Competitive Tendering (Hansard, 11 March 1993)

§ Mr. Howard

My right hon. Friend the Chancellor of the Duchy of Lancaster has today issued and placed in the Library guidance on the implcations of the Transfer of Undertakings (Protection of Employment) ("TUPE") Regulations 1981 for the market testing of public services.

The principal provision of the TUPE Regulations is that where a "relevant transfer of an undertaking" has taken place, the new employer takes over responsibility for the employment contracts of the employees, who would transfer on their previous terms and conditions of service.

My right hon. and learned Friend the Attorney-General, in a statement to the Standing Committee on the Trade Union Reform and Employment Rights Bill on 21 January, set out the principles regarding the "transfer of an undertaking" as follows: It is clear from the case law that under both the [EC Acquired Rights] Directive and the [TUPE] Regulations, [transfer of an undertaking] means the transfer of an economic entity which is capable of operating as a going concern and which retains its identity. The contracting out of service is not a transfer of an undertaking unless it involves 659W enough of the elements of the original operation such as premises, staff, goodwill or customer base to constitute the transfer of a going concern. But no single one of these [elements] is essential for there to be a transfer. The case law makes clear that it is the overall sum of what is transferred which determines whether there has been a transfer of an undetaking.

I am aware from many complaints which I have received from hon. Members, local businesses and industry, that a number of local authorities have been including conditions in their CCT tender material which require the contractor to take on the employment of existing staff on the same terms and conditions.

This is a matter of concern, for the following reasons. The objective of CCT is to ensure that local authority services are provided in the best and most cost-effective way, for the benefit of local residents and council taxpayers. CCT gives both in-house teams and prospective private contractors the opportunity to develop and offer innovative and improved ways of providing services, enabling local authorities to choose the best option from all the possible approaches.

It is an essential part of the process of competition that local authorities are prepared to consider all possible options, without setting prior restrictions on the arrangements which prospective contractors or in-house teams must adopt, other than on matters relevant to the performance of the service.

The CCT legislation therefore requires that in seeking tenders for services, authorities must not act "in a matter 660W having the effect or intended or likely to have effect of restricting, distorting or preventing competition." [Local Government Act 1988, section 7(7)].

Where, therefore an authority seeks in a tender invitation to ensure that tenderers will be required to take over responsibility for all existing staff and observe existing terms and conditions of service, either by: specifying expressly that he should make offers of employment, without economic or operational justification; or specifying that TUPE must apply to the contract where it is not clear at the point of inviting tenders that this would necessarily be the case; or seeking to achieve the same purpose by specifying requirements relating to matters other than employment of staff, without economic or operational justification; the effect of this action is to restrict the flexibility of prospective contractors and prevent them from offering alternative arrangements for providing the service.

In the Government's view, any such requirement may deter some prospective contractors from tendering and is likely to constitute a "restriction of competition" in the terms of the legislation, and the Secretary of State will, subject to the facts of each case, take action through the notice and direction powers provided in the legislation to require the authority to remove such restrictions.

In this way, we will ensure that all local authorities conduct compulsory competitive tendering in the manner which this House provided for in the legislation, and will ensure that all authorities, residents and taxpayers continue to secure the benefits of new, more flexible, and more economical ways of providing services.