Teal blue graphic

Fair Deal 2013: new and existing tenders

When does it come into effect?

The guidance comes into effect immediately and should be followed as soon as practicable. However, for existing tenders, compliance should not disrupt projects that are at an advanced stage. The contracting authority needs to consider whether it would be legitimate and desirable to adjust the terms of the procurement to take account of the guidance.

When should it be followed?

The guidance should be followed "wherever possible". In some schemes, for example in the LGPS where contractors can participate as 'admitted bodies' this will be immediate. In other schemes this will not be possible until appropriate changes to scheme regulations and administration procedures have been made. In these circumstances the old Fair Deal will apply until the necessary changes have been made.

From April 2015 the guidance should be followed in all cases.

Who does it apply to?

The guidance applies directly to central government departments, agencies, the NHS, maintained schools (including academies) and any other parts of the public sector under the control of government ministers where staff are eligible to be members of a public service pension scheme. This is wider than was expected.

The guidance does not apply to best value authorities; and the Best Value Authorities Staff Transfers (Pensions) Direction 2007 will continue to apply in these circumstances. The guidance also does not apply to staff of an independent contractor involved in the delivery of public service functions who were not compulsorily transferred.

When does it apply?

The guidance applies when staff who are members of a public service pension scheme are transferred under the Transfer of Undertakings (Transfer of Employment) Regulations 2006 (TUPE) to an independent private sector contractor as part of an outsourcing transaction. It also applies to a non-voluntary transfer to a public sector mutual or to other new models of public service delivery (regardless of whether TUPE applies).

What does it require?

Broadly, the guidance requires all staff that were transferred and are continuously employed on the delivery of the outsourced function to remain members of the scheme they were in immediately prior to the transfer (subject to eligibility criteria). Staff that were eligible to join the public service scheme (but hadn't done so) should continue to remain eligible.

How will it be enforced?

The contract for the transferred service should specifically require the contractor to provide transferred staff with continued access to the relevant public service pension scheme while they remain employed on the public service contract.

Contracts of employment should provide transferred employees with a right to continued membership on compulsory transfer, and any subsequent compulsory transfer, which will be enforceable against the employer (and new employer) while they remain employed on the contracted out service.

A Participation Agreement between the authority and contractor will be required unless the contract and scheme regulations impose equivalent obligations on the contractor and the authority agrees. The contract should specifically require compliance with the Participation Agreement and it must be agreed before the transfer of staff takes place. The contract for the transferred service should expressly provide that a breach of the Participation Agreement entitles the contracting authority to terminate the contract.

What contributions need to be made?

The guidance advises that employees will need to make contributions in line with those paid by members of the scheme working in the public sector.

Employers will be required to pay contributions in respect of employees covered by Fair Deal, ordinarily at the same level as all other employers in the scheme (subject to adjustment following a scheme valuation).

How is risk being allocated?

Advance agreement between contracting authorities and employers may be reached under which the authority will provide additional funding (or reduce funding) if a change in employer contributions arises following a valuation. The purpose of this is to remove the need for an employer to price this risk into the contract price. Any saving in the reduction of employer contributions may be paid to the authority to avoid a windfall gain for an employer.

Exit payments may be imposed on an employer where the scheme manager identifies that an employer's contributions may not be sufficient to meet the liabilities attributable to it under the scheme. Additional payment may also be requested if any employer has breached the terms of the Participation Agreement which leads to increased scheme liabilities.

Employers may be required to provide an indemnity, guarantee or bond to protect the scheme against the potential costs.

When does it not need to be followed?

Only in 'exceptional circumstances' and after consulting recognised trade unions (or consulting the affected staff if there is no union). The strength of the reasons put forward should be tested 'rigorously' by the contracting authority.

If staff are transferred without complying with the guidance, the old Fair Deal guidance should be followed and the independent contractor should provide access to a broadly comparable scheme.

Compensation may be payable to staff in the event that it was not appropriate to offer either access to a public service scheme or a broadly comparable scheme under the old Fair Deal.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2013. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.

Insights & events View all