FINAL
“Procurement-Public Services and Fair Employment”
Text of contribution to Wales TUC/Cardiff University
“Working with Government” Conference
7 April 2008
Stephen Cavalier, Thompsons
1.
Background
1.
The Government has a huge influence on labour standards and
employment rights for millions of workers here and overseas. This is
not just through legislation, like the National Minimum Wage, but
also as an employer and as a user and procurer of services –
through government contracts and through contracting out of public
services.
2.
In 2001, Tony Blair told the House of Commons:
“We want to ensure that when services are contracted out, it is
not done on the basis of poorer terms and conditions of
employment for the staff. One of the things that we have learned
over the past few years, not only under this Government but
under the previous Government, is that if the impact of
contracting out is simply to undermine the terms of staff, it will
not usually lead to e better service.”
Hansard, 17 October 2001.
3.
In 2003, Gordon Brown told the TUC Congress:
“….we will continue to tackle the two tierism that you have
identified in the labour force, and we are ready to discuss
directly with union members at the front line the way forward as
we seek what we want to see, which is justice for every
employee.”
4.
The commitment to tackle the two tier workforce was indeed part of
the Warwick Agreement prior to the 2005 election.
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5.
Unfortunately, there is a gap between these laudable policy
statements and delivering effective and enforceable protections for
the workers concerned has proved problematic. Subsequent
pronouncements from Government on specific measures to address
workforce matters in public sector procurement have proved to be
more equivocal, especially in the field of gender equality.
6.
Advice issued by the Office of Government Commerce suggests
that social and employment clauses are likely to hinder the free
working of the market:
“Where higher tender prices (through suppliers incurring extra
costs in meeting these requirements) or reduced competition
(where suppliers are discouraged from bidding because of the
extra burden) result, the attainment of value for money is likely
to be undermined.”
Gender Equality and Public Procurement 26/01/07.
7.
The OGC published “Social Issues in Purchasing” in February 2006.
Procurement is based upon value for money (which is not the same
as lowest initial price) and should be conducted in a way that
ensures non-discrimination between tenderers on the grounds of
nationality, demonstrating transparency and equal treatment. The
OGC indicated areas where inclusion of social requirements in
contracting was not problematic. Examples include generally
promoting and indicating support for labour standards; requiring
information on criminal convictions or professional misconduct
which may exclude a supplier; requiring compliance with labour
standards as an ongoing performance condition in the contract and
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monitoring compliance; and using labour issues as a tie-break
where value for money considerations are equal.
8.
The OGC makes clear that contractors may be excluded from
tenders on grounds of breaches of equality legislation, health and
safety legislation or provisions such as the Posted Workers
Directive (which lays down minimum standards that must be
observed by the host country when workers from another EU
country provide services in the host country). Failure to fulfil such
requirements in previous contracts can be taken into account.
9.
Likewise, last year, the International Labour Organisation requested
the UK Government to report on its position with regard to
ratification of ILO Convention No.94 of 1949, which was originally
based on the UK’s then Fair Wages clauses, but which had been
denounced by the Conservative Government in 1983. This would be
a labour clause that would apply across all sectors, services and
devolved administrations, providing a single and comprehensive
remedy. This approach has been promoted by unions. The
Government’s response was :
“The inclusion of labour clauses can add cost an bureaucracy to
contracts, without any clear indication of benefits, and the
contracting authority runs the risk of contravening EU rules.
With this in mind, the UK Government has no intention to ratify
Convention No.94 at this present time.”
2.
Current protections and initiatives
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10.
There is a patchwork of at least six different agreements operating
across the public sector which seek to protect terms and conditions
for staff working on public sector contactors, in addition to specific
employment protection legislation such as the Acquired Rights
Directive and the Transfer of Undertakings (Protection of
Employment) Regulations (TUPE).
11.
These are:
2001 Retention of Employment Model in the NHS;
2002 Scottish Protocol on Public Private Partnerships;
2003 Best Value Code of Practice on Workforce Matters in Local
Authority Service Contracts;
2004 Welsh agreement;
2005 Extension of the Code of Practice on Workforce Matters in
Public Sector Service Contacts to the rest of the public sector
on a negotiated basis; and
2006 Agenda for Change in the NHS.
12.
There is also the Cabinet Office “Code of Practice on Workforce
Matters in Public Sector Service Contracts” which recommends
TUPE-type protection in all contracting and emphasises that “there
is no conflict between good employment practice, value for money
and quality of service. On the contrary, quality and good value will
not be provided by organisations who do not manage workforce
issues well”. There is a related paper on pensions protection.
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13.
In addition, there are numerous examples of so-called “TUPE-plus”
arrangements where, typically, there is a commitment by the
contractor that there will be no diminution in pay and terns and
conditions during the lifetime of the contract.
14.
The Greater London Authority has introduced a policy of including
fair employment clauses in contracts by having regard, during the
evaluation process, to a contractor’s attitude to fair employment
clauses. Examples of GLA contracts with fair employment clauses
include the City Hall catering and cleaning contracts.
15.
We cannot say with any confidence that these strategies have
delivered an overall solution in terms of providing for fair
employment in public procurement.
16.
The report of the National Audit Office of March 2008 on Protecting
Staff in PPP/PFI deals analyses the impact on terms and conditions
of employment of staff transferred to a private sector contractor in
PFI deals which commenced service delivery between 1992 and
2004. That report reveals that, for manual staff (who make up the
significant majority of staff under consideration in the survey), the
average hourly rates of pay fell from £7.56 at the point of transfer to
£7.44 by October 2004 for transferred staff, and from £7.34 to £7.14
for staff taken on after the transfer. The percentage by which
transferred manual staff’s rates of pay exceeded that of other
manual staff increased from 2.87% to 3.99% over the same period.
17.
These figures tell us two things: first, that TUPE is not effectively
protecting even existing rates of pay at the point of transfer during
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the lifetime of the contract; and, secondly, that further measures are
needed to eradicate the two-tier workforce.
18.
Existing agreements also throw up a number of difficulties in
practice. These include:

Some sectors and institutions are exempt from the
provisions of the Codes- e.g. academies and public
corporations (and Higher and Further Education, unless
employers and unions agree to apply them);

The Codes have not yet been applied to every sectore.g. .FE, HE and 6th form colleges;

Some categories of staff are not covered by any
agreement (e.g. some social care staff);

Some contractors refuse to apply the Codes;

Some local authorities are deemed to comply with the
Codes despite not implementing them. As long as due
consideration has been given to the application of the
Code, local authorities are able to permit contractors to
pay market rates set at the level of the National Minimum
Wage, justifying such decision-making on the basis of
providing beat value (this has happened in London
Boroughs of Wansdsworth and Camden);

The Codes are self-limiting. Their application depends
upon there being at least one employee working on the
contract whose employment transferred under TUPE;
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
The lack of any effective monitoring by government of the
effectiveness of the Codes;
19.
There is a further particular anomaly in local.government. Part II of
the Local Government Act 1988 provided that it was the duty of a
local authority, in relation to public supply or works contracts, to
exercise regulated functions “without reference to non-commercial
matters”.
20.
“Non-commercial matters” included:
“The terms and conditions of employment by contractors of their
workers or the composition of, the arrangements with a
promotion, transfer or training of or the other opportunities
afforded to, their workforce” (Section 17(5)(a) Local Government
Act 1988).
21.
By the Local Government Best Value (Exclusion of non-commercial
consideration) Order 2001 (SI 2001/909), the considerations
described by 17(5)(a) LGA 1988 (terms and conditions of
employment by contractors of their workers etc) and Section
17(5)(d) (conduct of contractors or workers in industrial disputes)
ceased to be “non-commercial matters” in relation to best value
authorities:
i. to the extent that they are relevant “to the achievement of
best value”; and
ii. where they are relevant for the purposes of a TUPE
transfer.
22.
But staffing matters only cease to be commercial consideration
where one of these two criteria apply, and the remaining provisions
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of part II of the Local Government Act 1988 remain in force. The
continued application of the remained of Part II of LGA 1988, and
the limited circumstances in which terms and conditions of
employment cease to be “non-commercial considerations” has
further hindered the development of social and fair employment
clauses. Part II of the Local Government Act 1988 should be
repealed entirely.
23.
In short, there is insufficient encouragement for the use of social
and fair employment clauses in public procurement. The perception
prevails that the inclusion of such clauses in public procurement
contracts will fall foul of EU procurement rules (or domestic
legislation such as the Local Government Act 1988, or both).
24.
But the c.ontinuing sheltering behind EU and domestic procurement
rules by contracting authorities reluctant to introduce social clauses
is misplaced.
3. Equality
25.
The OGC note advises organisations to “ensure that obligations
contained in social legislation e.g. .those relating to race, gender
and disability, are considered at the outset of procurements, to
enable an assessment of their impact and relevance to be
undertaken”
26.
The OGC note makes specific reference to Article 19 of the Public
Procurement Directive which gives contracting authorities the option
to reserve contracts for organisations providing supported
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employment opportunities to disabled people: a key issue, and a
topical one in the light of Remploy
27.
Public authorities are under duties to promote gender and race
equality, see e.g. Sex Discrimination Act 1975 (Public Authorities)
(Statutory Duties) Order 2006. This requires authorities to prepare
and publish a Gender Equality Scheme which covers its duties to
promote equality between male and female staff and the extent to
which the services it provides and the functions it performs take
account of the need of men and women. This includes assessing
the impact of its policies and practices. There are similar duties
arising from the Race Relations (Amendment) Act 2000 and the
Disability Discrimination (Amendment) Act 2005.
28.
When a public authority contracts out its functions, and that function
is subject to an equality duty, the public body needs to ensure that
its obligations under the duty continue to be met. The relevant
obligations to be passed on to the contractor should be included in
contract conditions.
29.
Equal pay legislation is of limited assistance in contracting out, as
case law has determined that women who have been contracted
out will struggle legally to compare their ongoing pay with those who
remain employed by the public authority.
4. The Procurement Directive and Ruffert
30.
The relevant EU provisions are the EU Treaty and the EU
Procurement Directive of 2004. These provisions are premised on
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ensuring free movement of goods and services without
discrimination against contractors on grounds of nationality.
31.
Recital 33 of EU Council Directive 2004/18/EC on the coordination
of procedures for the award of public works contracts, public
supplies contracts and public service contracts provides that:
“….contract performance conditions are compatible with this
Directive provided that they are not directly or indirectly
discriminatory and are indicated in the contract notice or in the
contract documents.”
32.
Recital 33 goes on to provide illustrations of the types of contract
performance conditions which may be permitted. These include onsite training, employment of people encountering difficulties in
integration, measures to tackle unemployment, the protection of the
environment and compliance with core ILO Conventions. These
types of conditions are no more than illustrative, and do not
undermine the overriding principle that contract performance
conditions are permitted if they are not discriminatory.
33.
But the latest news is not good. On 3 April 2008, the European
Court of Justice gave its judgment in the Ruffert case. It is a
dreadful and unhelpful judgment – contradicting the positive Opinion
of the Advocate General.
34.
These were the facts. A contracting authority in Germany included
within its contract a requirement that the contractor pay workers at
least as much as was provided for by the applicable sectoral
collective agreement. The contract was awarded to a Polish
contractor, which sought to perform the contract using Polish
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workers paid at less than the rate provided for under the applicable
German collective agreement. The contracting authority terminated
its contract with the Polish contractor. The contractor argued that
its freedom to provide services under Article 49 EC Treaty was
infringed by the contracting authority’s requirement as to wages.
35.
The ECJ referred to the Posted Workers Directive as setting out
minimum terms and conditions which EU countries must ensure are
applied to workers posted to their territory. These terms include
minimum rates of pay where these are provided for in laws or in
collective agreements which are “declared to be universally
applicable”.
36.
In this case, the ECJ said that the relevant German principality law
did not itself prescribe a minimum rate of pay: it left that to be
determined by the collective agreement. The court said that the
collective agreement was not universally applicable – not least
because it only applied to public sector contracts. This led the court
to the view that the minimum rates of pay did not count as minimum
provisions which had to be protected according to the Directive.
37.
The Court then jumped from this to saying that the German law and
building contract seeking to enforce the rates of pay were unlawful
because they went beyond the protection of the Posted Workers
Directive. And, as if this wasn’t bad enough, the ECJ went on to say
that this also infringed Article 49 on freedom to provide services.
The reason given was that although infringement of that freedom
can be justified by the objective of ensuring the protection of
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workers, that did not cover this situation because the relevant
collective agreement only covered a limited geographical area and
did not apply to private sector contracts.
38.
This follows on from the Court’s attitude to industrial action across
national boundaries to enforce labour standards and prevent social
dumping in the Viking and Laval cases where it was held that
industrial action which infringed the employer’s freedom to establish
in another EU state under Article 43, was only permissible where it
could be justified by the union as a proportionate means of
achieving a legitimate objective.
39.
The approach taken by the ECJ in Ruffert is wrong in principle and
employs twisted logic. It transforms the Posted Workers Directive
from protecting minimum standards to imposing a ceiling above
which contract provisions and collective action cannot be justified. It
sets limits on the circumstances in which pay and conditions can be
protected. It undermines labour standards and gives licence to
social dumping. It is at odds with the supposed level-playing field of
the EU.
Stephen Cavalier
Thompsons
7 April 2008
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