Court Finds Dutch Ran Afoul of Contract Rules

(CN) - The Dutch government cannot require contractors to use specifically-labeled organic and fair trade products in its public coffee dispensers, the European Union's high court ruled Thursday.

The Dutch province of North Holland published a contract notice in 2008 requiring potential contractors' use of "EKO" and "Max Havelaar" certified products. Both labels -administered by private foundations and given to products that conform to international organic and fair trade guidelines - are used by the province for coffee and tea consumption, and the contract notice emphasized the province's commitment to using more organic and fair trade products in government services.

The EU Commission objected to the contract requirement, arguing that contract requirements to use specifically-labeled products violate EU rules on awarding public contracts. While the Court of Justice agreed that requiring a specific technical label like EKO is prohibited under the law, it said governments do have the right to demand particular detailed specifications from their contractors provided alternate documentation is allowed.

The Max Havelaar label, however, is based on four very specific criteria and in the high court's view sets it apart from the EKO label.

"[T]he Max Havelaar label describes products of fair trade origin purchased at a price and under conditions more favorable than those determined by market forces from organizations made up of small-scale producers in developing countries. According to the file... the price must cover all the costs; it must contain a supplementary premium compared to the market price; production must be subject to pre-financing and the importer must have long-term trading relationships with the producers. Such criteria do not correspond to the definition of the concept of technical specification in [the directive], given that that definition applies exclusively to the characteristics of the products themselves, their manufacture, packaging or use, and not to the conditions under which the supplier acquired them from the manufacturer.

"By contrast, compliance with those criteria does fall under the concept of 'conditions for performance of contracts' within the meaning of [the directive]," the court stated, agreeing that such conditions may take social considerations into account.

The government cannot, however, dictate how its contractors conduct their business beyond the contracts, according to the court.

"[B]y requiring, on the basis of suitability requirements and minimum capacity levels stated in the specifications, that tenderers comply with the criteria of sustainable purchasing and socially responsible business and state how they comply with those criteria and contribute to improving the sustainability of the coffee market and to environmentally, socially and economically responsible coffee production, the province of North Holland established a minimum level of technical ability not authorized by [the directive]," the court said.

The directive's principle of transparency requires that the conditions and details of any contract procedure be drawn up in a clear, precise and unequivocal manner so that potential contractors understand the contract in the same way, according to the court.

"[I]t must be held that the requirements relating to compliance with the 'criteria of sustainability of purchases and socially responsible business' and the obligation to 'contribute to improving the sustainability of the coffee market and to environmentally, socially and economically responsible coffee production' are not so clear, precise and unequivocal," the court said, saying the Dutch government violates the directive with such requirements.

The Netherlands must comply with the high court's decision "without delay," a court statement said.

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