Sustainability Clauses in ‘Public’ Contracts

Sustainability Clauses under the Public Sector Directive: Sustainable Performance Contract Clauses

Our ESR Ezgi has recently published an open-access article titled “Sustainability Clauses in ‘Public’ Contracts” in the latest issue of the European Review of Contract Law. The initial version of the paper was presented at the Interdisciplinary Public Procurement PhD Forum 2023 in Utrecht. The paper investigates to what extent conractualisation of sustainability can be of guidance to Sustainable Public Procurement (SPP) under the 2014 Public Procurement Directive and whether public procurement law offers solutions where contract law becomes unfit for accommodating sustainability.

Ezgi’s research, as part of the SAPIENS Network, focuses on sustainability in the contract performance. She investigates how contractual obligations arising from various sustainability criteria can be enforced after the contract award to ensure a sustainable contract performance. This paper, as part of her research project, reflects how sustainability is contractualized and what differences public contracts may offer for the contractualization of sustainability.

Sustainability Clauses and Limits of Contract Law under “European Contract Law”

In order to answer the question addressed, the paper starts by reviewing the literature on clauses incorporating human rights, labour and environmental standards which are referred to as sustainability contractual clauses (SCCs) in commercial contracts. On the basis of non-legislative codification of European Contract Law (primarily DCFR and PECL), problems these clauses face in practice are identified i.e. incorporation of terms, principle of privity (need for perpetuity as well as the incorporation of third-party beneficiary clauses), vague language focusing on best effort, determination of non-conformity, right to termination and inadequacy of traditional contract law remedies. Different solutions have been proposed by different scholars, however, all and all their impact depends on the contracting party’s willingness.

Sustainability Clauses under “European Public Contract Law”

The paper goes on to the public contracts and focuses on how sustainability is perceived in European Public Contract Law. One may be surprised with the name European Public Contract Law and question whether it exists at all. For the purposes of this paper, there is a European public contract law to an extent, which is the rules provided by the Public Sector Directive concerning the award of public contracts. Under this European Public Contract Law, SPP is mostly discretionary; and also supported by mandatory sectoral legislation. In line with the harmonized rules, the SPP research mostly focuses on stages leading to the contract award, and different requirements arising from various criteria instead of considering the public contract as a binding document incorporating the contractual obligations of the successful tenderer.

In order to look at public procurement from the contract law perspective a comparison between business/commercial contracts and public contracts concerning sustainability is needed. Therefore, the paper presents a comparison between these different contracts to determine whether the different characteristics of public contracts arising from the EU-level harmonization allow the problems identified concerning sustainability clauses in business contracts to be overcome in public procurement. This approach allows for the utilisation of the potential of contract law while also leveraging the underlying framework of public procurement to overcome its limitations. Based on the Public Sector Directive, as well as the Remedies Directive, the paper identifies five main differences between sustainability clauses incorporated under public contracts and those in business contracts:

i. Freedom to/of Contract
ii. Incorporation of Terms
iii. Link to the Subject Matter
iv. Continuity of Contracts
v. (Threat of ) Public Enforcement

Sustainable Performance Contract Clauses (SPCC)

With these differences in mind, which are investigated in detail in the paper, in comparison to the term Sustainability Contractual Clauses (SCCs) used for business contracts, the term Sustainable Performance Contract Clauses (SPCCs) is suggested for sustainability clauses in public contracts. This suggestion arises due to the importance of performance, encompassing both the narrow meaning of discharging obligations in contract law and the broader meaning of performance, synonymous with the link to the subject matter. The conclusion is that while a three-step enforcement approach consisting of preventive monitoring, relational enforcement and termination is suggested for SCCs, it becomes even more significant for SPCCs.

Abstract

Under the Public Sector Directive, public buyers are allowed to include sustainability considerations in their purchasing decisions within the limits of the principles of procurement. This framework allows criteria linked to the subject matter to be contractualised. Though different criteria are widely employed in public procurement within the umbrella of sustainable public procurement, the literature mostly focuses on stages leading to the contract award instead of considering the public contract as a document incorporating contractual obligations. On the other side, green and social commitments in (business) contracts are considerations that are not necessarily linked to the subject matter. Though their value is acknowledged, their enforcement proves to be challenging due to the restraints of contract law. By using European contract law as a reference point, this paper compares sustainability clauses in business contracts to sustainability clauses in public contracts – to determine whether the EU regime applicable to public contracts offers solutions to these hurdles.

Ezgi presenting her research paper at the Interdisciplinary Public Procurement PhD Forum 2023 in Utrecht .

Read the full article “Sustainability Clauses in ‘Public’ Contracts” in open access below.