ThinkHouse - TUPE Public Sector webinar - July 2023

Siobhan Bishop: Good morning everybody and welcome to our TUPE club webinar.

So this time in the TUPE club, we are going to be looking at TUPE and Pensions issues in a public sector procurement exercise.

Today's webinar will focus on both the TUPE and the Pensions' aspects that will occur during the life cycle of a public sector procurement. We have got experts from both of these areas with us today.

So I am Siobhan Bishop, I am a Principal Associate in Gowling WLG employment's team and I am joined by our three experts in TUPE and Pensions. Firstly with have Rebecca Jones, a Principal Associate in the employment team, we are also joined by Hannah Swindle who is a Director in our employment team and Hannah Beacham who is a Director in our pensions team.

So the aim of today's seminar is to be suitable for anyone who is involved in public sector procurement whether you are on the public sector side or you are working on the supplier side and whether you are looking at it from an HR, a legal or an operational perspective.

So here is the agenda for today:

You will remember that when you signed up for this webinar we invited you to submit questions in advance and that we would plan the content of the webinar around that. So firstly thank you to those who submitted questions and we are going to deal with as many questions in as much detail as we can throughout the webinar. You will see that there is quite a lot to get through so to do justice to all the questions we are going to spend the whole of this webinar concentrating on these questions rather than having a Q&A section at the end.

You will see the first topic is a brief introduction and that will set the scene for public sector and TUPE and then we will split it into three categories essentially reflecting the various stages of a public sector procurement. On some questions we have amalgamated a number of points into one question but essentially the grouping is to allow the questions to flow on from each other in a chronological way.

So we will start with procurement then look at issues in the life time of the contract and end with termination and at the end of each section, Hannah Beacham will deal with pensions issues that arise there.

Just one note on definitions that we are going to use today I wanted to flag, that we are going to refer to the party involved in the procurement process in a particular way. We are going to use the term "authority" when we are talking about any public sector body that is contracting for services or possibly taking those services back in-house. Sometimes people use the term "client" or "customer" but we are going to use "authority" for the purpose of today.

On the other side of the process we are going to use the term "supplier" and again just be aware that there are different terms that can be used such as "contractor" or "service provider" but we will try and stick with supplier today.

And finally with have KJ Clarke with us who is going to provide technical support so if you have any issues on the technical side during the webinar, please do contact her on the chat tab.

Right, I will pass over to Rebecca Jones now who will deal with the instruction.

Rebecca Jones: thanks for the introduction Siobhan, so we are going to begin with a quick recap on TUPE to set the context of the detail that we are going to come on to talk about in connection with the life cycle of a public sector procurement.

Now one of the first questions that we are going to ask on any procurement will be is there a relevant transfer or rather might there be a relevant transfer and that is because the existence of a relevant transfer is a pre-requisite which determine whether the various obligations under TUPE are triggered and so the answer to this question is going to determine whether TUPE needs to be factored into consideration for the procurement.

So what do we actually mean by a relevant transfer. Well there are two types of relevant transfer under TUPE. The first type is a business or asset transfer which occurs where there is a transfer of a whole or part of an economic entity and then the second type is a service provision change and it is limb of TUPE that we are going to focus on today as being most relevant in public sector outsourcing and retendering.

So the service provision change will occur where a number of conditions are satisfied. In most situations it will be obvious that a procurement is going to involve a service provision change but then there are others where it might be necessary to take a closer look at the factual background.

There are two key conditions to be aware of in determining whether there is a service provision change and the first and most important of these is that there needs to be a transfer of activities that remain fundamentally the same after the transfer. Now that is not as high a hurdle as it might sound and in broad terms a fairly significant change in the ethos of the services would be necessary in order to defeat TUPE.

The second condition is that there also needs to be an organised grouping of employees in Great Britain which has the carrying out of the relevant activities of the client as their principle purpose and essentially what we are looking for there is something akin to a client service team and while it is not necessary for that to be a dedicated group of people who only do that work, we would want to see that there is some consistency in the identity of the people that are working on the services and that those individuals are also aware that the work they are doing is for that particular client.

Service provision changes can occur when services are outsourced for the first time from the authority to the supplier, when services are retendered from the incumbent supplier to a new supplier, or when services are taken back in-house from a supplier to the authority.

So that is where there is a relevant transfer and on the next couple of slides we will have a quick look at the effect of TUPE and the protections that it provides before I hand over to Hannah to have a detailed look at the impact of TUPE on the procurement process.

So in terms of the effect of TUPE then, the first point to highlight is the concept of assignment. When we are looking at who is in scope to transfer under TUPE, it is necessary to identify the employees who are assigned or essentially dedicated to the services which are going to transfer. Now in most cases it will be fairly straightforward for an employer to identify the group of employees who are assigned to the transfer but in other cases there might be questions. Now assignment can be a tricky area so if you would like to understand more about that then do check out the recording from the Back to Basics webinar that we ran in March which has got more detail on that.

Now it is only ongoing employment that will transfer so the second point is that TUPE will also transfer most obligations and liabilities in relation to the employees. This is important in terms of the contractual arrangements between the authority and its suppliers and Hannah is going to come on to look at that in a bit more detail shortly.

Another effect of TUPE is that the transferred employees will retain their continuity of service ad they will also transfer across on their existing terms and conditions of employment which then benefit from enhanced protection under TUPE and so those are consideration that all need to be taken into account in the procurement process and again, we will come onto to look at that in a bit more detail shortly.

So those are the key points to be aware of in terms of the effect of TUPE, the slide we are moving onto now sets out the main protections which are provided by TUPE so we will have a quick canter through those before I then hand over to the Hannahs.

So firstly there is an obligation on the outgoing employer which will be either the authority in the case of a first generation outsourcing or the incumbent supplier if the service is already outsourced and that outgoing employer must provide employee liability information to the incoming employer which will be either the new supplier or possibly a subcontractor or it will be the authority depending on where the services are ending up. That information must be provided at least 28 days before the transfer and consist mainly of the information which has to be included in an employee's statement of particulars along with certain information about potential claims and grievances.

So that is generally seen as too little too late and we will come on in a moment to look at the more detailed information provisions which usually feature in public sector procurement in order to address that.

Secondly, employees who have two or more years' service are protected from dismissal by reason of the transfer. A dismissal might be fair is the party making the dismissal has an economic, technical or organisational reason for the dismissal known as an ETO and that is something like a genuine redundancy situation but otherwise it will be automatically unfair to dismiss by reason of the transfer.

As I mentioned on the last slide, employees also have enhanced protections in relation to their terms and conditions of employment. The key principle to remember there is that changes to harmonised terms with the employees existing workforce are not allowed.

And then the final point that I wanted to mention is that there is the duty to inform and consult with employee representatives or representatives of employees who are affected by the transfer and they key point to remember here is that liability for failure to inform and consult which is up to 13 weeks' pay per employee is joint and several between the transferor and the transferee.

So again, if you would like more information about the consultation process or any of the other protections mentioned on this slide then do watch the recording of the Back to Basics webinar which took place in March and where we covered all of these points in some detail.

So that is a whistle stop tour as to the basics of TUPE then and I will hand over to Hannah who is now going to take us through the procurement process.

Hannah Swindle: thank you Rebecca and good morning everyone.

I am going to answer three questions connected with the first part of the procurement cycle. The first question is how should TUPE be approached in a procurement where there is no current supplier.

Even if there is no current supplier the first step is still to consider whether TUPE is likely to apply because this is going to have implications if it is. They will need know if they are going to inherit staff for reasons of resourcing as they may need the manpower or skills and experience of existing staff or because they will need to anticipate redundancies and also importantly because their pricing model needs to take into account the cost of transferring staff.

TUPE will only apply where there is a transfer of activities as Rebecca has said so the first question is to determine what are the services or activities that have been outsourced or procured by the authority. Are these existing services which are currently carried out by a variety of employees or are they entirely new activities?

If the services are entirely new, then there is no transfer and TUPE will not apply but if there are existing services then the authority needs to consider whether TUPE would apply and to do that they need to look at whether all the condition for a transfer that Rebecca talked about will be met and if they are, then TUPE is likely to apply and the authority needs to decide what it wants to do in relation to its staff who currently carry out the activities. They might not want to transfer them because for example, they have got skills that the authority wants to retain or alternatively if all of the majority of their job role is transferring then it may be the most cost effective solution for them to transfer to the incoming supplier.

Once all of these aspects have been considered the RFP or requests for bids should reflect the decision that TUPE is anticipated to apply or not as bidders need to be informed and price their bid accordingly. Looking at it from the bidders side, an RFP may say that TUPE is not anticipated to apply but the bid is required to make its own assessment as to the application of TUPE. Usually and especially where there is an incumbent supplier the authority will also specify that it is not going to give a warranty about the application of TUPE or any of the employee information or details that are being supplied at this stage.

So the bidder needs to make as many enquiries as possible to try to determine whether it agrees with the initial assessment. Of course it is not possible for the parties to contract out of TUPE as any agreement that it does not apply would be void. If the relevant conditions are met TUPE will apply and an incoming supplier will face the risk of any unexpected transfers of staff with all their costs and pre-existing liabilities.

Sometimes a bidder may be satisfied that the risk of transferring employees is low for example, if it is confident that all staff currently working on the services also work on many other activities so are unlikely to be assigned or if they are being redeployed into other areas, but if the bidder considers that there is a real risk that TUPE could apply then ideally it would have the benefit of indemnity protection against the risk of any transfers.

Where this is a first generation outsourcing directly from the authority, the authority is usually willing to provide indemnity protection against this risk. This is in contrast to where there is an incumbent supplier where this type of protection tends not to be included in a first draft and it is unlikely to be provided if they do not have existing protections in incumbent contracts that they can flow through.

So other ways to manage this risk could be trying to agree the right to change or adjust pricing on the receipt of further employee information set against certain initial assumptions made either before or after the start of the agreement.

Moving on now to the next question. This is how does the bidder get all the information it needs during the procurement process.

Once it has been determined that TUPE will apply, where this is a first generation outsourcing from the authority, the process is relatively simple because the authority hold the employee information and it should be able to quite easily be able to provide complete and accurate details about its staff but where there is an incumbent supplier, the authority needs to obtain that employment information so it can then provide this to the bidders during the RFP stage.

I have mentioned that bidders need this to be able to price the services accurately because they need to take into account how many employees are going to transfer and also their terms and conditions which will affect the overall employee costs. It does require a degree of organisation and co-ordination by the incumbent supplier to pull all of that information together to pass on at the appropriate time to the authority or the incoming supplier and generally in our experience some HR departments are excellent at capturing that information, may be they do a lot of TUPE work but some, if TUPE is a less regular occurrence, they may take some time to pull that together and it is more difficult to make sure that you are getting the right information.

The incoming supplier does have back up protection in the form of Regulation 11 of TUPE which is the obligation on the outgoing employer to provide employee liability information that Rebecca has mentioned but generally as she has already confirmed, this is considered too little too late, so the incoming supplier is going to be looking to take advantage of enhanced contractual protections in the incumbent supplier's existing agreement with the authority.

If the authority has these rights in its existing agreement and can take the benefit of them it can then request wider categories of employee information and at a much earlier stage in the process, although usually on an anonymised basis because that will help with the data protection impact.

These types of clauses can be very helpful but even if there is a comprehensive contractual framework there the authority it still going to be at the mercy of the incumbent supplier's internal HR systems. If their information systems are insufficient or poorly organised or if the supplier has just been generally uncooperative this can lease to difficulties which can then mean that creative solutions are required to deal with the risk in relation to inaccurate information being provided because the authority is required to ensure that all bidders, the incumbent supplier and any new entrants are treated equally in the bid process.

Within the tender itself the bidders can use the clarification questions process to request further information from the authority about authority employees where it is a first generation outsourcing or from the incumbent supplier where it is a retendering and bidders should absolutely take full advantage of the process to try to glean as much information as possible before submitting their bid.

Common questions may relate to overtime or allowances provision to the employees, whether they have got security clearances, if this is relevant, pension provision and may be any salary increases that have been recently agreed that are going to come into effect may be just before or after the transfer date. They also want to know exactly what benefits are available to staff, whether there are any enhanced redundancy terms and potentially the actual place of work for the staff because this could differ from contractual terms especially if they are multi-site services.

Some of the questions asked can be considered commercially sensitive information by the incumbent who is not going to want to give away too much about its model for providing the services. Bidders are often going to ask for detailed information about job roles, job titles and job descriptions of the assigned employees so they can see exactly where the transferring employees are going to fit into their organisation, what additional employees are going to need to provide the services or perhaps where they are going to have too many.

So this is always a balancing act, looking at what the authority can provide the incumbent to provide under contractual terms, what is considered reasonable in any particular circumstance and also perhaps may be there is a way around it. Can information be provided in any other form, so for example, giving generic job descriptions for roles rather than individual job specifications?

Sometimes there is going to be challenges made about which employees are in scope to transfer. For example, an incumbent supplier may try to include employees when they would not strictly be considered assigned and this might be because they are considered poor performers and the supplier wants to pass them on to another employer or because the supplier is not going to have jobs for them post-termination if it loses the bid and wants to avoid redundancy costs.

This is usually a difficult situation; it is often not clear who is going to make the final decision. Sometimes the authority will expect the outgoing and the incoming employers to deal with this themselves; other times it will take more of a hands off… deal with it themselves and other times it will take more of a co‑ordinator role. It might request further information from the incumbent and perhaps arrange meetings to try to help resolve matters.

Eventually, the parties do have to come to a commercial agreement because only a tribunal can make a final determination on assignment in the event that a claim is made. The parties usually agree a stage process for the provision of employee information in greater detail as the transfer date approaches and also to confirm the final list of transferring employees.

Where the employees are transferring from the authority all this information is usually going to be more forthcoming; where employees are transferring from an incumbent, the authority will usually agree to pass on or pass through any information it receives but it will not give any confirmation or warranty about the accuracy or completeness of the information received.

Finally, of course, all information provided as part of this process is going to be subject to data protection obligations. And this is sometimes used as a reason by an incumbent not to share information but, often there is a way of providing anonymised information or finding a legitimate justification to do so to get around these objections. And, of course, any information provided in compliance with Regulation 11 of TUPE 28 days before the transfer is justified for the purposes of the data protection requirements because this information is being provided in compliance with a legislative obligation.

But even though information has to be data protection compliant, it is useful for that data to have a unique identifier and this will mean that each employee change can be tracked through any information updates provided, although the information will not be able to be identified… the individual will not be able to be identified from this.

So moving on now to the last question that I am going to answer about the initial procurement stage – "what do we need to think about when entering into a contract for the provision of services?" In the procurement process the draft contract will usually be provided at the RFP stage and then it will be negotiated once the preferred bidder or bidders have been chosen.

So first of all, what contract form will be used? Often the Crown Commercial Service "CCS" Model Services Contract will be used and the TUPE schedule forms a key part of that, and the most common form is the Cabinet Offices Model Services Agreement that includes a TUPE schedule that is split into four parts. Each contains clauses that apply where it is expected that there would be a transfer of authority employees on commencement; a transfer of incumbent contractor employees or, alternatively, no transfer of employees on commencement and then, finally, the potential for a transfer of employment where those services transfer on expiry, termination or partial termination.

And using this form of contract does encourage the parties to think about TUPE on entry but also on termination. It is important to remember to "tick the box" and complete the part of the contract which identifies which parts of the TUPE schedule will apply. This is something that often gets missed and it is necessary to ensure that the right parts are incorporated into the agreement.

Otherwise, various forms of contracts can be used and government authorities especially may have their own template terms that they prefer but, as a general rule, it is likely that the contract used will be in a standard form with limited room for negotiation. Policy considerations will play a large part in negotiations of course and also the requirement to obtain value for money.

On the authority's side, where this is a first generation outsourcing, it is reasonable for it to give protections in respect of its own employees who are transferring across and also against the risk of any unexpected transferring employees from the authority. It may also give some reassurance in relation to the accuracy and completeness of the information… the employee information it provides.

But, in a retendering scenario where there is already a supplier in place, it is going to be important for the authority to review the contracts with incumbent suppliers to understand what protection it has got from the outgoing supplier which it can then pass on through a contractual change of indemnity to the incoming supplier. If there are any gaps in protection these need to be identified so the authority can then consider what would be the most advantageous commercial approach to address that in a TUPE schedule. If there are gaps this can result in increased cost for the authority because the supplier is going to have to take potential employee risk into account in its prices.

So this all needs to be carefully thought out and managed in the best way so the authority can obtain value for money. If there are robust protections available in the incoming… in the incumbent's supplier contract which cover those usual factors of pre‑transfer liabilities, for example, any liabilities connected with a failure to inform and consult, then the authority should realise the benefit of these by passing them on and then reducing potential cost of the services overall.

Sometimes the indemnities from the authority may be limited – so a supplier may be asked to try to seek recovery directly from the incumbent supplier first, or it may be that the scope of any liabilities covered under indemnities provided by the authority may be limited to what they themselves would be able to recover under their existing contracts. And, if that is the case, the supplier needs to be really clear on exactly what protections are available to it in the incumbent contracts to understand if it is going to have any exposure there.

Sometimes in the contracts bespoke additional protections are needed to reflect the specific commercial deal that has been struck.  For example, if the bidder is being asked to 'rightsize' the service on entry – and make efficiencies to reduce the cost of the service going forward which, in effect, usually means redundancies and, if so, the parties need to agree who is going to bear the associated costs. It is common for the authority to cover those costs of transformation in a first generation outsourcing, or the parties may share the costs where the bidder is promising that efficiencies are going to be made in comparison to the incumbent service provision.

To deal with those in a contract the costs can be covered by direct indemnities or it can be worked into the overall pricing model. This can give rise to challenges in respect of ensuring a level playing field and bid evaluation so the authority does need to consider all of the commercial options to achieve that and also minimise exposure to the… to any entry costs.

Finally, when entering into a contract, it is also important to think about termination. It is important to think about what is going to happen on a retendering and whether TUPE is likely to apply or not. The contract needs to contain appropriate protections for the authority so it can obtain as much employee information from the current supplier as it needs in order to retender the services. It is also needs to include appropriate indemnities which will cover any potential transfer of staff either to the authority or to a new supplier at the end of the contract.

A bidder will often also seek… try and seek protection against any redundancy costs that may arise if TUPE is not anticipated or could… may be will not apply on exit and so if that happens they will not be able to transfer their staff onto a new supplier. Sometimes the authority may agree an indemnity where the agreement is terminated in certain circumstances, or perhaps including redundancy costs for previous authority staff – those who have transferred previously from the authority as part of agreed breakage or termination costs. Or they may offer some protection where the termination is for a reason unconnected with the supplier's actions.

So that is all I wanted to talk about in my questions. Now I will pass on to Hannah to deal with some issues involving pensions.

Hannah Beacham: Thanks Hannah and good morning everybody.

The first question I am picking up in relation to the procurement stage of a bid is – "what particular pension issues should you look out for in a public sector outsourcing?"

Now public sector outsourcing does result in some additional pension issues beyond those which apply on any TUPE transfer. I am therefore going to start off with a recap on what TUPE and other legislation says about pensions on a TUPE transfer, as that is the starting point, and then build the additional public sector considerations on top of that.

Starting with what TUPE says about pensions – with a few narrow exceptions, which I will come back to in a later question – pension obligations under an occupational pension scheme do not transfer under TUPE. The position is different for personal or contract based schemes but if the transferor offered an occupational pension scheme then, under TUPE, the transferee does not have to replicate that transferor's pension arrangements.

Having said that, because that starting principle could result in employees losing out on valuable benefits, there is some additional statutory protection in the form of the Transfer of Employment Pension Protection Regulations 2006 and these require transferees to offer a minimum level of pension provision after a TUPE transfer. Broadly speaking those regulations say that "if a transferor offered an occupational pension scheme then the transferee needs to offer a defined contribution pension scheme with the minimum level of contributions in place". So that is the position under ordinary TUPE, if you like.

Now the government has long recognised that in the public sector where employees often earn defined benefit pensions this legal position could still result in a material loss of pension rights and that could act as a barrier to outsourcing. The government dealt with this by introducing what is called the "Fair Deal Guidance". The original draft guidance came out in 1999 and there was a refresh in 2013, so you will hear people talk about "Old Fair Deal" – being the 1999 version and "New Fair Deal" – being the 2013 version.

That guidance states an intention on a compulsory transfer of staff from the public to the private sector that employees' pension rights need to be protected. And the guidance says that the pension rights need to be protected through the outsourcing authority imposing terms in the contract which require their supplier to provide a minimum level of pension provision.

Under Old Fair Deal – that pension provision was usually achieved by the supplier offering a broadly comparable defined benefit scheme – so they would set up their own defined benefit scheme where the benefits were certified by the Government Actuaries Department to be broadly comparable to the original public sector scheme. Since New Fair Deal it has been made a lot easier for suppliers to participate directly in the public sector pension schemes and the New Fair Deal guidance says that the default approach on an outsourcing should be for employees to remain in or be returned to their original public sector pension scheme.

It is worth flagging that the Fair Deal Guidance does not apply directly to local government or the Local Government Pension Scheme. For local government contracts there is separate guidance in the form of the "Best Value Direction" which applies to those Fair Deal principles in a local government context. So although there are some slight differences the general principle about pension protection is the same.

And all of this means that at the beginning of a public sector outsourcing contract careful thought needs to be given to pensions. So once the staff who are in-scope to transfer have been identified, you will need to identify what pension arrangements they currently have and understand also that the position may differ between a first and a second generation transfer.

In a first generation transfer where the staff are coming from the public authority out to a supplier for the first time, then the usual position is that the supplier will be able to participate in the public service scheme that the employees are currently in through an admission or participation agreement. And the main responsibility for the supplier to be aware of there is the responsibility to pay employer contributions into that scheme.

On a second generation outsourcing, so where you have an incumbent supplier already providing the services, then you would need to find out not only which public sector scheme the staff originally came from but also what the incumbent supplier has been providing. And in some cases, particularly where the original outsourcing was pre‑2013, you might find the incumbent supplier has been offering a broadly comparable scheme.  The incoming supplier may nevertheless be wanting to return staff to the public sector scheme that they originally came from rather than continue with the broader comparable scheme.

It is therefore important at the procurement stage to get as much information about pensions as possible and that links back into the question that Hannah has just answered about information, provision and using the mechanisms that are available during a procurement process for that. From the authority's perspective, the authority will need to form a view on how it is going to make sure it has discharged its obligations under Fair Deal and, from a supplier perspective, suppliers need to think about what pension they are going to offer and also how that is going to be reflected in costings.

So that is everything on that question. I will now hand back to Rebecca for the next question.

Rebecca: Thank you Hannah. So that is the procurement process then. The next questions we are going to take a look at – involve issues arising during the lifetime of the contracts. And when we are looking at the lifetime of the contracts, the commencement date seems a sensible place to start. So to answer the question – "when will employees transfer?" It is usually going to be on the commencement date.

However, it is worth taking a moment to drill down into this in a bit more detail as it is not always quite so straightforward. The first question to ask is – well, what do we mean by commencement date? If there is a single full service commencement date when the supplier will become responsible for and will start providing the substantive services then that is the date when employee transfers will take place. In practice, employees will work for the incumbent supplier up to the close of business on the day before the full service commencement date and then they will report to work with the new supplier at the beginning of day one of the new agreement.

However, if there is a transitional such that the new contract will commence while the incumbent outgoing supplier is still providing the services then it is necessary to look more closely to identify the point in time when the employees will actually transfer. Case law has found that the relevant transfer in respect of any specific employee must take place on a single date. It cannot happen over a period of time and the transfer date cannot be postponed to a later date at the whim of the parties. Case law has also found that the transfer happens on the date when the new supplier assumes responsibility for the services.

So what that means is that, it is therefore necessary to look at the precise detail of any transitional arrangements to determine when that happens. So, for example, if there is a mobilisation period when the new supplier will start gearing up to take over the services, then we would expect employees to remain with the incumbent supplier during that time. But, in contrast, if there is an overlap where the incumbent supplier remains contracted perhaps to facilitate a handover but the new supplier has become primarily responsible for providing the services then, in that scenario, the employee transfer will happen at the point where the new contract begins. Assuming, of course, that is the same point as when the new supplier becomes primarily responsible.

Now, I also want to touch on the potential for multiple transfer dates. I mentioned just now that case law has determined that a transfer must take place on a single specific date so you might be wondering how those two things are compatible. Well the answer is in the transfer of partial services or individual service lines. So we know that a service provision change occurs when there is a change in the entity responsible for undertaking certain activity or services.

The situation we often have is that a contract for services actually comprises a number of different service lines which are capable of individually satisfying tests to establish a service provision change that we looked at, at the beginning. So, for example, if we are talking about an agreement for FN services then we can break that down into the component parts of perhaps cleaning; security; catering; and other building services. And it might be that different aspects of the service cut across on different dates. And, in that scenario, it is important to look at the question of assignment in relation to each component part of the service to determine who comes across when.

And the last point I wanted to touch on here is where there are transfers during the term of the agreement. This can happen where the contract is a framework agreement which provides for a call‑off of services. In most circumstances, particularly where there is an incumbent supplier, or where the agreement is accompanied by the call‑off of an initial works package, then the employee transfers will take place on day one. But there might be a scenario where a subsequent call‑off can trigger a further employee transfer.  So that is one to watch out for, the possibility of that, particularly where the services are currently provided by the authority and the call‑off arrangements effectively allows for an expansion of service provision during the term of the contract.

So those are the considerations which will help you identify the employee transfer date. In terms of the take away points, it is important to consider whether one of these scenarios might apply and if it does ensure that the contract deals with that possibility. So for example, does the drafting anticipate multiple transfer dates and does it include arrangements to provide for TUPE applying on subsequent call‑offs if needed?

It is also going to be important to think about this in the context of the duty to inform and consult, so what needs to be said to employees and when do we need to say that? As an authority these issues should be considered in preparing for the tender process so that the contract which is issued with the RFP reflects what is expected in practice. And, as a contractor, it is advisable to make sure that the contract aligns with what is described and expected in the RFP and to raise any questions at an early stage of the clarification process if anything is unclear.

So the next question I am going to look at is, "what happens if there are issues with the employees of the supplier who is providing the services?" If we take a look at the main considerations, the first question that we want to understand is, "what exactly is the nature of the issues?" because that is then going to impact on how it should be dealt with. I think there are three likely scenarios which we commonly see.

So the first one of those is where it is essentially a concern about the performance of individuals which is consequently having an impact on the way in which the services are being performed. The second one is where it is an issue with key personnel who are managing the contract and then the final category is where it involves a potential security concern about a member of staff who is working on the contract.

So once we have thought about the precise nature of the issue, the next question is, "well what are the relevant contractual mechanisms to deal with it?" In most circumstances it is for the supplier to manage its own staff; we would not really expect the authority to have too much influence on that. But, having said that, there might be certain circumstances where the authority is entitled, under the contracts, to request that a member of the supplier's staff is removed from the contract, and that is usually where the individual is identified as a member of the key personnel – so the contract managers and the key people that the authority is dealing with day to day or, alternatively, it might be where the issue gives rise to a security concern.

If it is not in either of those categories and the matter is of a more general concern then the starting point will usually be for the authority to raise this as a contractual performance issue and it can do that as a review of performance against KPIs which can then feed into any contractual rectification process. So it is important for both parties to make sure they understand the contractual mechanisms that are available and also what happens when a process is triggered. And for the contractor, in particular, there could be employment law consequences if the authority has the right to and requests that an individual is removed from the services, as a contractor will need to manage the impacts of that request on the individual's employment. So that is what happens if there is a problem with the employees providing the services.

And then the last question that I am going to look at in terms of the lifetime of the contract is, "what happens where there is a change in the volume or nature of the services during the term of the contracts?" So I spoke previously about the potential for additional services to be called off and the need to be alive to the TUPE consequences of that. Conversely to that then, we have also got the possibility of a service reduction and, where this occurs, it is important for both parties to make sure they understand what costs could arise and who is responsible for those costs.

And that is going to be particularly relevant where it is possible that service reduction could also trigger a redundancy scenario. We would normally expect that the authority will be responsible for redundancy costs in this instance because the redundancy costs result from the authority's requirement to reduce the services and, of course, the authority will usually benefit from a price reduction to mirror the service reduction.

However, the supplier should understand… the supplier should ensure that it understands exactly what cover it has and any relevant process that it must follow, so particularly where there is a specific process it must follow to implement any redundancies.  For example, is it obliged under the contract to carry out the process in a specific time frame? Or must it use reasonable endeavours to seek to redeploy the individuals who are impacted?

It is also important for the supplier to understand whether it is covered for statutory or contractual redundancy and notice pay only or whether the authority will also reimburse the costs if the employees bring any claims. I think although the contractor is in charge of the process and can therefore manage the risk of claims there is also, of course, the residual risk that the contractor needs to be aware of. And, of course, where the employees of any… where the employees who are at risk of redundancy involve any former authority employees then there is also the question of pension costs and so, on that note, I will hand over to Hannah who is going to take us through the pension implications.

Hannah: Thanks Rebecca. So the question here is, "are there any special pension considerations for making employees redundant, granting early retirements or ill‑health retirement during the life of a contract?" Now you may recall I said earlier on that TUPE does not apply to rights under occupational pension schemes but there are some exceptions to this. Now the legislation is a bit clunky on this because it is drafted as an exception from a carve‑out from TUPE.

But the simplest way I can summarise it is to say that occupational pension rights which do not relate to old age, invalidity or survivors' benefit – so they do not relate to the core things which an occupational pension scheme is about – are capable of transferring under TUPE. And subsequent case law has helped to confirm that the rights that can transfer under TUPE in relation to pensions are typically enhanced pensions on either redundancy or early retirement. The key cases in this area are both in the early 2000's; both about the NHS pension scheme and they are called Beckman and Martin. And so you might hear these rights… these pension rights which potentially transfer under TUPE being referred to as "Beckman rights".

Now what this means is that if you are considering making employees redundant or consenting to early retirement in respect of staff who have TUPE transferred from the public sector, special care is needed because there is a higher than usual risk in the public sector because of the way public sector scheme benefits are typically drafted for… that there will be Beckman rights to consider.

The question also asked about ill‑health pensions. Now the wording of TUPE specifically excludes invalidity, i.e. ill‑health pensions from the carve‑out; so they do not transfer because of TUPE.  But if suppliers are participating in the public service schemes, in order to comply with Fair Deal, or if they are offering a broadly comparable scheme, it is still possible that there will be enhanced pension benefits payable under those schemes' rules because of ill‑health and that could represent an additional cost to the employer at the time of granting those benefits.

So moving on a bit, if it is established that Beckman rights are potentially an issue in a particular set of circumstances what does that mean in terms of liability? And for this we need to look at a case of Procter and Gamble which is a very rare example of Beckman obligations actually being litigated. The Procter and Gamble case arose because the transferor had given the transferee an indemnity against Beckman liabilities, and that is a common approach that you will see in contracts, and the parties then could not agree what the liability actually was.

And the Procter and Gamble case does have some helpful principles in it. So it confirms, for example, that when we are talking about rights which are capable of transferring under TUPE, that transfer is, generally speaking, just the enhancements to a pension benefit over and above what an employee would ordinarily get as an early leaver from a pension scheme? So that, in some ways, can be used to narrow the scope of what it is and that could be helpful both from a supplier's perspective, if they are looking at potentially having these obligations, but also in terms of negotiating what the contractual protections should be in respect of them.

The Procter and Gamble case also has some helpful confirmations about where you have conditions attached to the payment of enhanced benefits that those conditions transfer along with the benefits so it is not that employees will have an absolute right to Beckman liabilities, you can look at the consent requirements in the original scheme.

So there is definitely some helpful case law out there, nevertheless Beckman and Martin rights are notoriously tricky to identify and then to cost for. So the key message is, you know, from either party's perspective to exercise caution in respect of early retirement requests; ill‑health retirement requests; redundancies, concerning staff who have historically been members of public sector pension schemes. You are likely to need specialist legal and perhaps actuarial advice to help work through those issues and there is also likely to be a discussion, at the point which the contract is being entered into, about how you apportion liability for those.

So I will now pass over to Hannah who is going to start talking through the points around termination.

Hannah: Thank you Hannah. I now want to move on to the end of the procurement and the contract life cycle. And the question I am going to answer is, "what do we need to think about as the contract is coming up to expiry or where notice of termination has been given?"

So looking at the authority's side first, it needs to decide if TUPE is likely to apply and the same questions will apply as those we looked at on commencement. What is going to be transferred? Are the services being retendered as they are? Or perhaps the activities being procured are being narrowed? If the authority is taking some elements in‑house, could there possibly be a transfer of staff to the authority, for example?

The authority may need information from the current supplier as to how it is providing services so it can determine whether there is going to be any employees in scope to transfer and also what the supplier's intention is around those staff members. Are they going to redeploy some or all of the employees on to the supplier's other contracts? Or are they intending to transfer them to a new supplier? And they need to feed this information through to bidders in the retender process.

It is essential to request employee information at an early stage so the outgoing employer has got that time to gather it all together and provide it in good time for the bid process. And, in my previous answer about obtaining information, I talked about what you need to think about – the same principles apply here. The authority needs to check its contractual rights, so it can check when it can make the request for employee information and also exactly what it can ask for.

Often the rights to obtain employee information are going to be drafted widely in favour of the authority so that they have got scope to make reasonable requests for additional information, outside the defined category set out in the clauses. For example they may also want to ask about the amount of time that each employee spends on the services.

Usually the authority will also have the benefit of what is known as "anti‑sabotage provisions" in the contract and these are restrictions placed on the current supplier which are going to restrict the changes they are going to make to terms and conditions of employment of the employees working on the services; or changing the staff; or increasing or reducing their number, in that time period in the lead up to termination.

Because of the automatic transfer principle of TUPE any new supplier is going to inherit transferring employees on their terms and conditions of employment at the point of transfer. So the aim of these provisions is to prevent the outgoing employer from being able to off‑load a large number of additional employees or their core performance, for example, into the transfer process, or being able to increase their competitor's potential costs by giving large salary increases or termination payments just before transfer, for example.

Sorry… the authority should remind the supplier that they are subject to these restrictions and often the contractor is also going to obtain indemnity protection against their breach. But there still may be some practical difficulties in showing that there actually has been any breach.

Moving onto the supplier side – they are going to need to comply with the terms of the contract; they are going to have to provide the required employee information. If they are going to retender for the services, they may also have more of an incentive to co‑operate. The supplier also needs to consider who made the in‑scope to transfer? Are there any staff that they need to try to redeploy onto other contracts because they want to retain their skills and experience, for example?

In making these types of decisions they are also going to need to be aware and consider those anti‑sabotage provisions. How are those provisions going to restrict their actions? When do they kick in? What does that mean for their everyday business operation? Do they need to get the authority's consent to move staff around or change terms? You know, even perhaps they may be drafted so strictly that they need consent to implement a cost of living pay increase for example.

If there are employees in scope to transfer then the supplier will need to undertake a TUPE consultation process. It is key to consider this in good time. When does the process need to start? They need to plan for this. And this is really important to ensure a smooth transfer, both for the benefit of the staff and continuity of the services, but also because the supplier is likely to have given contractual indemnities around co‑operation and compliance with their consultation obligations under TUPE. And if TUPE is not anticipated to apply, redundancies may be necessary, so again the supplier needs to plan in good time when they are going to be likely to take effect and when they need to start consultation.

So… then the final question that I am going to answer is, "what happens if the services are to be split up between different suppliers on retender?" And the short answer is that this can give rise to several changes. So first of all the services can become fragmented and this can actually defeat the application of TUPE. This might be because it is no longer possible to identify the activities that are transferring and where they have transferred. Alternatively, the splitting up of the services may mean that the activities are no longer fundamentally the same. And then it can also mean that it is not possible to identify an organised grouping of employees for each part of the services.

And even if the split is being carried out on clearly defined service lines, for example like the FN services Rebecca talked about, staff may still work across a number of different activities and so, even if TUPE does still apply, there can be difficulties in working out if there are going to be any assigned employees of that particular part of the services transferring to any particular transferee. And this can all lead to issues for the bidders. If there is no transferring workforce they could have difficulties recruiting enough staff in time to provide the services from day one or it can mean that there is a dispute about which employees are assigned and will transfer.

From the authority's perspective, where fragmentation may be an issue in connection with a retendering procurement, it is vital that it reviews its existing contracts to check whether the incumbent supplier is entitled to recover any redundancy costs as part of the exit arrangements under that contract.

It is also important when answering this question to consider the recent case of Govearts. This is a Court of Justice of the European Union case in which it was determined that where there was more than one incoming supplier, the employment contract of an employee who worked for the transferring business, could in fact be split between the incoming suppliers as separate part time contracts, unless the division of that contract was not possible or caused a worsening of working conditions or an adverse effect on the individual's rights.

And this case was in contrast to the previous case law on fragmentation which concluded that contracts could not be split and all transferring employees could transfer to the incoming supplier which took on the greater part of the activities carried out through transfer or, alternatively, they would not transfer at all. This Govearts principle also now applies to outsourcing situations following a domestic case of McTeer in the Scottish EAT.

But I think we are all agreed in thinking that splitting contracts is total madness! It has the potential to raise significant practical difficulties and it is definitely necessary to think about including extra drafting to deal with these possible situations in the future. So far, in our experience, most people are generally considering that the principle of splitting an employment contract is entirely unworkable and not in the best interests of either party or the employees. So parties will usually prefer to deal with the issue with a practical solution rather than having transfers with a number of split employment contracts as is envisaged under these cases.

And now I will pass back to Hannah to answer the final pension's question.

Hannah: Thanks Hannah. So the final question just to wrap up, it is just to confirm how pension liabilities are dealt with on exit. And this really depends on, where the staff original came from in terms of their pension arrangements? What has happened during the life of the contract? And where they are moving on to? And broadly there are three possibilities.

The first is that the supplier may have been operating its own broadly comparable pension scheme, in which case Fair Deal says that, on exit, employees have to be given the option to transfer their accrued pension on to their new scheme. So you need to look at the contract to see whether there are terms, and hopefully there will be, dealing with the bulk transfer of liabilities.  And the main point to be aware of around bulk transfers is that there is a high likelihood that the actuary for the transferring scheme and the actuary for the receiving scheme will not agree on the transfer value that needs to be provided in respect of a particular set of benefits. So you need to look at the contract to find out who bears the risk of the short fall in that bulk transfer payment.

The other possibility is that the supplier has been participating in their public service pension scheme as an employer and the position there differs between the local government pension scheme, which is a funded pension scheme, and the unfunded public service pension schemes. If an employer is terminating its participation in the local government pension scheme that, under the LGPS regulations is likely to trigger calculation of either an exit debit or an exit credit depending on economic circumstances and demographic changes.

And again the main point of that in the contract is to look at who is responsible for paying or who is going to receive an exit debit or credit that arises at the end of the contract and whether that is going to be passed through to the authority or whether that is the supplier's responsibility.

And finally, exiting the unfunded public service pension scheme is generally more straightforward because you do not have the same question about looking at whether the benefits are fully funded at the point of exit. So pulling that together, whatever the pension arrangements were during the life of the contract, the contract itself will be the starting point for what happens next and so it is worth looking carefully again at those provisions as you approach termination.

So I will pass back to Siobhan just to wrap up the Webinar.

Siobhan: Well that is the end of today's session dealing with questions on the life cycle of the public sector procurement process. Thank you very much to our speakers for answering the questions so well and we hope you have found this session useful. We have recorded today's Webinar and will put a link on our website shortly and, for those who have signed up and are watching this live, we will send up a follow up email with a link to it.

And we will also flag the link to the Back to Basics Webinar which we recorded earlier this year and Rebecca covered in her introduction, so that you can refer back to those points as well.

Looking forward to our next TUPE club, that will be in October, so watch out for an invite at the end of summer.

Finally, if you have time, please fill in the feedback questionnaire – we really do appreciate any comments and information you give us there and that will help us plan for our future sessions.

So we hope to see you next time, hope to see you there and, in the meantime, if you have any questions on either public sector procurement or TUPE more generally, please do get in touch with any of us at the team here. Thank you.