Follow the rules
Local authorities have become used to the rationale behind introducing competition from the private sector into public services - compulsory competitive tendering (CCT). So any caterer that wants to win public sector business should make sure it has a basic understanding of the way in which the CCT process works.
The rules apply to contracting authorities such as Government departments, local authorities, police and fire authorities - those purchasing services with a value of about £150,000.
Depending on the procedure adopted, the public service contract will specify: the manner in which the contract is to be publicised (through-out the European Union, not just in the UK); the minimum tender period; the information that has to be supplied to potential contractors; and any other applicable tender selection criteria.
Any would-be catering contractor also needs to know what remedies the contract contains if a contracting authority were to break the rules. Those remedies, which have only had real teeth since January 1994, allow a supplier to complain to the European Commission or the UK courts if the rules have been broken.
UK courts now have the power to suspend tendering procedures, grant an injunction to prevent a contract being awarded, or order damages to be paid if it can be established that loss has been suffered as a result of non-compliance by a contracting authority. Public purchasing rules only apply to contracting-out services in the public sector.
The other main issue that arises in contracting-out is the Transfer of Undertakings (Protection of Employment) Regulations, or TUPE. The regulations had little impact on contracting-out services initially, but cases in UK courts as well as in the European Court of Justice have introduced the concept of employee protection to contracting-out.
TUPE applies when a contracted-out service starts or ends and its implications can alter the viability, and the risk element, of a contract. It will also shape the terms that will need to be negotiated.
The aim of TUPE is to preserve the continuity of employment of those employees engaged in the in-house service on the award of the contract. A contractor must inherit those employees on the same terms and conditions - except for occupational pensions - with their continuity of service preserved.
Dismissals connected with the award of the contract are, with limited exceptions, automatically deemed unfair. Faced with those issues, the contract caterer should seek to include protective measures under the contract.
Those measures would normally fall under two banners:
Indemnities The caterer acquires past employee liabilities such as outstanding holiday pay, wage arrears and unpaid bonuses, and should seek an indemnity from the contracting body against any financial liabilities it takes on. Equally, if the contracting body has made pre-contract dismissals, the caterer could be liable for any compensation that might be payable and should obtain an indemnity as well.
Warranties The caterer should obtain contractual warranties from the contracting body on the terms and conditions of employment of any transferring employees. This will enable the caterer to examine the impact that transferring employees would have.
Tupe places both the existing and the new employer under an obligation to consult with recognised trade unions concerning any steps that will be taken in respect of any employees, not just those who are transferring, affected by the transfer. The caterer must ensure that the contracting body has met all of its statutory obligations.
Paul Brown is head of the corporate department at Manchester commercial law firm Vaudreys. He specialises in the catering industry. Telephone: 0161-834 6877.
