The Federal Collective Agreement Compliance Act: Implications for companies not covered by collective agreements and those covered by collective agreements in relation to federal contracts

The Federal Collective Agreement Compliance Act (BTTG) establishes collective agreement minimum standards for the first time on a nationwide basis as a requirement under public procurement law for federal contracts. Consequently, companies will in future have to adapt to new compliance requirements not only under public procurement law but also under employment law. This is intended to safeguard fair competition and certain minimum working conditions in connection with federal contracts. However, a general collective bargaining obligation is not stipulated. The Act came into force on 1 May 2026; however, it also contains a number of exceptions. A sector-specific statutory instrument is expected in the second half of 2026 to set out the specific details. Nevertheless, companies are already subject to certain obligations from the date the law comes into force, meaning that legal uncertainties for companies already exist today until the statutory instrument is issued.

Exceptions to the Act

The BTTG generally applies to public works and service contracts within the meaning of the Act against Restraints of Competition (GWB) with an estimated contract value of 50,000 euros excluding VAT, as well as to federal concessions and those awarded by contracting authorities attributable to the federal government. Supply contracts, however, are expressly excluded. In the case of mixed contracts, classification depends on the primary focus under public procurement law; for example, it must be clarified whether the supply service or a construction/service is the main subject matter of the contract.

Furthermore, the Act provides for a threshold system. Start-up companies are to be exempted during the first four years of their operations. There are also exemptions for defence- and security-specific public contracts and procurement procedures to meet the needs of the Bundeswehr. The BTTG applies exclusively to contract services provided within Germany; it does not generally apply to services provided abroad.

Foreign companies must comply with the BTTG if they act as contractors, subcontractors or temporary employment agencies and the service is provided by employees in Germany, provided that a relevant statutory instrument covers them.

Compliance with collective agreements at federal and state level

The BTTG applies to federal contracts and contracting authorities attributable to the federal government; it is therefore important that contracting authorities continue to comply with relevant state-level regulations on compliance with collective agreements. These remain unchanged. The decisive factor is therefore whether contracting authorities and contracts have a federal or state connection.

Pledge of compliance with collective agreements and statutory regulation

Federal contracting authorities must stipulate to contractors, as a condition of performance, that the employees deployed on the contract must be granted at least the working conditions laid down by the relevant statutory instrument pursuant to Section 5 of the BTTG. This is referred to as the ‘commitment to collective agreements’. It is therefore important to check whether a relevant statutory instrument applies to the company and the activity.

Even if no relevant statutory regulation currently exists, the commitment to collective agreements is provided for in the procurement procedure and obliges the contractor to comply with any future relevant regulation. It is therefore essential to closely monitor which statutory regulations are enacted that will need to be observed in the future.

Requirements for binding working conditions

The statutory regulation is intended to cover the following minimum working conditions:

• Remuneration,
• paid minimum annual leave,
• maximum working hours, minimum rest periods and rest breaks.

For contracts/concessions lasting no more than two months, the regulation may not stipulate leave and working time arrangements; in these circumstances, the focus is ultimately solely on remuneration.

Project-based and pro-rata

The minimum conditions and requirements apply only in relation to the specific project and the duration of the contract. In this respect, it is advisable to keep precise records of the staff deployed, their work assignments and the working hours spent on the contract.

Duty to provide information

Furthermore, all employers in the supply chain are obliged to inform  employees in writing of their entitlement to the minimum conditions.

Obligations in the supply chain

The BTTG applies throughout the entire supply chain. The principal contractor, including any temporary employment agencies commissioned, right through to every subsequent subcontractor, is obliged to ensure the minimum working conditions are met and to inform employees.

Evidence, certification and documentation

Contractors must document, by means of suitable records, that they are complying with their commitment to collective agreements, and submit these records to the inspection body upon request; payslips, payment receipts, employment contracts and working time records, as well as other reports from technical HR IT tools, may be used for documentation purposes. The project-specific nature and the time required are important factors.

Certification brings certain benefits.  Contractors who obtain certification may be exempted from the obligation to provide evidence – but not from the obligation to undergo checks. This is easier for companies bound by collective agreements, as they can easily demonstrate compliance with the minimum conditions through their original collective agreement coverage. Companies not bound by collective agreements, on the other hand, would have to provide evidence that they apply the relevant minimum conditions either as a matter of principle or by analogy.

Inspection body at the German Pension Insurance

Inspections are carried out by the Federal Collective Agreement Compliance Inspection Body at the German Pension Insurance. It remains to be seen how frequently and comprehensively the inspections will be carried out, as the authority is generally only supposed to take action if there is sufficient evidence of breaches. Compliance with the legal requirements is therefore strongly recommended.

Sanctions and liability

The sanctions mentioned include, amongst others: 

• contractual penalties, which clients are required to agree to in their contracts (up to one per cent of the net contract value per breach, up to ten per cent in the case of multiple breaches),
• the right to terminate the contract for cause,
• entry in the competition register following a final determination,
• optional exclusion from procurement procedures for up to three years, provided that no adequate self-cleaning measures are in place; this covers all procurement procedures, i.e. federal,  state and local authority contracts.

A significant liability risk is the guarantor liability of contractors: if they commission other companies to provide services, they are liable for those companies’ payment obligations regarding the net remuneration under the collective agreement as a directly liable guarantor; exemption from this liability may be granted by means of a valid certificate from the other companies.

Recommendations for action

The BTTG should be treated as an integrated issue covering procurement, employment law and compliance. The following measures are recommended:

1. Procurement checks and monitoring of legal regulations

• Review of relevant statutory regulations
• Review of the extent to which the business/activity/group of persons is affected
• Ongoing monitoring of regulations

2. Project and payroll processes

• Project-based allocation of staff and hours (pro rata temporis)
• Standardising the documentation set (wages, time, project tasks)

3. Reliably fulfilling the duty to provide information

• Standard process for written notification
• Monitoring of deadlines

4. Management of subcontractors and temporary employment agencies

• Extend contracts to include clauses on compliance with collective agreements, information and documentation\
• Requesting a certificate
• Guarantor liability as a fixed control point

5. Use certificates

• Check whether pre-qualification/certification is possible for the company and key subcontractors. 

Concluding remarks

The BTTG leads to a significant expansion of compliance requirements under public procurement and employment law for federal contracts. The greatest challenge often lies less in legal aspects than in operational implementation: project allocation, documentation, information deadlines and supply chain management. However, risks can be effectively mitigated through early-stage processes, clear contractual standards and structured monitoring of relevant legal regulations. This applies to both companies bound by collective agreements and those not bound by them.