GUIDANCE NOTE TUPE TENDERING COUNCIL CONTRACTS

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TUPE and tendering local authority service contracts

GUIDANCE NOTE TUPE TENDERING COUNCIL CONTRACTS

GUIDANCE NOTE

TUPE - Tendering Council Contracts

This Guidance Note sets out the actions the Council should take during the procurement process where the contract involves a transfer of employees under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

1 What is TUPE?

1.1 TUPE is derived from European legislation and is in force to protect employees when there is a change of employer. TUPE is one of the biggest challenges for the Council in tendering service contracts. If TUPE applies, then all those employees who principally work in the provision of a particular service will transfer from the current provider to the new provider of that service (the “transferee”). The transferee will be deemed to be the employer of those employees.

1.2 This means that, from the transfer date, the transferee will take over all responsibility for the transferred employees, including all rights, powers, duties and liabilities connected to the employees and their contracts of employment.

2 When Does TUPE Apply?

2.1 TUPE applies to two types of Relevant Transfer:

2.1.1 A standard business transfer known as a “transfer of an undertaking, business or part of an undertaking or business”;

2.1.2 A “service provision change.” This is particularly relevant in the context of the tendering contracts and applies where services are:

2.2 If, immediately before the transfer there is an organised group of employees situated in Great Britain whose principal purpose is the carrying out of activities on behalf of the Council and after the transfer, the Council intends that the activities will be carried out by someone else, then those employees will transfer from the current service provider, to the new service provider (the transferee) pursuant to Regulation 3 TUPE.

2.3 This Guidance Note deals with service provision changes and particularly outsourcing, re-tendering and insourcing.



3 The Procurement Rules

3.1 In addition to TUPE, the Council is also bound by the procurement rules contained in the EU Treaty (that is, the duty to act fairly, transparently and to treat all bidders equally) and, where applicable, the Public Contracts Regulations 2006. The application of this legislation to the tendering process means that the Council cannot generally negotiate terms with service providers. Therefore, the following issues should be considered in advance of the competitive process:

      1. Ensuring the Council, which is the client for the services, is adequately protected from inheriting any employment liabilities.

      2. Providing bidders with sufficient employment information attached to the service to enable them to price their bids appropriately.

      3. Addressing TUPE issues at the appropriate stages in the procurement process to ensure compliance with both TUPE and the public procurement regime.

4 The Transfer of Staff – Issues to Consider

4.1 TUPE applies by matter of fact and law and not by decision of the parties. As such the Council needs to be aware that TUPE will most likely apply if a contract is out-sourced, re-tendered, or in-sourced.

4.2 At an early stage i.e. Business Case/pre-procurement, the Council will need to consider the risks of procuring the contract before a final decision is made about what to do. Such risks may even negate the advantage of procuring the contract altogether. Regard should be had to costs to the Council associated with outsourcing staff both during the procurement process and for the life of the contract.

4.3 Keeping the contract in-house:

In order to ensure the Council is delivering best value, the business case should contain an assessment of the current and future costs, including the employment costs, of providing the service in-house. These costs will include:

      1. Salary, employer pension contributions and other benefits payable to the transferring employees.

      2. Indirect costs such as the costs of providing premises, IT equipment, sickness cover and managerial supervision.

4.4 The cost of procuring the contract:

The following procurement costs should also be considered, although in some cases it will be difficult to identify precisely which costs are incurred as a direct consequence of the TUPE transfer:

      1. Council resources used for the procurement process, such as staff time including procurement or contracts officers, HR, pensions, legal and any other specialist service. Regard should be had to the length of time the procurement will take.

      2. Costs associated with obtaining any actuarial valuation of the employer's pension’s contribution rate in respect of the staff. Unless the Council proposes to fix the employer's pension contribution rate without reference to the transferring staff group the contracting authority must obtain a calculation from the LGPS actuary as to the employer's contribution rate and level of risk to be covered by a bond or indemnity. There is likely to be a fee for this work.

      3. Additional costs, for example, in relation to market consultation, or the cost specialist/ professional advice – whether internal or external.

4.5 Indirect costs of Outsourcing

It should be considered that indirect costs that may be borne by the Council after the employees have transferred, for example, any assets the Council will have to continue to provide or make available to support the transferring employees, such as premises, IT equipment or support staff.

5 TUPE – Impact Upon the New Contactor/New Provider (the “Transferee”)

5.1 TUPE raises a number of issues for the new contractor/new service provider (the “transferee”) which the Council should be aware of. This may include the following:

    1. Employment costs:

5.2.1 TUPE provides that employees will transfer to the transferee on their existing terms and conditions of employment. The transferring employees may have more generous terms and conditions of employment than those who may be originally employed by the transferee. This may specifically be the case for Council employees transferring to a private sector organisation. The transferee may raise concerns in respect of salary and salary increases, leave entitlement, sick pay and allowances.

5.2.2 Given the transferee’s inherited liabilities, it may request that the Council provide an indemnity in relation to the transferring employees' employment (whether the employees were originally employed with the Council or with a different service provider).

5.2.3 TUPE operates to transfer, not only the employment contracts of employees, but also any grievances, disciplinaries or Employment Tribunal claims that are attached to the transferring employees. The transferee may try and seek an indemnity from the Council for any claims connected to the transferring employees that originated prior to the transfer date. There is no requirement to give an indemnity and the Council should think carefully about whether or not to provide such an indemnity and if so, the extent of such indemnity.

5.2.4 The transferee will be responsible for any costs associated with redundancies that it may have to make. The transferee may look to the Council to meet some or all of the costs associated with redundancies, particularly if the Council changes the scope of the contract meaning that the transferee is required to make a workforce change. The Council does not have to give any indemnities; this step should only be taken if there is a good reason – it is for the client department to make the decision regarding indemnities in relation to each contract on an individual basis. If an indemnity is given, then it is recommended that this is a specific amount. The Council should remember that the transferee is the new employer and therefore responsible for making decisions regarding how to manage the contract.

5.3 Pension costs

5.3.1 For those staff from the public sector who TUPE transfer, the transferee has to provide to the staff with either:

5.3.2 The Best Value Authorities Staff Transfers (Pensions) Direction 2007 requires Local Authorities to ensure that staff transferring from a local authority (or who have previously transferred under a historic outsourcing), are given rights to acquire pension benefits that are the same as (ie broadly comparable) or better than those they had, or had a right to acquire, as employees of the local authority. As such, the Council has a role to play in protecting the pensions and pension access of the transferring employees.

5.3.3 It is recommended that pension price is calculated at the start of the tendering process and dealt with at an early stage, rather than becoming a subject of negotiation at the end of the process.

5.3.4 Despite these costs, unless the transferee already has an existing ‘broadly comparable’ scheme, it will usually be more cost effective for them to become an admitted body to the LGPS. The transferee will therefore usually enter into an Admission Agreement with the relevant administering authority of that pension scheme. The Admission Agreement usually requires the transferee to:

5.3.5 The transferee must also pay the employer's contribution rate for the duration of the contract. The contribution rate that will be payable is typically calculated by the fund actuary following an instruction from the relevant administering authority. The actuary will also assess the amount of risk that should be protected by a bond or indemnity if the service provider goes insolvent and is unable to meet its liabilities to the fund.

5.3.6 Accordingly, the transferee bears all pensions risk on a TUPE transfer.

5.3.7 Understandably, private sector providers in particular can be uneasy about assuming pension risks and particularly, LGPS liabilities, given that they have no control over the investment strategy of the particular LGPS fund. It is usual for the transferee to either request a premium on the contract price for assuming the pension risk or to request indemnities from the current provider or Council to protect themselves. The Council should determine its position on pension matters in advance of issuing the invitation to tender.

5.3.8 Dealing with pensions and indemnities/contract price, is a matter of negotiation between the parties. Once in possession of all the information, the Council can determine whether or not to provide an indemnity. It may be that, as part of the commercial negotiations, the Council decides to apportion pensions liabilities – which would mean that the Council agrees to be responsible for some liabilities. For example:

5.3.9 The specific mechanisms for fixing the employer's contribution rate are:

6 Disclosure of Information and Data Protection: Stage One Information

6.1 In order to ensure that bidders have accurate information upon which to formulate their bid at any early stage, the Council has to obtain and disclose information about those employees working on the current contract – Stage One Information.

6.2 At Stage One, the disclosure of information is not Employee Liability Information (as referred to below) nor is it linked to TUPE. It is for procurement purposes only.

6.3 Stage One information enables bidders to formulate and present their plans for servicing the new contract (with reference to the existing workforce); and accurately price their bids taking into account the potential of inheriting employment liabilities.

6.4 Included in the contract with the current contractor should be a clause which states that the current contractor is obliged to provide accurate employment information upon a re-tendering situation. This allows the Council to obtain Stage One general employment information to give to potential bidders. In addition, the contract with the current contractor should include a provision requiring the contractor to obtain its employees’ consent to the processing of their personal data for the purposes of re-tendering the service.

6.5 Particular difficulties may arise if no such contractual clauses exist. Outgoing service providers may be reluctant to give information, especially where they have concerns about losing the service contract or are concerned about confidentiality. Where an outgoing service provider refuses to provide the information at this stage, the Council has no right to insist that it is provided – unless there is a contractual clause. Additionally, disclosing personal information without the consent of the employees could result in a breach of the Data Protection Act 1998 for the contactor itself – hence the contractor needs to obtain consent from its employees.

6.6 If the Council is unable to provide bidders with adequate general employment information during the competitive stage of the procurement process, the following risks arise:

      1. Bidders will not be able to accurately plan their proposed workforce with reference to the existing staff group, which may mean increased likelihood of redundancies if the transferring staff do not fit with the bidders' proposed model for the service;

      2. Bidders will be unable to submit accurate pricing as the actual costs of employing the transferring staff will be unknown. This is likely to distort the pricing evaluation and will lead to the Council and successful bidder having to discuss TUPE after the competitive process is concluded. This may result in the Council paying a premium on the costs if the bidders use the fact that there is no longer any competition for the contract to disproportionately increase their bid price. Councils that negotiate contract terms during or after the tender process, (unless the competitive dialogue procedure is used) risk claims for breach of the procurement rules if the contract differs significantly from what was tendered.

      3. The Council could partly address this issue by informing bidders that it will only meet TUPE costs that exceed the bidder's tendered staffing costs on an actual cost basis, and for as long as the affected individuals remain employed.

6.7 Pursuant to the Data Protection Act 1998, ‘personal information’ means information by which an employee may be identified by. Personal Information can only be disclosed if:

      1. The employees have given their specific consent; or

      2. The personal data is anonymised so that the employees cannot be identified.

    1. Reference has already been made above to the fact that the current contractor should seek consent from its employees to the disclosure of the information. However, reliance on the current contractor should not absolve the Council from its responsibility. There are no guarantees that the current contractor will have obtained consent from its employees, or indeed, that the employees will give their consent.

    2. If there is no employee consent, the information must be anonymised, so that employees can not be identified. Anonymising does not only mean redacting specific names but also information which allows the employees to be identified. For example, on a small contract (and in a small marketplace) it may be easy for potential bidders to identify employees – even without names – by knowing a job title and a salary.

    3. Accordingly, systems must be in place which allow the bidders to have access to the relevant information (to enable them to formulate their bids) but that the information is presented in such a way that employees cannot be identified.

    4. In the absence of consent and if the data cannot be anonymised sufficiently, the Council may be able to rely on the condition in schedule 2(6) of the DPA 1998, which permits processing of personal data if:

"the processing is necessary for the purposes of legitimate interests pursued by the data controller or by the third party or parties to whom the data are disclosed, except where the processing is unwarranted in any particular case by reason of prejudice to the rights and freedoms or legitimate interests of the data subject."

6.12 Additional to the above considerations, and for the extra protection of the employees, the Council should require bidders to sign a confidentiality agreement with an undertaking to return or destroy the personal data in the event their bid is unsuccessful.

6.13 In summary, Stage One information which is received from the current contractor during the tender process and which is passed to bidders:

6.13.1 Must, at the very least, be anonymised and must not reveal the employees' identities – otherwise this could be a breach of the Data Protection Act 1998;

6.13.2 Stage One information should not be disclosed to the bidders in the format which it is obtained from the current contractor – this could be a breach of the Data Protection Act 1998;

6.13.3 It is preferable that the Council should obtain the information from the current contractor; analyse the information received from the current contractor and pass on the analysis to the bidders in a generalised format which allows all bidders access to fair and equal information. At all times, the Council should question how much information the bidders need and why.

7 TUPE – Employee Liability Information: Stage Two Information

7.1 Regulation 11 of TUPE expressly requires the current employer to provide Employee Liability Information to a transferee (for example to a new contractor) and this must be done at least 14 days before the TUPE transfer takes place. This is a legal requirement.

7.2 Regulation 11(7) of TUPE allows the obligation to provide Employee Liability Information to be discharged indirectly through a third party; or alternatively it can take place directly between the current contractor and the transferee.

7.3 The disclosure of Employee Liability Information is permitted under section 35 of the Data Protection Act 1998 (DPA 1998) (it is a disclosures required by law).

    1. The Employee Liability Information relates to those employees who are transferring and includes the following information:

      1. The identity and age of the employee;

      2. Those particulars of employment that an employee is obliged to give in section 1 of the Employment Rights Act 1996;

      3. Information about any:

Within the last 2 years.

      1. Information of any court or tribunal case, claim or action

      1. Information about any collective agreement which will have effect after the transfer.

7.5 The Employee Liability Information is the only information that the law prescribes needs to be given to the transferee; it must be accurate and updated as necessary.

7.6 Employee Liability Information is normally only given once it has been confirmed that the transfer is going ahead and the transferee has been specifically named – towards the end of the procurement process.

7.6 A failure to provide accurate Employee Liability Information, at least 14 days before the transfer, may result in the transferee taking on more employees than they had thought; or taking on increased costs than were originally proposed. The transferee may attempt a last minute change of contract price as a result or could sue the ex-service provider for £500 per transferring employee for whom information was not provided or was inaccurately provided.

8 Situations When TUPE May Not Apply

8.1 This Guidance Note sets out what to do when TUPE applies. However, there may be some cases when it is unclear as to whether or not TUPE applies.

For example:

8.1.1 Insufficient information is available from the current employer

8.1.2 The contract / service is to be split up, following the transfer and carried out by more than one service provider.

    1. However, it may not be clear at the tender stage which option is the most likely. In such cases, the Council will need to ensure all bidders agree to a possible TUPE transfer. The Council will need to consider how it manages TUPE costs.

    2. It is likely that these scenarios will become more frequent with the increased use of framework agreements in the public sector, and the move away from block care contracts to more personalised solutions for social care service users specifically.

    3. If it is unsure whether or not TUPE may apply, then the Council may consider asking bidders to submit bids both including and excluding TUPE costs. The Council will need to consider how to ensure an evaluation process in this case is fair and transparent.

GUIDANCE NOTE

TUPE – Checklist of Actions

The following checklist sets out the actions that the Council should take at each stage of the procurement process when dealing with the outsourcing or re-tendering of a service contract pursuant to TUPE. Officers should ensure that they have read the above Guidance Note in conjunction with this checklist.

1 Pre – ITT Stage: Initiating the Procurement

1.1 The following actions must be undertaken at the ITT stage or before:

1.1.1 Form a project team of procurement, HR, finance/pensions and legal advisers.

1.1.2 Consider whether the proposed procurement is likely to entail a TUPE transfer of staff. If in doubt, take legal advice.

1.1.3 If the procurement is an outsourcing from the Council, calculate the costs of:

1.1.4 Obtain Stage One general information about those employees who may TUPE transfer from the current service provider (or the Council’s HR department if appropriate). Refer to the standard documents TUPE – Stage One - Letter (Pre-Procurement).doc) and attach the Stage One spreadsheet for the current contractor to complete (TUPE Stage One - Employment Information Spreadsheet.xls).

1.1.5 If the current contractor will not supply the Stage One general employment information or if the information is inaccurate or incomplete, consider removing TUPE costs from the tenders and provide a mechanism for dealing with unknown TUPE liabilities.

1.1.6 Ensure the contract advertisement (OJEU Contract Notice) specifies the requirements as to staff transfer, by highlighting that there may be a TUPE transfer and referring to the terms that will apply to the transfer.

1.1.7 Instruct the pensions department of the administering authority to obtain an actuarial valuation of the employer's contribution rate and risk to the fund on early termination. Carry out a risk assessment based on the actuary's assessment as to the need for and amount of any bond cover.

1.1.8 Obtain draft contract, admission agreement and bond agreement from legal advisers and collate with rest of ITT including the employee and pensions information.

1.1.9 Start briefing sessions for employees and their representatives.

1.1.10 Consider the employment and pensions situations and what, if any, indemnities the client department may be willing to give.

2 Pre-Qualification Questionnaire (PQQ) Stage

2.1 In any procurement process, the purpose of the PQQ is to determine whether the bidders are capable of carrying out the service. In the context of TUPE this may mean asking them questions as to their ability to assimilate a transferred workforce with reference to their past experiences.

2.2 However, to remain within the parameters set for the PQQ under the Public Contracts Regulations 2006 (SI 2006/5) and to avoid assessing this issue at both the PQQ and ITT stage, it is usually easier to evaluate responses in relation to TUPE at the ITT stage. For procurements falling outside the Regulations, the Council has more flexibility as to what matters to evaluate at what stage provided that they treat bidders equally and the process is fair and transparent.

2.3 Considerations at the PQQ stage include the following:

2.3.1 Consider asking bidders about the skills, experience, professional qualifications and turnover of the key staff who will be managing the contract. Also consider asking about their experience in receiving a transferred workforce in the past.

      1. Use this time to prepare the information to be contained in the ITT.

      2. Carry out a risk assessment based on the pension fund actuary's assessment as to the need for, and amount of, any bond cover for the liabilities under the admission agreement, should the new provider become an admitted body.

      3. Ensure that all effected employees (if employed by the Council) and their representatives are consulted with about the possibility of a TUPE transfer. Regulation 13 TUPE sets out the consultation process. 

3 Invitation To Tender (ITT) Stage

    1. By this stage, the Council will have a shortlist of bidders who are capable of delivering the service and will be invited to tender. The following information should be included in the tender pack:

3.1.1 Contract terms;

3.1.2 The service contract terms relating to the transferring liabilities;

3.1.3 Stage One employment received from the current employer (TUPE Stage One - Employment Information Spreadsheet.xls). to enable the bidders to plan their proposals and price their bids.

3.1.4 Standard admission agreement and, if relevant, bond agreement if the transfer involves local government or former local government employees. The Council's policy on discretionary benefits should also be included;

3.1.5 Details of the employer's pension contribution rate (as calculated by the pension fund's actuary) and the amount of risk to be covered by a bond or indemnity; should the new provider become an admitted body to the LGPS, together with the amount of any liability that could arise on early termination of the admission agreement that the administering authority requires the provider to cover through a bond or indemnity.

4 The Contract Award

4.1 Once the tender has been awarded and whilst the specific contract is being agreed, the Council should be aware of the following:

      1. Employment Clauses

For those reasons set out in the Guidance Note the contractor who has won the contract, may try and cover employment risks by including a premium on the contract price or requesting indemnities for the transferring staff.

4.1.2 Pensions

For those reasons set out in the Guidance Note, the contractor who has won the contract, may try and cover pensions risks by including a premium on the contract price or requesting indemnities for the transferring staff.

4.1.3 Other clauses

The following are useful clauses which should be inserted into an agreement

    1. As the contract will have been awarded and the final agreement is being negotiated, it will be necessary to request and obtain the Employee Liability Information from the current employer. Regard should be had to TUPE – Stage Two Letter (Post Award).doc and (TUPE Stage 2 - Employee Information Spreadsheet.xls). The Employee Liability Information should be provided to the transferee 14 days before the transfer.

    2. Ensure that appropriate employee consultation has concluded.

    3. Execute the admission agreement and bond agreement or receive evidence that the new service provider has a GAD certified scheme, as applicable. A revised actuarial assessment may be required where there have been any changes to the workforce since the first actuarial assessment.

    4. Execute the contract.

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