Tendering For Local Government Contracts
What are the Pensions Implications?
Many employers have the opportunity to tender for contracts to provide services under a Public Private Partnership ("PPP") or Private Finance Initiative ("PFI"). Under these arrangements, the employer needs to consider the transfer of employment rights under the Transfer of Undertaking (Protection of Employment) Regulations or "TUPE".
Generally under TUPE, there is limited obligation to match pension benefits, but under PPP or PFI arrangements, employers need to go further and follow practice statements such as "A Fair Deal for Staff Pensions" and other guidance produced by the Government and the Government Actuaries Department ("GAD").
Broadly speaking, employers have to provide pension benefits of broadly comparable value to those available from the Local Government (or Principal Civil Service) Pension Scheme. You will no doubt be aware that these "gold-plated" schemes are some of the best available in the UK, so matching benefits can be a costly exercise.
Understanding and managing these costs is vital if the employer wants to ensure that the tender is profitable.
What is BBS's Solution?
Before entering into any tender for Local Government Contracts, it is important that employers understand the options open to them for meeting the transfer obligations.
The first stage of our solution is to issue a short report explaining these options and the disadvantages and advantages of each. By considering this generic advice in advance, our clients are able to plan ahead so that when opportunities to tender arise, they can hit the ground running.
The second stage of our solution is to consider each opportunity on its merits. We distill the detailed documents that will be provided by the outsourcing agency, and through a short report, explain:
- The options available;
- The ongoing costs of each option;
- The volatility of costs under various scenarios.
The volatility of costs is an important measure. The tendering employer can judge whether the likely profit margin on the contract is sufficient to take on the funding risks of the Pension Scheme.
The third stage of our solution is to help the employer negotiate the pension contract terms in order to either get the best deal possible, or to reduce the exposure to down-side risk. We can sit alongside the employer, or take control of the exercise - whichever our clients prefer.
How can BBS help you?
If you are considering taking part in a PPP or PFI tender, we recommend that you take Pensions Advice as soon as possible. Ideally, this should be before you have tendered, but BBS may still be able to renegotiate the pension terms once a tender has been successful.
Whatever stage you are at, BBS would be delighted to assist you.
