Consultation proposes the repeal of Best Value legislation and extension of the application of Fair Deal to local authority outsourcing – we explore the implications.
Currently, transfers in relation to local authority outsourcing are subject to the Best Value Staff Transfers (Pensions Direction) 2007 which ensures that local authority employees who are transferred to a private contractor in connection with an outsourced function are provided with an equivalent level of pension provision to that which they were entitled pre-transfer.
It has recently been proposed that the Fair Deal for Staff Pensions Guidance (which currently applies to Central Government outsourcing) will be extended to apply to local government transactions and that as a result the Best Value Direction will be repealed in due course.
In the event that the proposals are implemented and that the Fair Deal guidance in its current form applies to local authority outsourcing, any companies bidding for contracts tendered by a local authority would be required to participate directly in the Local Government Pensions Scheme (LGPS) in respect of any staff transferred from the local authority in respect of the contract.
The current proposal would require the contractor to become an admitted body in the LGPS.
The consultation document makes clear that under the proposed new regulations the obligation to provide, as well as the costs of providing, access to the LGPS for transferring staff will require to be clearly set out in the tender documentation relating to a contract. All entities bidding for a contract would be subject to the same obligations in relation to pensions for transferring staff.
An admission agreement is generally a tri-partite agreement among the administering authority of the relevant fund of the LGPS, the outsourcing authority and the contractor. This sets out the terms on which the contractor will participate in the LGPS.
As part of the process of entering into an admission agreement, a risk assessment of the contractor requires to be carried out. As a result of this, the contractor may be required to put in place an appropriate bond or indemnity in relation to their participation, or as an alternative the local authority may put in place a guarantee arrangement.
North of the border in Scotland however, Fair Deal is not applicable and the Statutory Guidance to Local Authorities on Contracting issued under the Local Government in Scotland Act 2003 continues to be the applicable guidance which Scottish local authorities are under a duty to have regard to when exercising a power to enter into a contract. There is no current suggestion that the position in Scotland will be altered to align with the proposals under consideration in England.
The legislation and guidance relating to outsourcing from public/local authority to private provision has been subject to frequent alteration over recent years and this looks set to continue. It is important that those entities outsourcing as well as those bidding for such contracts have an awareness of the issues and requirements to ensure compliance with the framework and also to accurately price bids having factored in pensions costs which can be significant where LGPS participation is concerned.
If you have any questions or would like more information, please contact one of our pensions specialists below.
Author: Vicki ThomasThis information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.