In the run up to the general election there has been much discussion on the Living Wage, the use of Zero Hours Contracts (ZHCs) and ‘fairer’ employment practices more generally.  In the context of the EU public procurement rules, enforcing stricter employment practices than those required by law needs to be balanced with EU law on the opening up of public procurement markets to competition.  In this Law-Now we assess the current position under the EU public procurement rules as applied in the UK and consider what scope there may be for change in the aftermath of the election. 

Living Wage

In 2012, the Scottish Government considered making the payment of the Living Wage a mandatory requirement for participation in procurement contracts.  The European Commission, however, was clear in stating that this would not be allowed.  The Commission’s reasoning was that although the current EU public procurement rules allow authorities to take into account social considerations in the award criteria and contract performance clauses of a public contract, following a series of judgments by the European Courts (namely the Rüffert and Laval cases on the Posted Workers Directive), a living wage set at a higher level than the UK’s minimum wage is likely to breach EU law (Scottish Procurement Policy Note SPPN 4/2012 of 22 August 2012: ‘Living wage through procurement’).  Therefore, the current legal position is that authorities may only encourage contractors/suppliers to pay the Living Wage to their employees.  Such a consideration can only be taken into account for tender evaluation purposes if payment of the Living Wage could (objectively) be considered relevant to the performance of the contract being procured.  Otherwise, authorities will be at a risk of breaching EU procurement law if they treat bidders who do not pay their staff the Living Wage less favourably than bidders who do. 

The Conservative manifesto indicates that it supports the Living Wage and “encourages” businesses and organisations which wish to pay the Living Wage “where they can afford it”.  In contrast, the Labour manifesto explicitly refers to using government procurement to “promote the Living Wage” but without providing further detail as to how such promotion may differ from “encouragement”.  The SNP approach appears to focus more on a material increase to the national minimum wage whilst also “expanding the living wage”.  The Liberal Democrats have proposed an independent review of the Living Wage and have committed to pay it in all central Government departments from April 2016.  Therefore, it will be a case of “wait and see” to assess what changes in procurement practice may arise, all parties treading delicately around the limitations imposed by EU law. 

Zero hours contracts

The legal position on ZHCs is similar.  At the moment, the use of ZHCs for workers is not illegal; the concerns have been directed at the inappropriate use of ZHCs and specifically any exclusivity clauses which prevent the worker from working for anyone else.  The UK government very recently introduced The Small Business, Enterprise and Employment Act 2015 (SBEEA) which contains a specific prohibition against the use of exclusivity clauses in ZHCs, i.e. clauses that prevent the worker from seeking additional work elsewhere. In other words, ZHCs are to be regulated as to their effect but not outlawed in their totality.  Therefore, while not tested in the same way as the Living Wage, the current legal position seems to be that authorities may only encourage contractors/suppliers not to use ZHCs.  Any use of ZHCs can only be taken into account for tender evaluation purposes if their use would (objectively) be likely to have an impact on the performance of the contract being procured.  Otherwise, authorities will be at risk of breaching EU law if they treat bidders who use ZHCs less favourably than bidders who do not. 

Is this position likely to change after the election?  It may well do in that the manifestos display differing approaches to the broader use of ZHCs and there is certainly potential for national legislation to reduce the ambit of ZHCs.  The Conservative manifesto points to the SBEEA as the method to police abuse whereas Labour’s suggests that it will ban “exploitative” ZHCs - although it has not indicated in detail whether some ZHCs without the exclusivity element may be viewed as not being exploitative and therefore acceptable and not susceptible to a ban.  The Liberal Democrats acknowledge that ZHCs may have their place but will “create a formal right to request a fixed contract …after a period of time”.  The SNP position is to “support efforts” to end “unfair and exploitative ZHCs”. 

Other ‘workforce matters’

The new Public Contracts Regulations 2015 (PCR 2015) already contain a list of exclusion grounds that may and in some cases must lead to a bidder’s exclusion from the tendering process for a public contract.  If an authority has actual knowledge that the company, one of its directors or another representative or controlling person, has been convicted within the last five years of an offence relating to participation in corruption, fraud, tax evasion, trafficking or a variety of other offences, then the company must be excluded from the process.  There are other discretionary exclusion grounds, allowing an authority – acting proportionately – to exclude a bidder if it inter alia has entered into agreements with other companies to distort competition, is considered guilty of grave professional misconduct or has shown significant or persistent deficiencies in the performance prior public sector contracts.  If an authority has actual knowledge that the bidder has been guilty of one of these discretionary exclusion grounds, then the bidder can be excluded from bidding for public sector contracts of a period of up to three years. 

The discretionary exclusion grounds also include violations of obligations in the environmental, social and labour laws established by EU law, national law, collective agreements or by international environmental, social and labour law provisions (including a number of ILO Conventions).  Moreover, if an authority ultimately allows a bidder through to tender but subsequently concludes that its bid is abnormally low because it does not comply with those obligations, it must reject it. 

Beyond the prescribed mandatory and discretionary exclusions grounds there is pressure on authorities to take account of contractors’ approaches to workforce matters when evaluating and scoring bids.  This is however potentially dangerous territory, at least beyond the prescribed mandatory and discretionary exclusion grounds.  

As explained in the recitals to the underlying EU Directive (2014/24/EU), authorities should not be allowed to require bidders to have a certain corporate social or environmental responsibility policy in place.  In its Policy Note SPPN 1/2015 of 4 February 2015: ‘Evaluating employment practices and workforce matters, including living wage, in public contracts’, the Scottish Government outlined its planned policy stance in relation to ‘workforce matters’.  Although these more general workforce considerations cannot be strictly enforced in the same way that the mandatory or discretionary exclusions can, the Scottish Government has made clear that authorities are entitled to take them into account “wherever it can be deemed relevant to the quality of service or goods or delivery/performance of the contract”, although this must be done in a proportionate way that is “based on the nature, scope, size and place of the performance of the contract”. 

Conclusions

As the PCR 2015 take hold in England, Wales and Northern Ireland and the Scottish Parliament moves towards adopting its own implementing set of regulations, bidders can expect to see greater focus on their employment practices and their corporate behaviour more generally.  Authorities will also have to be careful when taking these into account, whether as exclusion grounds or as part of the scored evaluation process. 

At least for as long as the UK remains a Member State of the EU, whichever government is formed following the election will have to ensure national policies and rules in this area do not breach EU law.