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Catalysing Equitable Pay in the Private Sector: Equitable Pay as Procurement Criteria by Benjamine Irvine

In response to our Freedom of Information request Salford stated that although it did not currently specify in any tenders that the living wage of £7.45 an hour is required, ‘The City Mayor is currently developing an Employment Charter which will set minimum standards for people in work. This will include the Living Wage. The city council hopes the Charter will be agreed with a wide range of employers.’ The Council claimed to be in talks with a number of partners about their introduction of the Living Wage and was, ‘also carefully considering what extra procurement freedoms the new Social Value Act will give us as both an employer and commissioner of services in improving the terms and conditions of working people in Salford.’

In the launch of the City’s employment charter the City Mayor has expressed the intention to create ‘A Living Wage City’ where the full Living Wage is a minimum and is in talks with major contract partners to implement it, with the promise of more announcements to come. He states that the council’s responsibilities as a Living Wage Employer includes rejecting, ‘the commissioning of services which embed poor pay and poor conditions’, and expresses the intention, ‘to use the Employment Charter to lift local pay levels in our commissioned services and amongst our contractors in Salford.’

I want to live not just exist

[See the article by Ian Stewart, Salford City Council Mayor, ‘Becoming a Living Wage City – An Ambition Worth: http://labourlist.org/2013/05/becoming-a-living-wage-city-an-ambition-worth-having/]. There is some evidence of this in Salford’s Procurement Strategy. On the introductory web page to trading with the council, is the statement:

‘We recognise the role that procurement has to play in achieving our social, economic and environmental objectives. The City Mayor’s employment charter also encourages companies to sign up to the Living Wage.’ (http://www.salford.gov.uk/procurement.htm)

In Salford’s procurement strategy document for 2013/14. Corporate Procurement commits to ‘actively promote’ the ‘Salford Employment Charter’. [Salford City Council Procurement Strategy 2013-14′ Salford City Council, 2013. p.10; https://www.salford.gov.uk/d/SCC_Procurement_Strategy_2013-2014.pdf]. There is also a commitment to ‘examine potential partners’ past record in respect of the treatment of transferred staff’, and to take employment practices into account in the procurement of services. [Salford City Council Procurement Strategy 2013-14′ Salford City Council, 2013. p.7; https://www.salford.gov.uk/d/SCC_Procurement_Strategy_2013-2014.pdf]

 

However, in the summary of key procurement objectives the only stated commitment to act on employment conditions is to, ‘Encourage contractors to support the Salford Employment Plan [distinct from the Employment Charter] where it can be demonstrated to support the principles of Value for Money.’

 

Although these key objectives and actions may be updated during the course of the year, it appears that at this time, apart from efforts to ‘promote’ the Employment Charter and an aim to achieve: ‘A more ethical and egalitarian approach to procurement within the Council and the development of a like-minded supply chain’, [Salford City Council Procurement Strategy 2013-14′ Salford City Council, 2013. p.35; https://www.salford.gov.uk/d/SCC_Procurement_Strategy_2013-2014.pdf] the 2002 Salford Employment Plan (which does not include the Living Wage) is the framework to which procurement currently refers when taking employment practices into account.

This demonstrates some commitments in the procurement process to ‘promote’ supplier uptake of the Living Wage and a consideration of pay and conditions more generally. However there are no apparent means by which to ‘lock-in’ a requirement to pay the Living Wage and no reference to the levels of pay inequality within a prospective supplier. As such it would appear that the Salford Employment Charter has not been fully integrated as a requirement in commissioning services. At the time of research there was also no evidence available to confirm that any private sector suppliers have yet agreed to implement the Living Wage.

There may well be valid reasons why commitments to the Employment Charter are not more strongly integrated into the procurement process, as there appear to be legal issues about imposing wage levels as conditions of contracts, as such most Local Authorities navigating this new terrain appear to be using broader ‘social value’ frameworks to favourably appraise tenders which pay living wages on the basis of securing social value from contracts. (This may be under the Quality of Service element of tender appraisal.) At the GM level, it may be valuable for Local Authorities to share knowledge on the best way to secure living [Page 35, Salford City Council Procurement Strategy 2013-14′ Salford City Council, 2013. p.35; https://www.salford.gov.uk/d/SCC_Procurement_Strategy_2013-2014.pdf] wages, reduce inequality and secure social value more broadly in the commissioning of services.

 

Oldham Council

Example 2: Oldham, Procuring Social Value.

In response to our request Oldham Council stated that ‘going forward’ they now include assessment of impact on the desired outcomes of the Oldham Social Value Framework in the procurement process. They, ‘now include some elements of the Council’s Social Value Framework in all tenders’. Whilst this, ‘may not be related to pay in any given tender’, one of the desired outcomes is:’a local workforce which is fairly paid and positively supported by employers.[Oldham Council response to FOI request]

The workforce planning and measurement department informed us that this ‘could’ mean that the council would expect prospective suppliers to take the following sorts of actions in relation to the employment of staff on the contract:

  • Pay staff the Living Wage
  • Increase rates of pay for the lowest staff by x%
  • Improve the skills level of existing staff by training x% of the workforce to Level 2/3/4 (for example)
  • Reduce average sickness absence by x% through an improved health, well-being and support package for staff
  • Identify all staff who are carers and ensure flexible working practices are implemented to support these responsibilities within x weeks of contract start date [Oldham Council response to FOI request]

We requested further details on how this is implemented, how the targets of x-value’s are established and how it is decided whether or not staff pay considerations are taken into account in a contract but received no response. As it stands this constitutes a positive attempt to generate more social value through procurement generally but is weak in that it is not prescriptive enough to guarantee the same level of fair pay from suppliers which the Council has implemented for it’s lowest paid direct employees.

There is evidence now that Oldham is seeking to embed a wider range of criteria in the councils procurement criteria including the Living Wage.[‘Briefing: Co-operative Council Ethical Approach’ https://oldhamlabourgroup.wordpress.com/2013/03/24/briefing-co-operative-council-ethical-approach/] This should be done in a way which embeds equal internal/external payconditions procedurally and is not susceptible to manipulation or erosion over time. Failure to do so effectively will leave indirect incentives to outsource based on lower labour costs to prevail, undermining progress on pay equality.

It is significant that Oldham’s plans to embed Living Wage criteria into contracts is part of a wider plan to achieve greater social value from procurement, the council plans to build on progress they have already made by encompassing ‘a broader range of social value considerations in what we do’. [Oldham Council Website: ‘About the Council; Co-operative Oldham; Co-operative Oldham’: http://www.oldham.gov.uk/info/200572/co-operative_oldham/1192/co-operative_council] This is welcome from an ecological perspective of social value as it can appraise the value of more equality beyond the tendency to focus only on raising the wages of the lowest paid. A broader approach to social value considerations in procurement therefore has greater scope for other equality considerations such as a suppliers pay multiple being integrated into procurement criteria.

 

London Borough of Islington

Example of Best Practice: London Borough of Islington

Having considered the steps taken towards the pay of staff working for external contractors by Local Authorities in Greater Manchester it is worth examining the experience of a Local Authority that has achieved exemplary success in this area. The London Borough of Islington was the first Local Authority to achieve accreditation as a Living Wage Employer in 2012, securing the London Living Wage for its direct employees was achieved in part by reducing the council’s top:bottom pay ratio to 10:1 [As reported here: http://www.theguardian.com/local-government-network/2013/nov/04/islington-living-wage-week] Further to this, in 2013 it has achieved London Living Wage rates on 92% of it’s contracts and is working towards 100% compliance.

Islington began working towards a Living Wage when it established a Fairness Commission in 2010 to examine inequalities and develop recommendations to tackle them. The top recommendation was that employers in Islington and specifically the Council should pay the Living Wage and also: ‘review their procurement, contract and best value policies to ensure that, as far as possible within UK and EU law, the London Living Wage is the minimum paid to all their contracted staff as well’. [Islington Fairness Commission, ‘Closing the Gap: IFC Final Report’ 2011, London: IFC, p.8]

The recommendation’s of the commission form a key part of the Local Authorities Corporate Plan which includes a commitment to, ‘work to ensure LLW is paid by all contractors’ in accordance with the criteria for accreditation as a Living Wage Employer. [London Borough of Islington, ‘Towards and Fairer Islington: Corporate Plan 2012-2015’, 2012a, London: LBI, p.8]

 

http://www.islington.gov.uk/publicrecords/library/Management/Business-planning/Plans/2012-2013/%282012-08-31%29-Corporate-Plan-2012-13.pdf

 

This in turn has led to a revision of the council’s procurement rules, Section 2.7 states: ‘As a matter of policy, London Living Wage (LLW) must be considered on all contracts where the Citizen’s UK accreditation criteria for contracts apply. LLW shall be adopted on all contracts insofar as this is permitted by law. [London Borough of Islington, ‘Procurement Rules’, 2012b, p.6]

 

http://www.islington.gov.uk/publicrecords/library/Procurement/Business-planning/Procedures/2014-2015/%282014-06-18%29-Procurement-Rules.pdf

 

The caveats ‘in so far as this is permitted by law’ in these policies are instructive, both of the challenges for implementing Living Wages for contract staff and how these are being overcome. There are concerns that requiring contractors to pay a living wage may infringe European Union procurement rules. Particularly, whether a blanket requirement is open to litigation as a potential violation of the European Union’s Posted Workers Directive, which is intended to support the free movement of labour and services in the common market. [London Borough of Islington, ‘Procurement Rules’, 2012b, p.6]

Case law suggests employers need only pay workers posted abroad the rate they would receive in the home country and therefore requiring the Living Wage rate as an award criterion for contracts could be deemed discriminatory. Legal opinion varies however, and there have been no legal cases against UK Local Authorities on the basis of Living Wage Policies. [Andy Hull, ‘Policy Briefing: Living Wage and Local Authorities’, January 2013, Local Government Information Unit, p.3]

 

http://www.lgiu.org.uk/wp-content/uploads/2013/01/Living-Wage-and-Local-Authorities.pdf

 

Islington’s policy towards guaranteeing a Living Wage for contract staff is, therefore, not a blanket requirement but a combination of a policy commitment; to always consider the Living Wage in procurement decisions, and a corporate objective; to achieve 100% compliance with the Living Wage from contractors.

The Local Government Information Unit recommends Islington’s example of enshrining a Living Wage into procurement policy on a case-by-case basis, as a ‘legally sound’ approach. [Andy Hull, ‘Policy Briefing: Living Wage and Local Authorities’, January 2013, Local Government Information Unit, p.3]. This advice is confirmed elsewhere. General guidance from local government legal advisers suggests that it is problematic to require contractors pay a Living Wage as a contract award criterion. Where social considerations are used in assessing the ‘most economically advantageous tender’ (MEAT) they must be ‘relevant to the subject matter of the contract’ and ‘proportionate to the needs of the contracting authority’. [Deborah Ramshaw, ‘The Living Wage and EU Procurement’: http://www.localgovernmentlawyer.co.uk/index.php?option=com_content&view=article&id=13811:the-living-wage-and-eu-procurement&catid=57:employment-articles] It would seem it would be difficult to justify a blanket requirement as a relevant and proportionate measure across diverse contracts.

Furthermore they must be ‘contract conditions’ not selection or award criteria; tenderer’s ability to comply should not be assessed as part of selection but they must undertake to comply with the conditions if they are appointed. The EU parliament provided further clarification in response to a parliamentary question regarding Living Wage contract conditions, confirming that they, ‘may be included in the contract performance clauses of a public procurement contract’, must be clearly stated in tender documents and importantly, ‘concern only the employees involved in the execution of the relevant contract, and may not be extended to the other employees of the contractor’. [The author, Deborah Ramshaw, refers to the: ‘EU Parliament Clarification of 2009: ‘The Living Wage and EU Procurement’: http://www.localgovernmentlawyer.co.uk/index.php?option=com_content&view=article&id=13811:the-living-wage-and-eu-procurement&catid=57:employment-articles]

EU Procurement

EU Commission guidance on socially responsible procurement confirms that, ‘Contract performance clauses are generally the most appropriate stage of the procedure to include social considerations relating to employment and labour conditions of the workers involved in performance of the contract.’ [European Commission, ‘Buying Social: a guide to taking account of social considerations in public procurement’,2010 Luxembourg: EU Publications Office p.44]

So while Local Authorities appear to be currently prohibited from only awarding contracts to contractors who pay a Living Wage as a minimum to all their employees, they are able to require that the staff employed in the delivery of the contract are paid a Living Wage as a contract performance clause, where this can be established as relevant and proportionate. The Social Value Act 2012 places authorities under a duty to consider at the pre-procurement phase, how what is being procured might improve the economic, social and
environmental well-being of an authority’s area and how, through the procurement, it can secure that improvement. [‘Public Services (Social Value) Act 2012’}

Islington appears to have achieved its 92% compliance rate by asserting that the Living Wage is a proportionate and relevant consideration in all service contract tenders due to the integration of the Living Wage as a central priority in its strategy for improving the areas economic and social well-being, demonstrated by it’s prominence in the authority’s corporate plan. It is a condition of Living Wage accreditation that the Authority must work with contractors to secure the Living Wage which further strengthens the ability of the authority to assert the Living Wage as a contract performance criteria.

 

Procuring Social Value vs. In-sourcing

Finally, it is worth noting that taking pay issues, such as the Living Wage, into account in procurement represents a sea change in attitudes to commissioning services, as Lela Kogbera, Islington Director of Strategy notes, ‘For 25 years the public sector has driven down costs through competitive contracting, from waste collection to adult social care. We have celebrated the “efficiency gains” of ever-cheaper contracts and distanced ourselves from the wider consequences of low wages.’ [See: http://www.theguardian.com/local-government-network/2012/jan/17/islington-pay-living-wage]

Whilst techniques for securing local, social, economic and environmental benefit from contracting and procurement should be promoted and improved, once this more holistic and nuanced horizon of value for money is established; that is, once total social and economic value impacts are taken into account, procuring services is not necessarily the best way to get ‘social-value-for-money’.

Whilst Islington has succeeded in working with private contractors to gain Living Wage compliance in many cases, the objective of securing Living Wages for cleaning service employees was achieved by bringing the contracted service ‘back in-house’, raising wages at no extra cost to public funds ‘by cutting out exorbitant management fees.” [As reported here: http://www.theguardian.com/local-government-network/2013/nov/04/islington-living-wage-week]. It is argued that there are strong pressures on Local Authorities to continue outsourcing and that, without authoritative action otherwise, this will inevitably result in low pay depression as well as worse gender equality outcomes. [Damian Grimshaw, Stefania Marino and Jill Rubery , ‘Public Sector Pay and Procurement in the UK’, 2012, EWERC, Manchester Business School, University of Manchester, p.72]

 

http://www.research.mbs.ac.uk/ewerc/Portals/0/docs/UK-national%20report.pdf

 

 

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This is part of a report by Bejamin Irvine written for Steady State Manchester:

In Place of Pay Inequality

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