The Government's decision to set up a code of practice to eradicate the so-called "two-tier" workforce in local authorities' contracts has sparked speculation that private contractors will find working in the public sector untenable. But is that the case?
At the moment, under Transfer of Undertakings (Protection of Employment) regulations, known as TUPE, private contractors have to honour the pay and conditions of staff they inherit from a previous incumbent. If those employees leave, however, they can take on new staff at lower pay and conditions. As the existing council employees are often better paid, this means private contractors currently have an advantage over in-house teams when it comes to price.
The code, agreed after pressure from the trade unions, means that companies that win contracts from local authorities in England will have to offer new workers terms and conditions "no less favourable" than those already enjoyed by colleagues transferred from the local authority to the new contractor. Few employers would argue that equal pay is a bad thing, but the cost implication is significant - and just one of several issues that the private sector will have to wrestle with.
The war cry has already gone up. Dave Prentis, general secretary of the Unison trade union, has said: "I am confident that when it comes to competing on quality, the public sector will beat private sector companies hands down and more contracts will be won in-house."
Fighting talk, indeed. But Vic Laws, director at AVL Consultants, speculated that it might happen. "The only place that contractors have undercut in the past is on labour, so will the Government continue to put contracts out to tender?" he said.
His question is who will pick up the bill? "It's fine if employees are better paid, so long as schools are better funded. Private caterers are already criticised for having low food costs, so are the parents going to pay more?"
Predictably, the level playing field is welcomed by local authority employee Hilary Witt, head of catering and cleaning at Cambridge County Council. But she doesn't think the code would stop local authorities going out to tender (at the moment there are regulations to ensure that they do). She pointed out that tenders are won on many factors, such as how efficiently caterers buy produce or manage staff.
"I can see the [private contractor's problem], but I don't think it gives us the upper hand. It just levels out where we [in the public sector] felt disadvantaged before... and you can't argue against fair pay," she said.
Few of the big companies were available for comment on the implications of the new code, but Mike Burton, human resources director, Compass Group UK & Ireland, isn't expecting to shoulder the cost. "There will be no extra costs, as all future tenders will be priced appropriately for specific contracts," he said.
Other potential problems for companies do exist, however. Private contractors could be left exposed to claims from employees in other parts of their business who are not getting the same pay and conditions as those working in local authority contracts. This might make contractors unwilling to enter the local authority arena and could prove a threat to public-private projects.
There is also the new burden of pensions. For the first time, new recruits will have to be offered membership of either the local government pension scheme - an employer pension scheme with employer contributions matching those of employees up to 6% - or a similar stakeholder scheme.
In the light of that, employers will be relieved that the code, which is likely to become active in March, won't be applied retrospectively.
Tony Gould, regional food officer at the T&G union, reckoned it was not all bad news for the companies either. "It means they will have to compete on quality of service, not just on price. The private sector will have to pay the same rate as the [local authorities] and might have to find a bit more money, but it is not wholly bad. They will now attract better employees and therefore provide a better service."
Revisions to TUPE
In a separate move, the Government has announced it will reform TUPE. Consultation on amendments will begin soon. The reforms will aim to ensure that contracting out or retendering contracts for services will always fall within TUPE. The outgoing employer will be obliged to notify the new employer of all the liabilities that will transfer. The changes are also intended to clarify the circumstances in which employers may dismiss for transfer-related reasons or negotiate transfer-related changes to terms and conditions for economic technical or organisational reasons.
Contact: Keith Potter, associate, Stevens & Bolton, Solicitors
Tel: 01483 734205
E-mail: keith.potter@stevens-bolton.co.uk
Further information: www.dti.gov.uk or www.odpm.gov.uk
The two-tier workforce...
...a guide to the new Government code of practice.
* Under TUPE - the Transfer of Undertakings (Protection of Employment) Regulations 1981 - employees' terms and conditions are protected when the business in which they work changes hands between contractors.
* TUPE does not regulate the terms and conditions that may be offered to new employees who join the contractor after the transfer. However, the new code requires that such new recruits must be offered terms and conditions that are overall no less favourable than those of the transferred employees.
* The focus of the code is on the "package" as a whole being no less favourable for new joiners. According to the Government, the contractor should have some flexibility in designing a package for them.
* The contractor will have to consult a recognised trade union or elected employee representative on the terms and conditions to be offered to new recruits.
* New recruits should be offered membership of the local government pension scheme or an employer pension scheme or a stakeholder pension scheme with an employer contribution. If the employer provides a defined contribution or stakeholder scheme, the employer will have to match employee contributions up to 6%.
* The Audit Commission will monitor compliance with the code. Enforcement will be by way of a clause in the contract between the contracting authority and the contractor (including any sub-contractor).
* The code is expected to apply to contracts advertised from early March onwards. It will not apply retrospectively to existing contracts. It will apply to the retendering of existing contracts where they involve staff who were originally transferred out of a local authority.