HC Deb 15 March 1978 vol 946 cc233-5W
Mr. Ronald Brown

asked the Chancellor of the Exchequer what is the outcome of the discussions which Ministers have had with the CBI about the new pay clauses in Government contracts which were announced on 7th February; and if he will make a statement.

Mr. Joel Barnett

Since July 1975 it has been the Government's declared policy, approved by Parliament, to take compliance with pay policy into account in the granting of public purchasing contracts, as in the granting of Government financial assistance to industry.

The clauses introduced into new contracts with effect from 8th February, subsequently approved by the House of Commons, are designed to maintain that policy and to ensure that it is not eroded in circumstances where excessive settlements are reached after contracts have been awarded. In the light of representations made by the CBI and others, the Government have authorised certain amendments to these clauses with a view to clarifying and simplifying their operation, without detriment to this underlying purpose. The Government are prepared to incorporate these amendments into contracts let since 8th February. The amended clauses will be laid in the Library as soon as possible.

The clauses as amended broadly require any main contractor for work to a value of £5,000 or more to give an undertaking that his settlements since 1st August 1977 have been, and his future settlements during the currency of the contract will be, in accord with pay policy.

The clauses also require the main contractor to require the same undertaking to be given by any direct sub-contractor for work to a value of £500,000 or 5 per cent, of the value of the main contract, whichever is the less, subject to a minimum of £10,000. Special arrangements will apply to certain very large contracts. The clauses require all such contractors and sub-contractors to provide on request such information as may at any time be needed by the Department of Employment to check compliance with pay policy.

In the event of non-compliance by the main contractor or any sub-contractor covered by the clauses, the Government will endeavour to secure renegotiation of the excessive settlement. To this end they will first seek discussion with the parties with a view to resolving the matter without recourse to action under these clauses.

If, however, a breach of pay policy by a main contractor, or by a direct subcontractor covered by the clauses, is persisted in, the Government will have the right to terminate the main contract or to withhold any payments for increased labour costs that may be due under variation of price arrangements. This right is subject to certain safeguarding procedures, including, following termination of a contract, a right of arbitration should the Government's good faith be in question. Where it is a sub-contractor who is in breach, then provided the main contractor takes correspondingly appropriate action against the sub-contractor the Government will take no action against the main contractor, and will imdemnify him against any loss necessarily incurred.

In taking such action, or requiring it to be taken by a main contractor against a sub-contractor, the Government will have careful regard to all relevant factors. These will include the significance of the breach, having regard to the number of employees and the amounts involved, either in itself or in its wider repercussions. The Government will not take any action under these clauses which would cause wholly disproportionate damage to employment, industrial production or services. In the event that action had to be taken to terminate a contract, payment for work done prior to the certification of the breach would disallow an appropriate amount in respect of the element of profit; unavoidable cancellation charges would be met.

The Government intend to keep these arrangements under review. In particular, the Government will seek further consultation with the CBI and others concerned in due course as to their operation in the context of any continuing pay policy subject to debate by and the authority of Parliament. Such discussions would include the question of extending the scope of arbitration provisions. In the event of any modifications being made at that stage, the Government would be prepared for them to be incorporated in contracts current at the time.

The Government welcome the CBI's continued support for pay moderation to which, in the Government's view, these clauses as now amended provide essential backing.