be used as award criteria or contract performance conditions as further established in Article 31. Additionally, the recital stipulates that contracting authorities may exclude or may be required to exclude an economic operator for breaches of its obligations arising from the CSDDD. Lastly, it leaves it to the Commission to assess whether the Public Procurement Directive needs to be updated in line with the CSDDD.
The reference to exclusion grounds under the Recital does not, and also cannot, in itself bring a specific obligation to contracting authorities. Rather this explicit mention confirms that the CSDDD’s due diligence obligations, as well as their national implementation, fall under “applicable obligations in the fields of environmental, social and labour law established by Union law, national law” under Article 18(2) of the Public Procurement Directive. In view of this consideration, contracting authorities are allowed to exclude an economic operator on the grounds of a breach thereof under Article 57(4)(a) of the Directive. Notably, even before the adoption of the CSDDD, the exclusion of an economic operator due to a breach of due diligence obligations was considered a good practice by the European Commission’s Buying Social Guide referring to French and Dutch legislation. Additionally, an economic operator could be excluded from a public contract on the grounds of grave professional misconduct established in Article 57(4)(c) of the Public Sector Directive because they lack reliability. The novelty of the final text of CSDDD is Article 31 titled “Public support, public procurement and public concessions” which establishes that compliance with national rules transposing CSDDD or their voluntary implementation can be used as award criteria or contract performance condition.
3. Link to the Subject Matter
Regardless of whether a due diligence requirement is incorporated as an award criterion or a contract performance condition, it needs to meet the link to the subject matter of the contract (LtSM). Yet it is still debated in the literature and unclear in the law whether the LtSM refers to supplies, suppliers or to both. The LtSM was introduced in the Concordia Bus caselaw and further developed in the EVN and in Dutch Coffee case law. Under Article 67 of the Public Procurement Directive, the LtSM is met when criteria and conditions used in public procurement are related to the tendered and purchased works, supplies or services, in any respect, and at any stage of their life cycle, including factors involved in the life cycle of purchases, even where such factors do not form part of their material substance.
In our paper, we argue that LtSM refers to both supplies and suppliers who participate across the life cycle of the tendered products, including downstream and upstream suppliers. Our interpretation is based on the CJEU’s case law. Notably in the EVN, the award criterion failed to meet the LtSM because it referred exclusively to the supplier’s conduct outside of the contract. However, this consideration did not preclude a criterion to fall within the LtSM when it refers to both the supplier’s conduct when performing the contract, and the tendered supplies. Therefore, given that the LtSM may be complied with by criteria referring to both supplies within the contract and tendered suppliers, we argue that Human Rights and Environmental Due Diligence (HREDD) can fall within its scope, either as an award criterion or a contract performance condition. But to that end, the due diligence process as it is described in the CSDDD would need to have some adjustments.
4. Challenges of Incorporating HREDD/CSDD in Public Procurement
On the one side, the first step of CSDDD, under Article 7, requires integrating due diligence into the company’s policies and risk management systems. On the other side, pursuant to the Recital of the Public Procurement Directive, the reference to corporate policies is prohibited because they fall outside of the LtSM. We argue that the adoption of corporate policies and risk management systems could still meet the LtSM as long as they are limited to the type of tendered product and to the related suppliers in its production lifecycle. Therefore, they would not cover all products in the contractor’s portfolio nor all of its suppliers.
Secondly, in order for due diligence to be LtSM, the contractor can only be required to focus on the type of tendered products and related suppliers when identifying and assessing actual or potential adverse impacts (Article 8, CSDDD); preventing or bringing to an end the identified potential adverse impacts (Articles 10-11, CSDDD); engaging with stakeholders (Article 13, CSDDD); establishing and maintaining notification mechanisms and complaints procedure (Article 14, CSDDD); monitoring (Article 15, CSDDD) and communicating (Article 16, CSDDD) the entire process through a statement. This limitation turns into a trade-off that may undermine the efficiency and the aim of due diligence, especially when, as stipulated in Article 9, contractors have to prioritise actual and potential adverse impacts they had identified.
The third problem is the purchase of off-the-shelf products because procurement contracts often concern the supply of goods that are ready to be sold, rather than manufactured upon award. As a result, in such cases, one or more stages of a product’s life cycle i.e. raw material extraction, assembly, manufacture, packaging and/or transportation would have already taken place before the tender. The practical implication in the case of “ready-to-go” supplies is that only bidders who have undertaken HREDD/CSDD prior to the tender would be able to participate in a public contract. If a contractor does not have in place a CSDD process, the tendered supplies would have been produced without any due diligence action. Therefore, the contractor would only be able to conduct due diligence with the same suppliers that participated in the life cycle of the tendered product, if they have not changed, for future production of supplies of the same kind. However, in such a case the contractor cannot ensure that the production process of the tendered off-the-shelf supplies involved any due diligence actions.
Finally, we argue that providing remediation pursuant to Article 12 of the CSDDD would be challenging. The main reason is because falling within the scope of the LtSM would require establishing a cause-consequence relationship consisting of demonstrating the adverse impacts caused were the result of the activities carried out by the supplier to produce, manufacture, assembly etc. the tendered supplies. This connection, we argue, would be extremely difficult, particularly when the supplier in the chain produces other products that are not part of the public contract.
These four main challenges were the cornerstone of our recently published article; however, the final text of CSDDD introduces further uncertainties which should be addressed. As mentioned above, Article 31 of the final text stipulates that compliance with due diligence obligations, or their voluntary implementation can be used as part of the award criteria or contract performance condition. Nevertheless, the wording is quite ambiguous as it is not clear whether the obligations can only be required as contract performance conditions for obliged companies and award criteria for non-obliged companies or both mandatory compliance and voluntary application can be used both as award criteria and contract performance conditions.
Logically, carrying out due diligence for obliged companies cannot be used as award criteria as law compliance cannot be weighted as opposed to price or cost. While the use of due diligence obligations under award criteria can only be limited to non-obliged companies, it needs to be clarified whether due diligence can be set as a contract performance condition for both obliged and non-obliged companies. This provision is not clear on whether or not contracting authorities can request from both obliged and non-obliged companies to comply with due diligence obligations as a minimum mandatory requirement under contract performance conditions. Yet, it calls for a further assessment. Additionally, in procedures where obliged and non-obliged economic operators are interested in obtaining the same procurement contract, the interplay between due diligence criteria and the principle of equal treatment should be clarified.
5. Conclusion
Our paper established a strong connection between HREDD/CSDD, which is also reflected in the final text of the CSDDD. Our analysis was focused on linking corporate sustainability due diligence to the subject matter of a contract to underlie obligations to be incorporated as contract performance conditions. The new provision in the CSDDD also establishes compliance with due diligence obligations under award criteria. Nevertheless, unless the Public Procurement Directive is amended, requiring contractors to carry out HREDD/CSDDD either on a mandatory basis or by rewarding contractors who undertake it for the performance of the contract would still need to meet the LtSM. Our conclusions concerning the link to the subject in our article are still valid under the new public procurement provision of the CSDDD.
As noted in the recital of the final text of the CSDDD, to ensure coherence within EU legislation and support implementation, the Commission is called to consider whether it is relevant to amend the Public Procurement Directive. We have identified four main challenges in the incorporation of HREDD/CSDD in public procurement contracts. In addition to the challenges our paper addressed, the new challenges arising from the final wording should be taken into consideration for future amendments to be made in the public procurement legislation or any soft law instrument that will follow CSDDD.
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Posted by Ezgi Uysal and Laura Treviño-Lozano
Ezgi Uysal
Ezgi Uysal is a dedicated legal scholar with a focus on enforcing sustainability in the performance of public procurement contracts. Her academic journey began with a law degree from İhsan Doğramacı Bilkent University in Turkey, where she graduated magna cum laude. She was awarded Jean Monnet a scholarship and her interest in European and International Business Law led her to Leiden University, where she graduated as valedictorian with cum laude. Currently, as a PhD student at the University of Turin and an Early Stage Researcher in the SAPIENS Network, Ezgi continues to explore the intersection between sustainability, public procurement and contract law.
Laura Treviño Lozano
Laura Treviño Lozano has a multidisciplinary education. She holds an LLB from Universidad Panamericana (Mexico) and a MsC in development studies from London School of Economics (UK). She is currently a Marie Curie Research Fellow on sustainable public procurement and human rights, a PhD candidate at University of Greenwich (UK) and a member of the SAPIENS Network. She held positions as director, advisor, researcher and research assistant at local and national human rights institutions in Mexico, and has collaborated with UN initiatives and agencies on human rights and multilateral development banks on sustainable public procurement in Tanzania, Netherlands, Latin America and the UK.
