REUTERS | Jim Young

TUPE and tendering – avoiding the pitfalls

Ok, so you know how to tender a service and you know what to do about the transferring staff in theory, but what if … shock … horror … it doesn’t go according to plan?

  • Your incumbent contractor won’t give you information about the transferring staff.
  • Your incumbent contractor claims TUPE applies to a group of staff who you suspect are not entitled to transfer.
  • The service is splitting and TUPE will only apply if the same contractor wins the majority or all of the work.

Risky business

Bidders require accurate information about staff they may inherit in order to price their bids. If you cannot supply them with accurate information, they will be basing their tender prices on flawed assumptions and risks may arise:

  • Your pricing evaluation may be skewed so that the wrong bidder is awarded the contract. In addition to contracting with a more expensive provider, this could expose the authority to claims from unsuccessful bidders.
  • The winning bidder may pull out before contract signature if they cannot deliver the service for the price quoted once the true employee liabilities become clear. Conversely they may have priced their bid high on a worst case scenario which results in the authority being liable for an inflated contract price.
  • You may have to give the successful bidder an indemnity in respect of unknown employee liabilities. But on a re-tendering, these won’t be your employees so the risk to the authority will be unquantifiable.

Protect your authority

So what should you do to avoid this happening?

  • Ensure your contracts entitle the authority to request employee liability information in good time before the contract end date; and
  • Ensure your contracts contain a warranty from service providers as to the accuracy of any employee information they provide.

If your contracts are silent on these matters, you may look to TUPE for assistance, try:

  • Reminding the service provider of its obligation to provide employee liability information under Regulation 11 of TUPE and the penalties for failing to do so.
  • Pointing out that the service provider will need to liaise with the transferee as to the measures the transferee envisages taking with respect to the employees in order to carry out proper consultation under Regulation 13.
  • Offering to help discharge these obligations by collecting the employee liability information in an easy format and putting them in touch with the transferee.

At the end of the day however, even TUPE may not be enough, as it merely requires the transferor to supply employee liability information to the transferee – and not to the service commissioner – two weeks prior to the transfer date. This is of no use for a tender process which is likely to take several months.  It’s far better to rely on tightly-worded TUPE clauses in your contracts.

Imposters on the list

And what if when you do eventually receive the list, you suspect some of the employees are not actually entitled to transfer? Bidders may well be put off because they fear inheriting onerous employment obligations. You will need to remind incumbent contractors of the risk of unfair dismissal claims from employees forced to transfer when TUPE doesn’t apply to them. Bidders can be reassured that if TUPE doesn’t apply then no liability will transfer either.

Splitting a service – who goes where?

It is increasingly common for authorities to re-configure contracts on a re-tendering and split services, especially in health and social care services. However, if it is unclear whether TUPE will apply to the re-configured services, the authority may struggle to determine which liabilities it should ask bidders to price for; and bidders to scope their response.

Two recent cases have considered this issue in relation to service provision changes under regulation 3(1)(b) of TUPE 2006.

Kimberley Group Housing Ltd v Hambley

In Kimberley Group Housing Ltd v Hambley, an accommodation and support service for asylum seekers was split between two new contractors. Neither contractor accepted that TUPE applied and the employees were dismissed. The EAT stated that where there are several possible transferees it should be possible to identify to which contractor employees will transfer even though it is likely to entail difficult questions of fact. Here, the existence of several possible transferees did not preclude TUPE from applying, and although there may be “some circumstances in which a service which is being provided by one contractor to a client is … so fragmented that nothing which one can properly determine as being a service provision change has taken place”, that was not the case here. While there is no exhaustive list of factors which will conclusively determine to which part of an undertaking an employee is assigned, it is essential for there to be a link between the employee and the work or activities performed.  Here, the employees’ principle purpose had been to carry out activities that were then carried on predominantly by Kimberley. They should therefore have all transferred to Kimberley.

Clearsprings Management Ltd v Ankers & Ors

In Clearsprings Management Ltd v Ankers & Ors, the fragmentation of a service did preclude a TUPE transfer. As with Kimberley, the case concerned an accommodation and advice service for asylum seekers. During the transition period from the old contract to the new, the service users transferred gradually to two different service providers. There was no link between the allocation of service users to employees and their subsequent re-allocation to the new providers. It was this fragmentation (as anticipated in Kimberley) which the tribunal determined, as a matter of fact, meant that no transfer took place.

So TUPE applied in Kimberley and not in Clearsprings … how then should procurement officers deal with similar circumstances when re-tendering a split service to ensure fairness to the employees and bidders and to avoid challenges from both, especially where in some cases it may not be possible to say whether TUPE applies until after the transfer date?

Addressing the issue during the procurement

The risk of TUPE applying must be made clear to bidders at the outset of the tendering process. To the extent that it is able, the contracting authority should determine in advance, with assistance from the incumbent contractor, which employees are assigned to which part of the service and produce this information (anonymised) to the bidders. If it remains unclear whether the employees will transfer, for example where a service is fragmented into lots which may be won by a single contractor or by several, any additional costs associated with the TUPE transfer should be calculated by the authority and carved out of the tender. The authority should then inform all bidders of the sums that would be paid to them in addition to the contract price should TUPE be found to apply. While this solution is not perfect, it is transparent and goes some way to removing uncertainty from the bidding process.

A version of this post also appears in the latest edition of the SLG magazine, Noter Up.

 

21 thoughts on “TUPE and tendering – avoiding the pitfalls

  1. One of the related issues to having “imposters” on the list is where the incumbent provider reconfigures their staff plan once they have been told that the contract will be tendered so that they can insist on TUPE applying to problematic staff. This can have a significant impact on the costs and the standard of service delivered both before and after the transfer date.
    Provided that the re-structure takes place a reasonable period before the transfer date there seems to be little that the authority can do to stop such actions – generally contracts only restrict changes in numbers of staff and specific responsibilities for key staff.

  2. What is the legal position of a supplier awarded a contract on the basis that, according to the commissioner, there are no tupe entitled staff and it then subsequently – post award – discovers that TUPE does apply to some staff. What redress does the bidder now contractor have?

  3. The transferor employer (whether the commissioner or another contractor) was legally obliged to provide accurate employee liability information to the transferee. The transferee can bring a claim against the transferor for failure to provide employee liability information; there does not have to be direct contractual relationship between the two employers. (For more information, see Practice note, Employee due diligence issues on transactions).

    In addition, the transferee may be able to recover any loss resulting from the lack of employee liability information under its contract with the commissioner, for example if the commissioner has warranted the accuracy of information on which the transferee based its bid. Alternatively, there may be a provision allowing for a price adjustment if certain pricing assumptions are proved incorrect.

  4. When in a tendering process, as the current service provider, what employers liability information, is compulsory, in being supplied to other potential contractors, also tendering for the work?

  5. TUPE requires the transferor to provide the transferee with certain information about the transferring employees (the employee liability information (ELI)) not less than 14 days before the relevant transfer takes place, and provides a remedy for the transferee in the event of the transferor’s non-compliance (regulations 11 and 12, TUPE). See regulation 11(2) or this practice note for a definition of the ELI.

    Note that a service provider’s existing contract may well impose an obligation to provide more information, earlier in the process.

  6. Hi all,
    How does the introduction of framework agreements now have on Tupe on say in cases of the fragmentation from 2 previous incumbents to 3 new contratcors have in respect of to be able to reject tupe transfer, as they can argue that the new contractors have only a equal oportunity to quote, (but in reality they will all probably carry a large amount of the previous incumbents work) , although at end of the actual perod of the contract it may not be an even 33.3% actual split of the total work been awarded between the 3 contactors.
    So as in Kimberley it would not be posible to know who would be the most successful contractor. how ever the employees did have direct link with the work, unlike in Clearsoring. would it be logical that if the work force (say 6 employees) was split evenly and in proportion to 2 employees to each of the 3 successful bidders and that the EAT might agree with this as a fair position to take and allow Tupe

  7. Often it is not clear whether TUPE will apply to a framework agreement, under which work parcels may be allocated between more than one provider. If it is not possible to ascertain which provider will carry out the majority of the work that is transferrring, then TUPE will not apply. The employees would therefore be redundant, unless they can be redeployed.

    There is a risk that the redundant employees could claim that they were unfairly dismissed if, for example, the same provider keeps winning each work package. However, the employee would have to bring that claim within 3 months of their dismissal, which may not be long enough for a pattern of work allocation to emerge. In any event, the random nature of the work allocation, if it represents a different approach and context from the previous arrangements, may also frustrate TUPE.

    It is possible for a transferor to engineer a TUPE transfer to avoid redundancies by, for example, allocating employees to specific tasks or areas that align with the proposed new arrangements. As with all changes to employees’ terms and conditions, the usual issues arise. In addition to protection against dismissal, TUPE protects employees whose terms are changed due to a TUPE transfer.

  8. Hi all

    Does TUPE apply to staff currently undertaking a role (that is being tendered) on a secondment basis, and are there any exceptions e.g. what is the situation where the current secondment agreement is due to end before the start date of the new contract? And is there any obligation to provide tenderers with details of the secondment agreement during the tender process?

  9. True secondments should not be caught by TUPE because the secondees’ employment would not otherwise be terminated by the transfer (see regulation 4(1) of TUPE). In the case you outline, the secondees would presumably return to their substantive posts before the transfer; they therefore would not be “assigned” to the transferring undertaking or service “immediately before the transfer” (regulation 4(3) of TUPE).

    However, the potential for dispute exists if, for example, the employees are dismissed at the end of the secondment, because there is no post for them to return to, if the employees argue that they had in fact transferred to the transferor and/or that their seconded post should be considered as their substantive post; or if the secondment is not genuine but simply a device to avoid TUPE.

    If there is any doubt that the employees may be deemed to be substantively employed in the posts to which they have been apparently seconded, and are therefore entitled to transfer, the transferor could add their names to the list disclosed to tenderers (perhaps including a price adjustment clause if they do not in fact transfer), or provide an indemnity in respect of any post-transfer claims. Either course of action has implications for the transferor and will depend on what evidence exists to support the arguments that the secondees are or are not entitled to transfer. For more information, see Practice notes, Secondment agreements, and TUPE and tendering local authority service contracts.

  10. any thoughts on a situation where the incumbent has siad TUPE will not apply(as they will redeploy if unsuccessful)….

  11. a contractor refuses to continue providing a serviced they have done for the past 10 years and you are forced to find another contractor or take the work back inhouse – can the original contractor then claim Tupe rights for his staff employed on the contract ?

  12. Simon,
    The onus is on the transferor to supply information about the workforce to the transferee. Ideally, your contract will have an indemnity in respect of any employee liability information supplied on exit which later proves to be inaccurate. However, it can be difficult to show your loss in these circumstances. Otherwise the transferee will have to rely on the protections under TUPE which provide for (minimal) compensation for failure to provide employee liability information.

    It is open to the transferor to redeploy staff in this way, with their consent, of course. See our Practice note, TUPE (2) Service provision changes and outsourcing.

    Stuart,
    TUPE will often apply in this situation. See Practice note, TUPE (1), When does TUPE apply?

  13. If a local authority decide to terminate a service contract that has been in place for nearly two years, that had been tendered by the authority, the reason the authority give for termination is they anticipate that referals will drop and now the LA believe or say they now have capacity to manage the service “in-house”.

    Does TUPE apply to the staff that were employed to meet the contract requirements when it was tendered? All staff have been employed for the full two years.

  14. Please can you shed some light on the following scenario?
    A local housing association employs company X on a 5 year contract to renovate properties. When the 5 year contract is approaching its end, the housing association re-tenders the contract, company X retenders, unsuccessfully. Where would this leave the employees/subcontractors of company X??
    Please advise if TUPE applies to this scenario.

    Thank you in advance

    Rob

  15. Hi Georgina,

    It is likely that TUPE will apply in this scenario if the activities the staff are carrying out before the transfer continue to be carried out by the authority, even if at a reduced level. This will depend on whether staff are assigned to the service and whether their principle purpose is to the deliver the services under the local authority’s contract.
    As the service is reducing post-transfer, it sounds like a redundancy situation may arise for the authority. (See our Practice notes, TUPE (3): the automatic transfer principle and TUPE (5): protection against dismissal.

  16. Hi Rob,

    TUPE may well apply to company X’s employees if they are assuigned to the housing association contract and spend most of their time working on it. The housing association should ask company X if this is a possibility and ensure the new employer has all relevant information. However, if TUPE costs haven’t been factored into the new employer’s bid, the housing association could face an increase in the tendered price. Such a variation to the agreed contract could even expose the housing association to a procurement challenge. For more information, see Practice note, TUPE and tendering local authority service contracts, which covers these issues from the point of view of a local authority, and Varying public contracts.

  17. If TUPE information is sought from incumbents and issued during a tender process (and no warranty of accuracy given) as well as the incumbent providers being advised that they must warrant the accuracy of the information provided and make no material changes within the final 9 months of the contract, what then is the liability if it transpires that a providers information was innacurate when issued and the provider continued to act in a manner which worsened the situation further? Who can then pursue this legally when the true information is discovered during Due Diligence, the authority, the provider the staff should transfer to, or both?

  18. to further from your response to my previous question………

    Please could you offer any advise. Following the unsuccessful tender, Company X approached the ‘Housing Association’ regarding possibility of TUPE transfer for existing staff. The Housing association rejected that TUPE was a possibility. Company X is to challenge the housing association, based on the content of their rejection of TUPE being inaccurate.
    With the current contract due to expire, and no resolution in sight, do you have any information/recommendations of course of any courses of action that Company X’s employees should follow regarding payment of wages/liability of wages of employees during the “stand off” period between contract finishing and resolution. Because as it stands Company X’s employees wages will not be paid by either Company X, new contractor or Housing Association. Company X’s employees are to be left in ‘limbo’ unable to recieve benefits/redunandancy until a resolution is reached. Please be aware that Company X’s employees are employed SOLELY on the renovation contract in question.

    Thanks in advance for your help.

    Rob

  19. Hi there,

    My company has been providing service to a large blue chip courier company for around 6 years now. We have been asked to take a cut in the amount we are paid per delivery. There will be more parcel to deliver, but in a more compact area, due to the closure of a nearby depot. The staff from this depot have recieved there redundancy payments.

    I was told “off the record” by a manager of this company that, as i thought, we would not survive under our current business model under the new proposed rates. He recommended that we made all of our staff self employed, and paid them per delivery. I have taken advice on this and am aware that it is not possible for us to do legally.

    We have 11 employees. They are employed solely to provide service to this company.

    The area that we currently cover would be split between 2 new contractors if we decide that the contract has become untenable. As hard as I have tried, I have not managed to source enough new work to keep all of my staff in employment should we be unable to continue in our capacity as a service provider to *****.

    I have pointed out that that I believe this situation will fall under the TUPE regulations but I have been told that this is not the case by *****. (I am still waiting for their reason in writing although the contract is due to start on May 19th.)

    Could you tell me if TUPE does apply, and if there are any factors which would cause this transfer to be exempt?

    Thanks in advance!!!

  20. In a scenario where two companies are delivering an NHS contract ( companies A and B) and the contract is re-tendered and won by company A but company A subcontracts to company B with a much reduced budget meaning that company B cannot deliver the contract without some staff reductions, who does the liability of the staff lie with?

  21. In the situation where Company A has a contract from a single Managing Agent on behalf of two clients and Company A employs two full time employees, based on a single site to provide maintenance/services. When one portion of the site is sold by one of the clients and the remaining work from the single client accounts for only 60% of the previous combined workload does TUPE apply if the remainder is retendered at the point of sale? If so, how much of the liability is transferred if the work would no longer support two people?

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