Market Testing (Hansard, 11 March 1993)

§ Mr. McAllion
To ask the Chancellor of the Duchy of Lancaster if he will list all those services or functions that have been contracted out from his Department since November 1991 without market testing an in-house bid against external competition, with, in each instance the successful contractor and the reasons for the decision to exclude an in-house bid.

§ Mr. Waldegrave
The Civil Service college has contracted out the distribution of the college prospectus to JBS Mailing Services, without in-house comparison. The service represented a small part of the activities of several in-house units and it was considered unproductive to continue with this arrangement.

§ Mr. Heald
To ask the Chancellor of the Duchy of Lancaster if he will issue guidance on the application of the Transfer of Undertakings (Protection of Employment) Regulations 1981 to the Government's market testing initiative.

§ Mr. Waldegrave
The 1991 White Paper "Competing for Quality" set out the Government's plans for achieving more effective competition, and thereby better value for money, through an expanded market testing programme in central Government. Department's current market testing targets for the period up to September 1993 cover work costing about £1.5 billion and employing 44,000 staff. This work will be offered to outside contractors, for the most part in competition with the in-house teams currently providing the service.
I am today placing in the Library guidance on the implications for market testing of the Transfer of Undertakings (Protection of Employment) Regulations 1981. In some cases where work is awarded to an outside contractor following market testing that may constitute the transfer of an undertaking in the terms of the regulations. If so, the regulations provide that the new employer takes over responsibility for the employment contracts of the employees, who would transfer on their previous terms and conditions of service. The guidance sets out circumstances in which the regulations are, and are not, likely to apply, and explains their effect where they do. It is intended for information only, to help those engaged in market testing, including potential contractors, to understand the issues involved. It is not designed as a complete statement of the law, and does not obviate the need for legal advice to be taken. My right hon. Friends the Secretaries of State for the Environment, for Scotland, 645W for Wales, for Northern Ireland and for Health are making separate statements on the application of the regulations to their areas of responsibility.
The guidance makes clear that, as has been the case for over 10 years, contracting out is not affected by the regulations unless it involves enough of the elements of the original operation; such as premises, staff, good will or customer base, to constitute the transfer of a going concern. Whether this applies in any particular case will depend on the nature of the work awarded and the contractors' own proposals for carrying it out.
The Government intend that market testing should proceed without delay. The Government look to bidders, both external and in-house, to put forward innovative proposals for carrying out the work. Bidders will be given access to information about the numbers of posts in the in-house operation, and the terms and conditions of service which attach to the posts, where they need it in order to submit a bid based on a proposal to which the Regulations might apply.
The Government will specify requirements for services being market tested in terms of the outputs to be delivered rather than the structure or methods used to deliver them, and without prejudging whether or not the regulations will apply. Where the regulations would not otherwise apply, it would be inconsistent with our policy to seek to require contractors to adopt particular employment terms and conditions or use particular employees to do the work. It would also be inconsistent with our policy to reorganise in-house operations prior to market testing with the purpose of bringing any subsequent transfer within the scope of the regulations or to dictate the contractor's organisational structure except for reasons strictly related to the performance of the service in question. Bids will be evaluated against the specification on the basis of quality and value for money.
Departments will take account of the costs of redundancies, if any, involved in the respective tender proposals. Some contractors have expressed concern about the possible additional costs involved in a tender proposal falling within the scope of the Regulations compared with a proposal which does not do so. Whilst the basic cost of the former may be higher, the latter is more likely to involve redundancy or redeployment costs which would be taken into account in comparing the respective tender bids. Genuinely innovative proposals should still enable contractors to offer good value for money to Departments, whether or not the regulations apply.