3. MANAGING STAFF

This chapter is primarily for senior managers, line managers, and staff and their representatives.

Essential requirements

3.1 Poor handling of staff and ineffective or irregular communication during efficiency exercises can affect staff attitudes and motivation badly. As a result, the organisation's efficiency and effectiveness will be reduced and staff's job satisfaction will be undermined. Indeed, this adverse effect is likely to extend into areas outside the scope of the efficiency review.

3.2 Departments should have strategies for addressing the human resource issues that are likely to arise before, during and after efficiency reviews. Officers should be appointed to oversee implementation of these strategies reporting to senior managers who have overall responsibility.

3.3 Strategies should ensure that:

Effective communications

3.4 Poor or irregular communication can increase the uncertainties associated with efficiency reviews and erode trust between staff, their managers and colleagues. Departments should have a communications strategy to ensure that staff are kept informed about progress of efficiency reviews. A senior officer should be responsible for communication. The timing and amount of information needs judgement, depending on the audience and the stage of the efficiency programme. But regular communication, even when there is little news to report, can help build trust and discourage rumours.

3.5 In market tests, the requirement for there to be proper separation between clients and in-house bid teams, so-called "Chinese Walls", can accentuate communication difficulties. Departments should ensure that such barriers are reasonable and in keeping with proprieties associated with tendering, but that Chinese Walls do not prevent staff concerns being addressed. The need for Chinese Walls should be addressed in devising a communications strategy.

Preference exercises, when competition is the option

3.6 At an early stage in planning, Departments should consider whether there is scope for offering staff, in areas being subjected to competitive tendering, choices on whether to transfer to any successful external bidder or be redeployed to another job within the Civil Service. Such preference exercises need to be justified on a case by case basis, taking into account the potential benefits and disbenefits, in particular, whether:

Non-discrimination

3.7 The Government and the Civil Service (as an employer) are committed to a policy of equality of opportunity. Departments should ensure that, in this context, equal opportunities policies are upheld throughout competitive process and care should be taken to ensure that the impact of efficiency reviews has regard to equal opportunities considerations. Efficiency reviews can adversely affect equal opportunities if they mostly cover services or activities in which particular groups are over represented (for example, women and ethnic minorities tend to be over represented in clerical work). Therefore, efficiency exercises should not always concentrate on these areas, but the search for efficiency should cover all parts of a Department. When running competitions, Departments must observe the following.

Employees with disabilities

3.8 Departments have obligations under the Disability Discrimination Act 1995 toward disabled employees and should consider these when undertaking efficiency reviews and competitions. Specific instances where action will be necessary are as follows:

Redundancies

3.9 In some cases, where work is to be carried out by the private sector, there will need to be redeployment of staff currently carrying out the work, voluntary early retirements and, in some cases, redundancies. However, Departments have no liability for redundancy in the case of staff who:

3.10 In circumstances where TUPE does not apply, any redundancies resulting from transferring services to the private sector should be dealt with under the provisions of the relevant redundancy agreement. Most civil servants are entitled to compensation if they are dismissed or retired on grounds of redundancy. The costs of compensation will fall on Departmental votes and will need to be taken into account in evaluation.

3.11 Compensation terms for civil servants made redundant are set out in the Civil Service Compensation Scheme (CSCS), and guidance on terms is contained in the PCSPS Pensions Manual (Volume 4). The benefits payable on early departure are outlined in the PCSPS booklet Early Retirement and Redundancy. Where redundancies are being contemplated or where TUPE applies, or might apply, Departments should obtain estimates of redundancy costs.

TRANSFER OF UNDERTAKINGS (PROTECTION OF EMPLOYMENT) REGULATIONS – TUPE

Introduction

3.12 The Transfer of Undertakings (Protection of Employment) Regulations 1981 (as amended), known as "TUPE", implement the 1977 European Council Directive 77/187/EEC, which is generally known as the Acquired Rights Directive (ARD) ⁽²⁴⁾. References to "TUPE" include the Directive.

Provisions

3.13 In broad terms, TUPE protects employees' terms and conditions (except in relation to future occupational pensions – see paragraph 3.26 below) when the business in which they work is transferred from one employer to another, and the business retains its identity. When TUPE applies, employment with the new (or transferee) employer is treated as continuous from the date of the employee's start with the first (or transferor) employer. Terms and conditions cannot be changed where the operative reason for the change is the transfer of the undertaking, although changes for other reasons may be negotiated. It is the responsibility of Departments, as employers: to satisfy themselves, on the basis of advice from the Department's legal advisers, whether TUPE applies in particular circumstances; to ensure that TUPE is honoured, where it does apply (including the consultative requirements) up to the time of transfer; and to ensure that contractors accept their responsibilities when TUPE applies.

Assessing whether TUPE will apply

3.14 Whether TUPE applies depends on all the relevant facts of the case. Legal advice should always be taken and lawyers fully appraised of all relevant facts. The case law of the European Court of Justice (ECJ) suggests that TUPE is likely to apply to a contract for services awarded to the private sector (including companies formed as a result of management or employee buyouts) following competitive tendering, if an economic entity has been transferred and remains in existence performing the same or similar activities. Departments may specify (see Chapter 5) that staff are to transfer (which will cause TUPE to operate), or else must give a view on the likely application of TUPE. Departments must not rely on contractors' assertions or on the legal advice which contractors themselves may have taken, but must seek the advice of their own legal advisers. The ECJ has identified a number of factors to be taken into account (although not all necessarily have to be present) in determining whether a business has been transferred as a going concern and thus attracts TUPE's protection:

3.15 TUPE does not apply when:

In cases where it is unclear whether TUPE will apply, Departments should deal with releasing information and consultation as if TUPE does apply. Departments should give potential bidders the choice of producing proposals on the basis of either or both possibilities. The reasons for their views on the applicability of TUPE should also be sought as part of the tendering process, with the Department reserving the right not to accept a bid that it does not agree with. As soon as it becomes clear whether or not TUPE applies, staff and recognised trade unions, or, if none, other independent staff representatives, should be told. When dealing with requests for supplementary information (see Chapter 5), Departments should not provide the information that would be required under TUPE to a potential bidder who has said that it is not going to submit a TUPE-based bid.

Effect of TUPE applying

3.16 If TUPE applies, the transferee employer:

3.17 If TUPE does not apply, then a contractor is under no obligation to employ any of those currently providing the services being contracted out. If contractors want to offer employment, this would be on the basis of inviting individuals to enter into entirely new contracts of employment. In these circumstances, requirements relating to terms and conditions of service should not be imposed on contractors, except where there are reasons for doing so related to the performance of the service in question. However, as one of the "tests" for TUPE relates to staff being taken on, the act of taking on some (or all) staff may trigger a TUPE transfer.

Transfers, redeployments and secondments

Transfers

3.18 If TUPE applies all those working in the undertaking or that part of it transferred will be transferred, except any dismissed for ETO reasons (see paragraph 3.36). Employees have the right to object to the transfer of their employment, but unless the transferor employer is willing to redeploy them away from the part of the undertaking being transferred, they will be treated as having resigned rather than being dismissed by the transferor. Such a resignation does not entitle an employee to redundancy payments or to claim unfair dismissal.

3.19 Employees have the right to resign and claim constructive unfair dismissal if their working conditions are significantly changed without their consent and to their detriment. Resignation because of a change to the identity of their employer will not entitle them to claim unfair dismissal unless the change is significant and to their detriment.

Redeployments before transfers

3.20 At an early stage, there may be scope for Departments to redeploy ⁽²⁵⁾ staff not crucial to the performance of the contract (see paragraph 3.6), provided that this is acceptable to the Department and the staff concerned and, to the transferee contractor (if known). Also, it should not of itself give rise to causally related redundancies. In any consultations with the contractor about who might be redeployed prior to the date of transfer, Departments should take account of Civil Service policies on equal opportunities ⁽²⁶⁾.

Secondments

3.21 In some circumstances, it may be possible for Departments to second one or more of the staff currently employed on the work to the transferee employer rather than them transferring under TUPE. Secondments must be genuine and the consent of all those involved will be needed. Departments should only offer secondments if they will be able to re-absorb secondees at the end of the secondment period.

Terms and conditions

3.22 Terms and conditions of employment of transferred employees may be amended by agreement between the new employer and the employees (or possibly their representatives), provided the transfer is not the operative reason for the change. However, any change without consent would normally be void and unenforceable and provide grounds for a claim for constructive unfair dismissal on grounds of breach of contract.

3.23 Some terms and conditions will have no meaning outside the Civil Service. For example, the restrictions on the political activities of civil servants cannot be justified in private employment. Others would be difficult to replicate: for example, the right of appeal to the Civil Service Appeal Board against dismissal, although many large organisations have formal appeals procedures to which transferred staff should have access. Transferee employers and staff (and their representatives) should reach early agreement on such matters, without disturbing the principal terms and conditions.

Staff on individual terms and conditions

3.24 Some civil servants have individual terms and conditions of employment, for example, part-time or flexible working. These transfer in respect of the employees concerned.

Staff on career breaks

3.25 The position of staff on career breaks needs careful consideration. Whether or not they remain employed by their Department during the break will depend on the terms of the career break agreement. If they remain employed and the unit to which they would normally have returned is transferred under TUPE, the Department should consider whether they form part of the transfer or whether redeployment would be possible in the circumstances and preferable to the person concerned and the Department.

Occupational pensions

Pensions in the new employment ⁽²⁷⁾

3.26 Future occupational pension arrangements are not covered by the Acquired Rights Directive and therefore are not transferred by TUPE, but they are protected by UK law. Employment contracts cannot normally be changed unilaterally. This would be the effect of ending contractual entitlement to future occupational pension provision when work transfers and would give rise to a risk of a successful claim for constructive unfair dismissal. To guard against this risk, the Government requires that, when staff transfer from Crown employment with TUPE protection, broadly comparable occupational pension provision for future service must be secured for them from their new employer. Where broadly comparable pensions are not, or cannot be, provided, employees should be suitably compensated.

3.27 Bidders should therefore be asked, if submitting bids to which TUPE would apply, to state in their tenders the occupational pension benefits to which employees will be entitled after transfer, or any compensation for less generous pension provision – for example, higher salaries, part of which is paid into a private insurance pension scheme, or employee share ownership plan.

3.28 The Government Actuary's Department (GAD) should be asked to certify whether pension arrangements offered for future service with the new employer are likely to provide broadly comparable benefits to the Principal Civil Service Pension Scheme (PCSPS) based on actuarial assessment, and if not, the extent of any detriment, taking into account any compensating changes to other terms and conditions. The cost of any detriment payments should be taken into account when bids are evaluated. Only defined benefit schemes will be certified as being broadly comparable to the PCSPS.

Existing pension entitlement

3.29 Occupational pension entitlement which is accrued at the time of transfer is protected by Social Security legislation, in the same way and to the same extent as for civil servants leaving the PCSPS voluntarily. Civil servants transferring under TUPE will always have the same options as those who leave the PCSPS voluntarily. They may preserve their accrued pension (provided they have two or more years' qualifying service) in the PCSPS for payment at age 60. They may transfer an amount equivalent in value to these preserved benefits to the new employer's pension scheme, provided that scheme agrees, or to another pension arrangement, for example a personal pension. Benefits preserved in the PCSPS are revalued each year in line with movements in the Retail Price Index. However, no account will be taken of future salary movements for the individual in question, or of earnings increases in general. Care should therefore be taken not to imply to transferring staff that benefits preserved in the PCSPS would ultimately have the same value as the benefits they would have received in respect of service to the date of transfer of employment had they remained in the PCSPS.

Bulk transfers

3.30 Where staff are transferred compulsorily from the Civil Service, it may be possible to organise the option of a bulk transfer value payment to the new employer. This is intended to enable staff to be offered more attractive terms for transferring their PCSPS benefits to their new employer's pension scheme than would be available with an individual transfer, and to reflect the special circumstances of such a transfer of employment. A bulk transfer arrangement would give transferring staff the option of preserving the linkage to their future salary of benefits which derive from their service with the PCSPS. If a bulk transfer arrangement is available, it will for the individual PCSPS member concerned to decide whether to take advantage of it. Departments must not give advice to individuals on their choice. General information may be distributed, but only after professional advice has been taken.

3.31 Employing departments should ask GAD, as scheme actuary to the PCSPS, to enter into discussions with bidders with the aim of agreeing bulk transfer arrangements for transferring staff that offer credits in the new employer's pension scheme that are of similar value to the benefits they would have received in respect of service to the date of transfer had they remained in the PCSPS.

3.32 The availability of bulk transfers depends on whether a satisfactory agreement is concluded on the benefits to be provided and the amount of the transfer payment with the actuary to the new employer's pension scheme. Departments must involve GAD as soon as a compulsory transfer of employment affecting civil servants seems likely and before a contract has been let. Guidance on the pension actions required by departments in cases of bulk transfers is contained in the PCSPS Pensions Manual, Volume 8, section 9. GAD must be involved early to give time for negotiations before bid evaluation. If negotiation of bulk transfers is left too late, or indications are given of the preferred bidder before negotiations can be concluded, it can make a satisfactory outcome much harder for GAD to achieve. The fact that a bidder has not been prepared to agree a bulk transfer on terms which give value for money to the taxpayer should be considered a significant disadvantage of that bid.

3.33 The amount of transfer value payment is recommended by GAD and is authorised by the Cabinet Office, Office of Public Service ⁽²⁸⁾. Payments reflect the value of liabilities previously borne by the PCSPS (the methodology underlying bulk transfer payments is well established and fair, both to the transferee and the taxpayer). Under no circumstances will bulk transfer payments be available to money purchase pension arrangements because money purchase schemes cannot be assessed as comparable with final salary schemes.

Ongoing liabilities

3.34 Departments should not incur liabilities in respect of pension entitlements of transferred civil servants in their new employment over which they will have no control following transfer. The responsibility for pension matters, as for other terms and conditions of employment, will rest with the new employer after transfer. Departments should not make any specific commitments to employees about individual elements of their pension arrangements in the new employment.

Staff outside the PCSPS

3.35 Staff in non-departmental public bodies may have different pension arrangements. These may take the form of schemes which are "by-analogy" to the PCSPS or there may be a free-standing pension scheme with its own rules. The same considerations apply to staff of these bodies as for members of the PCSPS, both in respect of pension rights that accrue after a transfer of employment and the possibility of a transfer of existing entitlements. Special considerations may apply where pension schemes are backed by a fund with real assets. The sponsor department should obtain legal and actuarial advice on the pensions implications for these staff and the likely financial consequences of offering transfer values.

Dismissals connected with transfers and redundancies

Unfair dismissals

3.36 TUPE provides that dismissals connected with a transfer will automatically be unfair unless they are for economic, technical or organisational reasons involving changes in the workforce, which may include (although it will depend on the facts in each case):

Economic – where demand for an employer's output falls to such an extent that the business cannot continue trading unless staff are dismissed.

Technical – an employer wishes to use new technology and transferred employees do not have the necessary skills.

Organisational – a new employer operates at a different location from the previous employer and it is not practical to relocate transferred staff.

3.37 However, the greater the time lapse between a transfer and dismissal, the less likely it is that they will be viewed as being connected.

Timing of redundancies

3.38 Staff involved in providing services that are to be contracted out under TUPE should not be made redundant immediately before or after transfers. It would be difficult in these circumstances for Departments (or contractors) to justify such redundancies on economic, technical or organisational grounds. The liability for any unfair dismissal compensation awarded to staff after the transfer would rest with the contractor concerned.

Compensation for redundancy

3.39 Proper redundancy procedures should be followed to avoid dismissals being designated unfair on procedural grounds. The provisions relating to compensation for civil servants who are made redundant are contained in the CSCS.

3.40 Compensation for redundancy after transfer to the new employer will be payable by the new employer on the basis of the aggregate length of service within the Civil Service of the transferee employer. The payment should be calculated on terms which are near identical as possible to the CSCS terms, although, in some cases, under Inland Revenue rules, such compensation cannot be paid from an approved retirement benefits scheme.

3.41 Further detailed guidance about redundancy benefits under the CSCS is available from the Cabinet Office, Office of Public Service. Guidance on the form of redundancy benefits proposed by bidders is available from GAD.

Indemnities

3.42 Value for money is best achieved by a "clean break" when staff transfer to the private sector. It is not the Government's policy, therefore, to give indemnities against the possibility of redundancies arising after a TUPE transfer, unless provided for in statute, or agreed in exceptional circumstances between Departments and their Treasury Spending Teams. The criteria for such exceptions, which were issued by the Treasury in 1994 ⁽²⁹⁾, address any need there might be to reassure staff that their redundancy entitlements would be honoured by a new employer.

In summary, the criteria are:

3.43 If a guarantee or indemnity is agreed, it should:

3.44 The presumption against providing redundancy guarantees also extends to redundancy cost sharing schemes. However, in the case of privatisations where redundancy costs are foreseen, Departments might consider entering into a commitment to meet a share of the costs as part of the sale agreement. To ensure a level playing field, any such agreements should not be used to show favour to any particular bidder. Care should also be taken not to create an incentive for the new employer to make staff redundant during the period when the cost-sharing arrangement is in force.

3.45 Indemnities must never be given against the possibility of amendment to the Acquired Rights Directive and TUPE, as Governments do not give undertakings which might tie their hands about future changes in legislation.

ANTICIPATING RETENDERING

3.46 If a contract has been awarded in circumstances in which TUPE applies, there is no certainty that it would apply again if on retendering the contract were to be awarded to another supplier. It would depend on the circumstances (see paragraph 3.14, above). When it becomes clear that the services will be retendered (Chapter 9) Departments should consider with the incumbent contractor (without compromising the competition when it takes place) whether to specify that staff should transfer to any new contractor. This would cause TUPE to operate. However in awarding the first contract, it would be prudent to anticipate that TUPE would be likely to apply and to ensure that contracts:

Without this, Departments may find it difficult to attract alternative contractors at the end of the contract period.

RELEASING INFORMATION ABOUT STAFF

3.47 Departments should give potential bidders full and accurate information to allow them to calculate potential liabilities under TUPE. In cases where external bidders are successful, then the material elements of staff records need to be transferred to the new employer (see below). In each case, Departments must take legal advice to satisfy themselves that they are fulfilling their obligations under the common law principle of confidentiality and the Data Protection Act (if relevant).

3.48 In considering their obligations when TUPE applies, Departments should bear in mind that:

Transferring confidential information

3.49 Confidential information, for instance, on security vetting, discipline, exchanges about the status of grades who are not politically free should not, in any circumstances, go to the new organisation. Live disciplinary cases should be brought to a head and settled before transfer.

3.50 Where it is proposed to provide copies of staff reports on non-industrial employees, the staff concerned must be informed and given an opportunity to object. In all cases, the original reports should remain with the Departments concerned.

Providing information if TUPE does not apply

3.51 If TUPE does not apply there is no automatic transfer of staff and if the new service provider recruits among existing staff, only references should be provided (if requested) and not annual reports. However, where the new employer is a statutory body, or a controlled "fringe body", likely to follow closely Civil Service terms and conditions, the two most recent annual reports should be transferred, provided that the individuals do not object. In cases of doubt, the aim should be to resolve the general position in agreement with the new employer and staff representatives. Departments may consider it appropriate, in some cases, to offer individual references on each member of staff rather than transfer annual reports.

KEEPING STAFF INFORMED ABOUT TUPE

3.52 From the outset, Departments must ensure that staff are informed about the possibility of TUPE applying and the likely implications. Staff must be reassured that appropriate steps will be taken to ensure that, in the event of them transferring to a contractor, their terms and conditions will be safeguarded. Failure to address their concerns will have an adverse effect on morale and, in extreme cases, the competition and the whole efficiency programme.

3.53 Once it has been decided that TUPE will apply, staff and their representatives (usually recognised trade unions) should be informed. If staff are to be transferred, they should be properly briefed and have the opportunity to discuss the implications, preferably, with the new employer.

TRADE UNION CONSULTATION

Statutory provisions

3.54 Departments' statutory obligations include:

3.55 In addition, in market tests, managers in charge of in-house bid teams must consult recognised trade unions – or, if there are none, independent staff representatives – at local level. This will be particularly important where in-house teams are proposing any variations to working practices (see Chapter 6).

Consultations about the application of TUPE

3.56 When TUPE applies, the transferor and transferee employer must inform and consult either the independent trade unions recognised in respect of transferring employees who may be affected by the transfer or by measures taken in connection with it, or, if none, other independent elected staff representatives, about the transfer. If measures are envisaged in relation to any employees in connection with a transfer, their employer must consult the unions or staff representatives about the measures that will be taken. Consultation should be conducted with a view to seeking agreement. If unable to agree, the Department must give reasons.

3.57 Long enough before a transfer for meaningful consultation to take place, the following information should be provided about transfer arrangements:

Collective bargaining versus consultation

3.58 Departments should distinguish between collective bargaining and consultation and ensure that their relationships with recognised trade unions or other independent staff representatives are clear in respect of each. Where a union is recognised for collective bargaining on a matter, it has a statutory right to receive certain information on request. In the case of consultation, however, management has discretion on how much information to make available in the circumstances, in order to achieve effective consultation.

3.59 There is also a distinction between recognition in relation to terms and conditions of service and recognition in relation to decisions which will in turn affect terms and conditions. Recognition in respect of terms and conditions does not automatically mean that there is recognition in respect of management decisions which may lead to effects on terms and conditions.

3.60 Departments should consult recognised trade unions, or, if none, other independent staff representatives on decisions about efficiency programmes and competition, but they do not need to recognise them on such matters. They should be careful not to confuse this sort of consultation with negotiations which can follow from recognition.

3.61 Departments should satisfy themselves that their recognition arrangements will not expose them to the risks of delaying implementation of their efficiency exercises and competitions.

HEALTH AND SAFETY

Responsibilities

3.62 When Departments are considering engaging contractors to work on their premises, they must consider the health and safety implications. The Health and Safety at Work etc Act 1974 (the HSW Act) requires every employer to conduct his or her activities in such a way that people not in their employment, but who nevertheless may be affected by their activities are, so far as is reasonably practicable, not exposed to any risk to their health or safety. Employers have a duty to ascertain if the operations of contractors on their premises are likely to give rise to any hazards which could affect their own employees, contractors and their employees, other people on site or members of the public.

Advice

3.63 In the first instance, the person with responsibility for health and safety in the Department should be consulted. Further information is available from the Health and Safety Executive (Infoline: 0541 545500).

4. PREPARING THE GROUND – SCOPING AND ASSESSING FEASIBILITY

This chapter is primarily for project managers and senior managers.

THE SCOPE FOR COMPETITION

Defining the scope ⁽³⁰⁾

4.1 Scoping involves determining how much of a particular function or activity is to be included in a prospective competitive tender. It might also be used to determine the scope for combining the competition with others, including any PFI deal, or whether there are opportunities for selling services into wider markets ⁽³¹⁾. It is important to take a long-term view so as not to blight the future potential for maximising value for money or jeopardise continuity of provision. Factors to be considered include:

Packaging ⁽³²⁾

4.2 Packaging or combining groups of related processes together can promote competition especially where activities are too small to make competition worthwhile on their own. Departments should package activities so as to promote competition, considering the factors that can affect this, for instance:

4.3 It may be appropriate for Departments to seek informal advice from trade associations or contractors or staff representatives about the relative attractiveness of different ways of packaging services. However, in doing so, they must not discriminate in favour of particular suppliers.

Responsibilities of those involved with service provision

4.4 Responsibilities of service providers usually include:

4.5 Clients' – that is, Departments' – responsibilities usually include:

managing the budget allocated for the activity;

monitoring service provision within agreed standards;

agreeing changes to requirements with providers;

acting as the link between customers/end users and the suppliers on contractual matters;

monitoring the market place, with a view to retendering when the contract terms ends (see Chapter 9);

considering future requirements and developing policy.

Risk

4.6 Risks need to be identified, evaluated, costed, negotiated and managed. In any type of Public Private Partnership, risk should be allocated to whoever can manage it at least cost ⁽³³⁾. Being able to secure risk transfer on worthwhile terms means ensuring the scope of the contract is sufficiently widely drawn and that there is a shared understanding of what the risks (and potential rewards) are. Depending on the service, the risks might include:

Whoever has risks placed with them needs to anticipate and manage the risks so that better quality services at optimal cost are achieved.

Procurement strategies

4.7 The procurement strategy should be that most likely to achieve better quality services at optimal costs. The strategy should cover:

the procurement procedure to follow under EC Procurement Rules;

the intended relationship between the Department and the service provider/contractor.

Style, timing, objectives, resources

4.8 In selecting an appropriate procurement strategy, consultation with the private sector and staff may yield useful advice. Departments should explore the relative risks and benefits associated with procurement, carefully taking the following aspects into account:

the ease with which outcomes and outputs can be specified;

the cost of provision and size of the package being submitted to competition;

likely future requirements and the scope for utilising spare capacity;

the relationship with overall plans and strategies so as not to constrain future potential or conflict with other initiatives;

resources available for implementation against those that each strategy will require;

the likely level of private sector interest, market development and capabilities;

the risks involved in delivering the service and the potential for transferring these to the supplier.

EC Procurement Rules ⁽³⁴⁾

4.9 Unless the value of the services is less than the relevant threshold, (exclusive of VAT), or there are other grounds of exclusion, the EC Procurement Rules will apply. In relation to the procurement of services, the EC Procurement Rules are implemented in the UK by the Public Services Contracts Regulations. These rules normally require competition and lay down procedures, which include the advertising of contracts in the Official Journal of the European Communities (OJEC), the use of technical specifications, the selection of tenderers, and the award of the contract. They are designed to ensure that all service providers established in the Member States are treated on equal terms and that discrimination on the grounds of origin in a particular Member State is avoided. The services listed in Part B of the relevant schedule to the Services Directive are subject to lighter rules. They do not need, for example, to be advertised in OJEC ⁽³⁵⁾ but they should still normally be acquired by competition to ensure best value for money.

4.10 Under these rules, the options for the procurement procedure are:

Restricted procedure – when only bidders who have pre-qualified at the selection stage (see Chapter 5) are invited to bid. There must be sufficient bidders to ensure genuine competition and no less than three, if available.

Negotiated procedure with a call for competition – under which the terms of the contracts may be negotiated with competitive potential providers. This procedure is only permissible in defined circumstances that are set out in the rules. Subject to there being sufficient suitable providers, no less than three must be invited. (This is the accepted procedure for PFI procurements.)

Negotiated procedure without a call for competition – In the very exceptional circumstances set out in the rules, the negotiated procedure may be used without a call for competition.

The accelerated procedure should only be used in exceptional circumstances and where the Department is satisfied that its use can be fully justified.

4.11 Even if the contract is below the threshold for EC Rules to apply, or in cases where the EC Procurement Rules do not require competition, Departments must comply with EC Treaty obligations. In particular, they must not discriminate against suppliers or contractors on the grounds of their nationality or the Member State in which they are based.

Nature of the relationship

Partnering – what is it?

4.12 Departments should decide before tendering what sort of relationship is wanted with the service provider chosen through the procurement strategy. It will depend on the extent to which strategic goals are shared. If there is little, the contract will be at arm's length and the scope for better quality services at optimal cost may be limited but these relationships are appropriate in circumstances when the service is not critical to the Department's strategic objectives. If there is a high degree of shared strategic goals, the relationship may be known as "partnering" ⁽³⁶⁾. The range of possibilities between Departments and their service providers ⁽³⁷⁾ is illustrated in the table opposite:

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The range of possibilities between Departments and their service providers

How to approach partnering

4.13 Partnering arrangements are by no means soft options. To optimise the benefits, they require significant resources of time and effort during procurement as well as in managing the contract. There must be a competition at the outset to select partners, run in accordance with the relevant EC Procurement Rules, where they apply, and periodic competitions afterwards. There must be a contract defining the responsibilities of both parties with measurable performance targets and milestones for service improvement. Such contracts may well be longer than other contracts (see Chapter 8). In view of the nature of the relationship and the length of the contract, it will be essential that partner selection is sound. Complementary cultures and attitudes based on trust, mutual respect for objectives, flexibility and open communication will also be critical to success.

Risks in partnering

4.14 There are also risks in partnering, which need to be carefully considered:

Partnering, not legal partnership

4.15 Partnering should not imply a partnership in law with a private company (under the Partnership Act 1890), which involves responsibilities for each other's debts and which, therefore, the public sector cannot enter, except through a special purpose company created for a joint venture.

ASSESSING FEASIBILITY

Purpose

4.16 Departments should establish whether or not the recommendations made during scoping are feasible and, if so, how they will be implemented. The feasibility study lays the foundations for competitive tendering and provides an opportunity to:

4.17 In confirming the recommendations made during scoping, much of the same ground will need to be covered, but in greater depth and with the practical issues associated with competitive tendering and managing the service to the fore. When considering the requirements, there will be a need to understand the scope for improvements, the risks associated with delivery and the current costs of provision. As in scoping, the views of appropriate specialists, customers/end users and other stakeholders should be sought.

Key issues to consider

4.18 Departments should consider all those issues that are likely to have a bearing on competitive tendering and the viability of subsequent contractual relationships, examples of which are given below.

Consultation requirements

4.19 During feasibility studies, Departments should seek the views of trade unions, where they are recognised, and other independent staff representatives in other cases. There is a statutory requirement to provide them with a copy of the procurement strategy that is to be followed and give an opportunity to comment.

Footnotes
(21) See paragraph 3.13 et seq, below
(22) See paragraph 3.26 et seq, below
(23) The Government Actuary's Department (GAD) provides a helpful and substantial checklist: GAD, or the Cabinet Office, Office of Public Service, Civil Service Pensions Division, Basingstoke
(24) TUPE is to be amended following amendments to the acquired rights directive agreed in June 1998. These changes will not reduce the scope of TUPE. There will be consultation, in due course, on draft revised TUPE regulations.
(25) See paragraph 3.6, above
(26) See paragraph 3.9. above
(27) See Government Actuary's Department checklist on dealing with pension issues available from GAD or the Cabinet Office, Office of public Service, Civil Service Pensions Division, Basingstoke
(28) Civil Service Pension Division of the Cabinet Office, Office of Public Service, Alencon Link, Basingstoke
(29) Guidance on Privatisation and Redundancy Guarantees - letter to Principal Establishment and Finance Officers, HM Treasury, 2 March 1994
(30) See CUP Guidance Note 40
(31) See Maximising Value from Public Sector Assets: Selling Services into Wider Markets
(32) See Competing for the Quality Policy Review, 1996
(33) See Partnerships for Prosperity: the Private Finance Initiative, HM Treasury Taskforce, 1997, for guidance on risk allocation in PFI deals
(34) See CUP Guidance Note 51
(35) Although, as good practice, they should still be advertised in Government Opportunities - see Chapter 5
(36) See CUP Guidance Note 57
(37) There may also be similar, but separate partnering arrangements between service providers, involving in-house teams and service providers from other Departments or the private sector, or between service providers from other Departments and the private sector (see Chapter 5)
(38) Partnerships for Prosperity: the private Finance Initiative, HM Treasury Taskforce, 1997