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Tendering for Service Contracts –TUPE nightmare!

» Posted on: 29 May 2008
» Posted by: Oliver McCann
» Service area: Employment

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In recent months Taylors have acted for a number of clients who’ve experienced difficulties relating to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) after deciding not to re-tender for a service contract or after winning the tender for a service contract.

In cleaning, domiciliary care and the security sectors it is common for many businesses to operate on the basis of being awarded, sometimes through a tender process, various contracts from large companies or local authorities

In April 2006 new TUPE regulations were introduced which significantly widened the definition of a transfer to include service provision changes to the extent that the awarding of contracts to new suppliers is more likely than not going to be caught by TUPE as a “transfer” meaning that those employees’ assigned to the contract will automatically be inherited by the incoming contractor.

Relief
If you have lost the contract then this maybe welcome relief for you as you can palm your employees off on the incoming contractor and save thousands of pounds in redundancy pay. If you are the incoming contractor you are invariably inheriting staff, at short notice, without any specific information as to whom they are and without any mechanism of control over the outgoing contractor as to employment issues that may exist at the point of transfer.

You may inherit a member of staff who is in the middle of disciplinary proceedings or on long term sickness. Incoming employees employment terms maybe more favourable than your existing employees. You maybe inheriting an operation which has been running at a significant loss requiring an immediate restructure to turn things around resulting in redundancies which you will have to pay for but may not have budgeted for.

One of the questions in the “your questions answered” section of the May 2008 Employ! employers newsletter is a typical issue that arises upon the successful tender of a contract.

When you bid for a contract you may not necessarily have bargained, or indeed budgeted for, some of the difficulties that arise from TUPE applying.

Due Diligence
You need to treat the tender process similar to that of business purchase carrying out due diligence checks on the employees to ascertain the risks that may transfer across and identifying action that may need to be taken once the transfer has taken place. Take advice before being awarded the contract if possible.

It may be the case that part of the service previously provided by an outgoing contractor is being split up by a local authority to be awarded to more than one contractor. Where this occurs a detailed analysis of each individual employees duties needs to be carried out to determine which employees are assigned to the part of the contract you are being awarded. Only those employees assigned to your aspect of the contract will should transfer to you. Issues inevitably arise where an employee’s duties are assigned across the split of contracts.

Liability
It is also possible for an unscrupulous outgoing contractor to simply fail to pay wages to the staff immediately before transfer. The liability transfers to the incoming contractor who is left with the difficult task of trying to recoup those monies. The outgoing contractor has no contract with you and is not subject to warranties or indemnities which you would ordinarily find in a business transfer agreement to maintain control over the outgoing contractor.

The outgoing contractor is obliged to provide Employee Liability Information to the incoming contractor. A failure to do so allows the incoming contractor to bring a claim against the outgoing contractor for a breach with an award of at least £500 per employee to whom the failure relates to. This could be used to try and keep the outgoing contractor on the straight and narrow.

If you are involved in the tender for a service contract or are losing a service contract take legal advice at the earliest opportunity to ensure that TUPE is applied correctly and where possible you avoid redundancy payments or avoid inheriting staff you shouldn’t be.

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