TUPE issues in tendering

TUPE crops up in different ways in procurement.

tupe1

It could be:

  • on the transfer of a contract from one contractor to another (which is the usual scenario);
  • on the outsourcing of a contract, where TUPE applies between the employer and the new contractor; or
  • from the existing contractor to the employer on insourcing.

Where TUPE applies, the new contractor (or the employer, on an insourcing) will take over the employment contracts of the employees of the incumbent contractor who are “assigned” to the work at the time of transfer. Whether a particular employee is assigned to the work can be difficult to determine, particularly where they work on more than one contract or where, as occurs with planned maintenance, there is sometimes a gap between the one contract ending and the next contract starting.

If TUPE applies, the “assigned” employees will transfer on the same terms and conditions. Only some pension terms transfer but contractors may be required to provide broadly comparable pension terms anyway.

In the “usual” scenario (contractor to contractor) the most significant implication of TUPE for an employer is that TUPE costs will be passed on to them through the tender price. Employers need to decide how to deal with this in the tender process. There are the following options:

  1. Provide the workforce information and pass the risk onto the contractor: Where the employer can provide accurate workforce information to bidders, so they can take TUPE costs into account within their tender prices, this is usually the best option. However, existing contracts do not always entitle the employer to workforce information and the outgoing employer can sometimes be reluctant to provide it. There are often concerns over the quality and accuracy of workforce information that is provided.
  2. Exclude TUPE costs: Where there is no TUPE information, bidders will not be able to provide accurately for TUPE costs in their tender prices. This could lead to wide discrepancies between what different bidders have allowed. Here it is usually better to get bidders to tender on the basis that TUPE does not apply. TUPE costs will then be quantified and paid as a separate amount on top of the tendered prices.  These costs will be payable only to the extent that the incoming contractor is able to establish that they are legitimate additional costs resulting from TUPE.  The obvious downside of this approach is that the employer is not able to assess the overall cost of the contract until after the employees of the incumbent contractor have been transferred to the incoming contractor.  There are also concerns over whether paying an additional amount for TUPE costs not included in tenders could be regarded as a substantial change to the contract. This approach also negates the incumbent contractor’s inherent advantage from having no TUPE costs (which is why threatening to run the tender process on this basis can be a good way of persuading the incumbent to provide TUPE information even if there is no legal right for the employer to obtain this).
  3. Require bidders to make assumptions about the TUPE costs: An employer that cannot obtain TUPE information can ask bidders to make certain assumptions about the workforce information such as the pay and number of employees likely to transfer. If these assumptions prove to be false, then there is at least a starting point for determining the additional TUPE costs due to the successful contractor. This is a variant on Option 2 above but carries less procurement risk.

There are theoretically other options, such as asking bidders to set out their assumptions in relation to TUPE costs, but the difficulty with these is ensuring that you are comparing like with like.

Ultimately the choice is going to be down to whether the employer can get TUPE information and the level of procurement risk that the employer is prepared to accept if they can’t.

 

[1] The Transfer of Undertakings (Protection of Employment) Regulations 2006 (as amended)

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