Staff transfer costs deter private sector bids for public sector contracts

Private sector businesses are being put off bidding for public sector contracts when they involve the transfer of staff because of the associated costs involved, a business group has warned.

The CBI said firms have to pay anything between 25-50% of salary to fund the pensions of ex-public sector staff, leaving many unable to compete against a public sector employer, which typically contributes around 15%.

Kevin Beeston, chairman of the CBI’s public services strategy board, said many firms were avoiding contracts that involved staff transfers.

“The government policy whereby transferred staff retain their defined benefit pensions, and the optimistic funding assumptions behind this, have unfortunately created unfair competition between public and private sector providers,” he said. “Some companies have now stopped bidding for contracts involving staff transfers.”

He added: “The private sector has a strong track record of improving public services, but too many firms are being shut out by the huge financial risk of trying to replicate public sector pensions.”

Brian Strutton, national officer of the GMB union, supported making bidding for contracts more fair for businesses.

“Successful bids should be on the basis of greater efficiency or innovative service delivery, not slashing costs at the expense of the workforce and quality of service,” he said. “Taking pensions out of the outsourcing equation makes the bidding process fair for bidders.”

Earlier this year, an employment tribunal ruled that collective pay deals affecting former public sector employees transferred under TUPE regulations must be honoured.

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