Procurement Reform (Scotland) Act 2014: statutory guidance

5. Fair Work First requirements in procurement

5.1. Introduction

This chapter replaces the Statutory Guidance on the Selection of Tenderers and Award of Contracts: Addressing Fair Work Practices, including the real Living Wage, in Procurement that was published on 6 October 2015. The update reflects development of the Scottish Government's policy on Fair Work First, including payment of the real Living Wage and its application within Scottish public procurement.

Fair Work is central to achieving the Scottish Government's priority for sustainable and inclusive economic growth. Fair Work supports both economic and social policy and, therefore, benefits people and communities as much as employers and the economy. For workers, it can bring increased financial security, better physical health and greater psychological wellbeing. For business, it can bring more engaged, committed and adaptable workers who spot challenges and opportunities, solve problems, offer insight and ideas for business improvement and create value. Fair Work can therefore improve productivity, innovation, organisational reputation and recruitment, reduce staff turnover, and lead to diverse workplaces with a richness of talent and a diversity of ideas.

Fair Work First is the Scottish Government's policy for driving high quality and fair work across the labour market in Scotland. By applying Fair Work First as part of the procurement process for contracts being awarded across the public sector, public procurement may attract economic operators who are likely to deliver a higher quality of service and have a positive impact on those workers engaged in the delivery of the contract. The Fair Work First criteria are:

• Appropriate channels for effective voice, such as trade union recognition;
• Investment in workforce development;
• No inappropriate use of zero hours contracts;
• Action to tackle the gender pay gap and create a more diverse and inclusive workplace;
• Providing fair pay for workers (for example, payment of the real Living Wage);
• Offer flexible and family friendly working practices for all; and
• Oppose the use of fire and rehire practices.

A contracting authority must consider, before undertaking a procurement exercise, whether it is relevant and proportionate to include questions on Fair Work First including the real Living Wage. These should be evaluated along with other relevant criteria, while ensuring the appropriate balance between quality and cost of the contract. To do this, a contracting authority should consider Fair Work First criteria as they might apply to all workers engaged in delivering a public contract.

5.2. Purpose of this chapter

This chapter describes what is required of a contracting authority to advance Fair Work through procurement. It sets out the Scottish Government's policy for driving high quality and fair work across the labour market in Scotland by applying Fair Work First criteria to public contracts.

For clarity, examples of when Fair Work First criteria should be considered in procurement documents are available below at Pre-procurement practices.

Fair Work First Guidance is also available for those who are involved in awarding public contracts, public sector grants and other funding including sponsorship arrangements. Similar to the procurement guidance, it is designed to encourage and support economic operators to adopt Fair Work First practices within their organisation.

5.3. Legal basis of this chapter

The Scottish Ministers have published this statutory guidance under section 29 of the Act. A contracting authority must have due regard to this guidance in relation to the selection of tenderers and the award of contracts for regulated procurements where the estimated value of the contract is equal to or greater than £50,000 for goods and services and £2 million for works, and which is not otherwise exempt from regulation.

This guidance covers the consideration of Fair Work First criteria in regulated procurement exercises relating to recruitment, remuneration (including payment of the real Living Wage) and other terms of engagement of persons involved in producing, providing or constructing the subject matter of the regulated procurement, and employee representation including trade union recognition.

A contracting authority is encouraged to read it in conjunction with the other chapters of this guidance and with relevant guidance available in the Sustainable Procurement Tools. The Tools offer a range of practical guidance for a contracting authority and economic operators to use at key stages of a procurement process, including example Invitation to Tender questions.

A contracting authority is also encouraged to apply this guidance for lower value, or excluded contracts where a formal tender evaluation is to be undertaken and where fair work practices are relevant and proportionate to the quality of the contract.

In all cases, a contracting authority should satisfy itself that any frameworks it uses, complies with its statutory obligations by ensuring that relevant sustainable procurement considerations, including Fair Work First are built into frameworks.

Monitoring and Reporting

Section 15 of the Act requires a contracting authority, which estimates that the value of its regulated contracts in a year will be equal to or greater than £5,000,000 to prepare an organisational procurement strategy. That strategy must include a statement of the authority's general policy on the payment of a living wage to persons involved in delivering the subject matter of its regulated procurements.

In line with the sustainable procurement duty, a contracting authority should also consider including a statement outlining its commitment to implementing Fair Work First in its strategy. The statement should highlight that the contracting authority may use a range of approaches to promote Fair Work by:

• implementing Fair Work First, and requiring payment of the real Living Wage;
• asking contractors to demonstrate that they are fair work employers;
• using discretionary exclusion criteria to exclude contractors from tendering for public contracts; for example breach of any obligations in the fields of social, environmental or employment law.

A contracting authority that has prepared or revised a procurement strategy should use this as the basis to report on compliance in their annual procurement reports. See Chapter 2 for more details.

Related Legislation

Above Higher Value thresholds, a contracting authority must have due regard to whether the award and conditions of contract should include considerations to enable the better performance of the public sector Equality Duty.

In addition to requiring equal pay and non-discrimination, equality legislation places duties on a contracting authority to promote equality through their actions. A contracting authority is also required to pay due regard to the Fairer Scotland Duty, which transposed part 1 of the Equality Act 2010 in April 2018. It places a duty on a contracting authority to make procurement decisions of a strategic nature that reduce inequalities of outcome caused by socio-economic disadvantage.

5.4. Guiding principles

Fair Work First is the Scottish Government's policy for driving high quality and fair work across the labour market in Scotland and is underpinned by the Fair Work Framework laid out by the Fair Work Convention, an independent advisory body of the Scottish Government. Fair work is work that offers all individuals an effective voice, opportunity, security, fulfilment and respect. Full details on each dimension are available in the Fair Work Framework. Information on the seven Fair Work First criteria is available in the Fair Work First Guidance.

Human rights standards include the range of human rights obligations set out in the international human rights treaties to which the UK is a State Party. The Scottish Government is committed to economic and social rights, including those set out in the International Labour Organisation's (ILO) core conventions and the International Covenant on Economic, Social and Cultural Rights (ICESCR).

This includes the right of everyone to just and favourable working conditions such as fair pay, safe and healthy working conditions, and reasonable working hours. The obligations set out in these instruments should be respected, protected, and fulfilled by those who deliver public contracts, including sub-contractors. They should be able to demonstrate that they are good employers who have adopted policies which comply with relevant employment, equality and health and safety law, human rights standards, and adhere to relevant collective agreements.

Public Contracts (Scotland) Regulations 2015 and the Procurement (Scotland) Regulations 2016 allow a contracting authority to exclude a bidder from a procurement process on the basis of breaches of social, environmental and employment law. SPPN 3/2020 promotes measures aimed at ensuring contractors' compliance with environmental, social, and employment laws in the performance of public contracts. It includes a suggested approach to ethical procurement, and asks a contracting authority to consider a similar approach in their own procurement activity.

Payment of the real Living Wage

The Scottish Government considers fair pay, including payment of the real Living Wage to be a significant indicator of an employer's commitment to fair work practices and that payment of the real Living Wage is one of the clearest ways that an employer can demonstrate that it takes a positive approach to its workforce.

It is possible to require the real Living Wage to be paid to workers delivering public contracts where: it is relevant to how the contract will be delivered; it does not discriminate amongst potential bidders under international treaty obligations; it is proportionate to do so; and, where the contract will be delivered by workers based in the UK.

Where a contracting authority establishes that it can mandate the real Living Wage and has included payment of the real Living Wage as a requirement in the Invitation to Tender documents, the contracting authority can exclude an economic operator from further consideration where they have failed to confirm in their tender that they will pay staff involved in delivering the contract at least the real Living Wage.

5.5. For contracting authorities

A contracting authority can contribute towards addressing the economic and social wellbeing elements of its sustainable procurement duty under Section 9 of the Act by including Fair Work First in relevant public contracts.

Consideration of an economic operator's approach to Fair Work First must be a proportionate one, based on the nature, scope, size and place of the performance of the contract. An economic operator's approach to adopting Fair Work First may vary depending on its size, status and sector it operates in.

A contracting authority must therefore consider an economic operator's overall approach to adopting Fair Work First and economic operators must be treated equally as stated in-line with the general duties in the Act. This should include consideration of all relevant evidence. This may involve for example the economic operator's policies, practices and plans in place to adopt Fair Work First.

Wherever Fair Work First may be relevant to the quality of service or goods or delivery/performance of the contract, it is important that an economic operator's approach to adopting Fair Work First is evaluated as part of the procurement exercise, both as it applies to the workforce that will perform the contract and any sub-contracting chain. Specific examples on evaluating fair work practices in public contracts are available in the Fair Work First in Procurement Guidance.

Fair Work First practices for those who work on public contracts should be comparable with those adopted by public sector organisations for its own workforce.

5.6. For economic operators

Fair work practices can have a direct impact on the quality of service it delivers, the goods it supplies and works performed. Fair work practices will be particularly relevant to consider where the quality of the services or goods delivered are affected by the quality of the workforce engaged.

An economic operator should be able to describe how it adopts Fair Work First for all workers engaged on delivering public contracts, including any agency and subcontractors^[40]. This may include fair pay (for example, paying workers at least the real Living Wage, paying collectively bargained rates, and undertaking equal pay audits), respecting employee rights, avoiding exploitative employment practices, supporting appropriate channels for effective voice, such as trade union recognition; encouraging staff to join an appropriate trade union; involving their employees in decision making processes; investing in workforce training and development, offering family friendly working practices from day one of employment and opposing the use of fire and rehire practices.

An economic operator of any size (i.e. micro, small, medium and large businesses) bidding for a public contract, regardless of its value, should pay all workers involved in delivering the contract fairly. For example, by paying them at least the real Living Wage.

5.7. Pre-procurement practices (Supply Market Analysis/Market Sounding)

Prior to commencing a procurement, and in line with regulation 41 of the Public Contracts (Scotland) Regulations 2015 and the sustainable procurement duty, a contracting authority should take time to carefully understand the market and assess the risks and opportunities. An early Life Cycle Impact Map can help draw out risks and opportunities for individual projects and lead to appropriate market research.

Market sounding typically includes researching and analysing the market and engaging with economic operators and/or stakeholders to understand the opportunities and risks for sustainable outcomes before starting a procurement process.

Moreover, this can help a contracting authority to consider whether there is scope to address any wider fair work practices, as set out in the Fair Work Framework, as part of a procurement process in a way that is relevant, proportionate and treats economic operators bidding for public contracts equally.

To attract the most appropriate economic operator, a contracting authority should consider what its intended outcomes are for the planned procurement and to what extent the Fair Work First criteria are relevant and proportionate to the contract.

Early market engagement can help a contracting authority gather background information about the nature of fair work practices that are typical in the sector and if sectoral collective bargaining agreements are in place. This will also provide information on what risks and opportunities there are and help the contracting authority consider how the Fair Work First criteria can help to address any concerns.

Further, early market engagement can help a contracting authority to understand more about economic operators and their supply chains, for example, whether the contract will typically be delivered by a supply chain of sub-contractors, self-employed workers, micro, small, medium or large businesses and how the contract may be delivered, for example using workers based in the UK or abroad. It is also an opportunity to establish whether the supply chain is susceptible to exploitative practices.

Careful consideration should also be made by the contracting authority as to how its intended outcomes will be measured and monitored and what a good response to a tender should look like.

A contracting authority should seek input from other areas of its own organisation, stakeholders, industry bodies or trade unions to establish how any wider fair work practices, could be addressed in a particular commodity/business area and to shape commodity/procurement strategies.

Determining relevance

Fair Work First criteria is likely to be relevant wherever workers are likely to have an impact on the quality of the contract or where workers will be required to interact directly with the contracting authority's employees and/or members of the public and whether they will spend time on the contracting authority's premises.

In deciding whether or not Fair Work First is relevant to the quality delivered under a contract, it is important to consider all relevant factors and be able to justify their inclusion in any decision making process. These factors may include whether:

• There is a risk that workers working on the contract might be subject to exploitative practices. For example:
  • There is any history of discriminatory, unequal and low pay in that sector that is impacting on the quality of the contract to be delivered;
  • Contractors are seeking to cut their costs through driving down staff terms and conditions, including pay;
  • There has been inappropriate use of zero-hours contracts;
  • Fire and rehire practice for the purpose of diminishing terms and conditions;
  • Unnecessary distancing of the employer-worker relationship, for example, by inappropriate use of an "umbrella company";
  • Through pay and hours arrangements that deny workers stability of employment or hours of work, for example, by failing to pay wages for travel time within working time;
• There is employer opposition to trade union recognition and access; and
• There is evidence that working conditions are making recruitment and retention problematic.

If the answer to any of the above questions is "yes", then Fair Work First criteria are likely to be a relevant consideration for the contract in question. This is not, though, an exhaustive list and other factors may be relevant depending on the specifics of an individual contract.

For further examples of where it may be relevant to include Fair Work First criteria in respect of public contracts for works, services and the supply of goods see the Fair Work First in Procurement Guidance.

The weighting of a Fair Work First criterion should be determined by a contracting authority on a case-by-case basis to ensure it is relevant and proportionate to the contract in question.

5.8. Economic operator selection

Careful consideration must be given to whether it is relevant and proportionate to address fair work practices as selection criteria. To encourage economic operators to adopt fair work practices; to participate in public procurement, and to ensure equal treatment between potential economic operators, any requirements must be relevant and proportionate to the subject matter of the contract. A contracting authority must carefully consider the market and sectoral norms to minimise the unintentional deselection of capable economic operators.

It may be more appropriate to include fair work practices in award criteria, which encourage economic operators bidding for public contracts to explain how the fair work practices they propose to apply will positively impact on the way the contract is performed.

Where a track record is a relevant and proportionate requirement, an economic operator should be able to describe how it adopts Fair Work First. This may include:

• policy and practice relating to fair and equal pay (for example, paying workers at least the real Living Wage, paying collectively bargained rates, and undertaking equal pay audits)
• respecting employee rights
• avoiding exploitative employment practices
• supporting progressive workforce engagement by involving their employees in decision making processes and encouraging staff to join an appropriate trade union and recognising a trade union
• support investment in workforce training and development
• offering family friendly working practices from day one of employment
• opposing the use of fire and rehire practice.

Exclusion grounds

A contracting authority can exclude an economic operator from tendering for public contracts where it falls within a ground for exclusion; for example breach of any obligations in the fields of social or employment law. These obligations include any relevant national legislation, as well as relevant collective agreements and specific international agreements. See Chapter 6 for more details on exclusion grounds.

Selection and exclusion criteria should be applied through use of the Single Procurement Document (SPD).

5.9. Evaluation and award

One of the key aims of applying award criteria is to achieve value for money by balancing cost and quality, including sustainability. Fair Work First should be evaluated in a similar manner to other aspects of the requirement: evaluation must ensure equal treatment of economic operators and be conducted in a proportionate, objective and transparent manner.

Evaluation of Fair Work First requirements should include evaluation of an economic operators' commitment to adopting the Fair Work First criteria, ensuring that it demonstrates an understanding of how to achieve them.

A range of examples of how to evaluate Fair Work First requirements in bids, including payment of, at least, the real Living Wage, are available in the Fair Work First in Procurement Guidance.

Where it is appropriate to mandate payment of the real Living Wage, a contracting authority is encouraged to ask a separate tender question to the other Fair Work First criteria. Model questions and how this can be done are available in the Fair Work First in Procurement Guidance.

As detailed in Chapter 6, at the contract award stage a contracting authority must ensure that the contract complies with the conditions, requirements and criteria set out in the Procurement Documents. Regulations allow a contracting authority to reject bids that do not comply with applicable obligations in the fields of environmental, social and employment law established by specific International Obligations, national law, or collective agreements. They also place a legal obligation on a contracting authority to reject bids that have been found to be abnormally low because they do not comply with applicable obligations in environmental, social or employment law.

5.10. Contract management

Effective contract management and monitoring should be undertaken to ensure that Fair Work First continue to be applied throughout the duration of the contract, for example, by requesting information on the pay and terms and conditions of workers involved in the delivery of the contract and ensuring an appropriate dispute resolution process is in place. For example, dispute resolution should be considered in all large scale public contracts before work begins on-site. The contracting authority should ensure that a mandatory dispute resolution procedure is in place for employees prior to work commencing. It may be appropriate to involve the relevant trade union in discussions to achieve this. Further guidance on contract management is available in Fair Work First in Procurement Guidance and in the Procurement Journey.