Will code end two-tier tears?

A new code is to protect the rights of staff providing local government
services while working for private sector contractors, but will it prove
effective? Asks Ben Willmott

The willingness of private sector companies to bid for local government
contracts will come under scrutiny following a new code of conduct designed to
prevent two-tier workforces. The code, which covers contracts between local
authorities and private companies, will mean new staff will get pay and
conditions in future, including pensions which are no less favourable than
transferred staff.

Currently, existing local government staff who transfer to private companies
have their pay, conditions and pensions protected, but new starters do not have
the same protection.

The code, announced earlier this month by local government minister Nick
Raynsford, will be enforceable through a new dispute resolution mechanism to be
finalised over the next five weeks.

Unions have claimed it is a significant victory for workers and will prevent
contractors employing staff on different terms and conditions for the same job.

However, some employers and employment law experts are concerned it might
prevent the private sector from competing for local government contracts.

Philip Sapwell, chair of local government HR body Society of Chief Personnel
Officers’ (Socpo) pay and employment relations group, welcomed the code in principle,
providing it did not deter the best private sector contractors from bidding to
run local government services.

"We would welcome anything that clarifies the rules because it is an
ambiguous area. Anything that brings greater fairness into the arena is a
positive development. But I would be concerned if it put the better quality
private sector organisations off entering into contracts."

Sapwell stressed it was essential that the new dispute mechanism was thought
through properly. "I am interested to know how the code is going to be
enforced through the dispute resolution mechanism. What powers will it have?
How will it make a judgement over what is comparable?" he asked.

The code will require contractors to confirm their obligation to protect the
terms and conditions of transferring local government employees, including the
right to ongoing access to the local government pension scheme or an
alternative good quality occupational pension scheme.

Besides local authorities, the guidance will also apply to police, fire,
waste disposal and passenger transport authorities, Transport for London, and
the London Development Agency.

The CBI accused the Government of moving the goalposts for private sector
staff over the code and undermining its own att-empts to improve public

CBI’s director general Digby Jones said: "The Government wants to
improve the delivery of public services but this is a significant step
backwards and raises real questions about whether ministers are ready to take
the tough decisions necessary for meaningful reform.

"By enforcing an inflexible pay structure, the Government has made it
harder to reflect differences in regional economies," he said. "What
the unions want is to replicate old local authority employment practices with
no reform. Many privately employed public service workers know that ‘different’
does not mean worse."

Jones also highlighted the CBI’s concerns over the Government’s dispute
resolution plans and raised the possibility of third-party interference in every
disagreement. "Firms could be left permanently uncertain about the
legitimacy of terms and conditions they agree with staff."

Restricts private sector

Many public private partnership (PPP) and Private Finance Initiative (PFI)
employers would be extremely worried about the code says Emma Burrows, head of
employment at City law firm Trowers and Hamlins.

"Arguably, it restricts the private sector’s ability to deliver
services in the most efficient manner. This is not just because it increases
staff costs, but also because it makes it harder to improve productivity
through introducing incentives such as performance-related pay which might be
seen as less favourable to public sector terms."

Burrows said the code might create a two-tier workforce among contractors’
staff – those providing local government services and those who are not.

However, outsourcing specialists Capita, which has secured numerous local
government service contracts, said the company would be happy to implement the
new guidelines.

John Tizard, director of policy and public affairs for Capita Group, said he
did not forsee any particular problems. "We offer competitive terms and
conditions for all our 17,000 employees – whether they have joined through
Transfer of Undertakings (Protection of Employment) – TUPE – or directly,"
he said.

Tizard said the firm’s low staff turnover demonstrated its commitment to all
staff. "We will continue to work with our managers, public sector
customers, staff and trade unions to address and implement the code on ‘two
tier’ to ensure we deliver to our customers and for our business."

The CIPD’s lead adviser on public policy Diane Sinclair hopes changes will
not place too much emphasis on the importance of terms and conditions at the
expense of other issues impacting on the working environment.

"The code is not the only answer for good employee relations in the
public sector and outsourced services," she said. "It is not only
terms and conditions that are important to achieve the reform of public services,
but overall workplace culture, including issues such as work-life balance and
levels of personal autonomy and control. It is also important to create the
right environment to reap the benefits of a diverse workforce."

John McMullen, head of employment law at Pinsent Curtis Biddle, said the
code gave local authority workers much greater protection. "This goes
beyond what is required by TUPE because it does not just protect public sector
workers transferring to the private sector but also new starters who work on
the same contracts," he said.

McMullen agrees the code may well undermine the competitive advantage
private sector contractors have traditionally had in bidding for local
government contracts. "The cost of contracting may well become more
expensive and in-house teams more competitive. There may not be such an
emphasis on cutting costs and more on service delivery and efficiency," he

Union victory

McMullen added that he would not be surprised if central government and NHS
staff were given the same protection in the future – something which the
Transport and General Workers Union has already called for.

The GMB and Unison proclaim the code as an important victory for the union
movement. Unison’s general secretary Dave Prentis, said: "When this code
comes into force, private companies will be prevented from winning contracts by
cutting the pay and conditions of staff and it will have to compete on a level
playing field for the first time.

"I am confident that when it comes to competing on quality, the public
sector will beat private sector companies hands down and more contracts will
return in-house."



Pension arrangements for new joiners
under the new code will mean the service provider will have to offer one of the
following pension provision arrangements:

– Membership of the local government pension scheme, where the
employer has admitted body status within the scheme and makes the requisite

– Membership of a good quality employer pension scheme, either
a contracted-out final salary-based defined benefit scheme or a defined
contribution scheme

– Employers providing defined contribution or stakeholder
schemes must match employee contributions up to 6 per cent

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