External Private Contractors: Government Use and Employment

Debate between Chris Stephens and Paula Barker

Wednesday 21st October 2020 Westminster Hall

[Paula Barker (Liverpool, Wavertree) (Lab)]

I beg to move,

That this House has considered Government use of external private contractors and effect on employment.

It is a pleasure to serve under your chairmanship, Mr Pritchard. The question before the House is the use of external private contractors and its effect on employment. I am grateful to hon. Members for participating in this important debate. The recent pandemic has shone a spotlight on public sector procurement and the awarding of contracts. Although it is incumbent on the Government to ensure value for money for the taxpayer and quality of service delivery, they also have a duty, whether they like it or not, to those workers tasked with delivering services on which both Government and public rely. I believe that, on all fronts, the Government are failing in their responsibilities in that regard and so are failing taxpayers and workers alike.

Recent examples include the likes of Serco, which has received beyond hefty sums of taxpayer cash to run a failed test and trace system. The revolving door of Government, ex-Ministers and outsourcing companies is pernicious in every sense and does little to instil public confidence in a method of service delivery that is fundamentally flawed. I hope that other Members will speak more on this Government failure as the debate progresses. They will no doubt highlight other examples of failed contracts worth hundreds of millions of pounds.

I have chosen to concentrate on the example of civil service facilities management work in this speech, but if we substituted for the civil service nearly every NHS trust, many councils and other public sector bodies, my observations would unfortunately still be valid. The experience of the civil service is generally the same as that across the public sector, but I particularly wanted to concentrate on the civil service, as I am hoping that Ministers will now start to consider the outsourcing model itself.

It goes without saying that if workers win improvements through union action, that immediately has an impact on the outsource company’s bottom line. Those companies, especially where there is no trade union recognition, then tend to try to recoup lost revenue by cutting staff or their working hours. There are natural limits to productivity gains made through cutting staff. Inherently, the model is unstable and leads to companies running into financial difficulties.

Let us look at the Mitie-Interserve merger. My argument is well illustrated by the announcement in June that Mitie and Interserve’s facilities management arm are to merge at the end of the year, subject to shareholders approving a £271 million share purchase. In reality, Mitie is taking over Interserve. Both companies hold a number of civil service and public sector contracts, worth more than £2 billion of public money. Mitie’s biggest contract is for the provision of in-country and overseas escorting for the Home Office. That contract is worth £514 million. Interserve’s biggest contract is the Department for Work and Pensions estate and facilities management contract, worth £225 million.

Interserve has clearly been in financial difficulty for some time. Last year, it went into pre-pack administration. At that time, the Labour party called for a temporary ban on Interserve bidding for public contracts, but that call was not heeded. We know that Interserve was awarded a five-year facilities management contract worth £670 million by the Foreign and Commonwealth Office in early August 2018. Shortly after that contract was awarded, Interserve moved to cut staff, and Public and Commercial Services union members went into a long-running dispute over job cuts, pay, sick pay entitlement and trade union recognition. The company issued profit warnings in March 2015, then two more in 2016, and another as recently as 2018.

Mitie has been involved in multiple disputes with its employees: we can cite the Royal Opera House, the Houses of Parliament, First Great Western, London Underground, and various NHS hospitals. It was subject to an investigation into its MiHomecare business by Her Majesty’s Revenue and Customs for paying its employees less than the minimum wage. Industrial relations in Mitie are so bad that in March 2019, Unite the union said that it should be barred from acquiring contracts due to its woeful treatment of its workforce. That Unite warning is interesting, as even a few months ago it was clear that Mitie and Interserve were considering a deal.

This is where the similarities with Carillion might be interesting to consider, so what can we learn from the lessons of Carillion? The report of the joint inquiry by the Select Committees on Business, Energy and Industrial Strategy and on Work and Pensions recommended

“that the Government immediately reviews the role and responsibilities of its Crown Representatives in the light of the Carillion case. This review should consider whether devoting more resources to liaison with strategic suppliers would offer better value for the taxpayer.”

I do not know whether that recommendation was acted on in relation to facilities management contracts in the civil service, but it does not appear to have been exercised in this instance to scrutinise Mitie and Interserve.

Moving on to the issue of inequality in pay and employment terms, each civil service department has to comply with the public sector equality duty. The civil service does not have to award contracts where only the minimum wage is paid, statutory sick pay is given, and trade union recognition is not a right. It could choose to make the payment of the real living wage, full sick pay from day one, and trade union recognition a condition of the contract, as many local authorities have begun to do.

Research carried out by the PCS union shows that only two of the 23 ministerial Government Departments pay the real living wage to their facilities management outsourced workers, and no Department includes a policy of paying more than the statutory sick pay as a requirement of awarding a contract. Departments know that in their major urban areas, cleaners, security guards and so on are predominantly of black, Asian and minority ethnic origin, and nearly all cleaners are women regardless of where they work. From the observations of the PCS union, as relayed to me, senior managers and certainly Ministers believe that outsourcing work means they have no responsibility to those facilities management workers, whether in terms of pay, terms and conditions of employment, equality of treatment, or health and safety.

If we look at that indifference to health and safety obligations, we find that even though health and safety laws put clear obligations on civil service departments and facilities management companies working in the same buildings to co-operate and co-ordinate their health and safety at work—that is, regulation 11 of the Management of Health and Safety at Work Regulations 1999—in reality we have had immense difficulty in getting the civil service to comply with the law. That indifference leads to what we see as a grotesque admission by the Cabinet Office, which we take as a proxy for the civil service, that it does not know how many facilities management workers have died due to covid, let alone their ethnicity. We know that at least six facilities management outsourced staff have died owing to the virus, all of them of BAME origin.

Turning to the issue of sick pay, in a recent survey—again conducted by PCS—86% of outsourced facilities management workers who responded said that they had often continued to work when they had been unwell because they could not afford to take time off sick.

[Chris Stephens (Glasgow South West) (SNP)]

I thank my Unison comrade for giving way. To support that particular proposition, there is a Unison briefing that shows that in schools in England, many of the private companies are only paying statutory sick pay. Does the hon. Lady agree that this puts people in the position of having to choose between statutory sick pay and going into work, which is more likely to spread the virus?

[Paula Barker]

Sadly, I concur with the hon. Gentleman’s observations. Covid-19 has brought into sharp focus the inequality between the sick pay provisions of civil servants and those of outsourced workers employed on civil service contracts.

Through PCS talks during covid-19, most civil service departments adopted a policy of paying their outsourced staff full pay for covid-19-related absences until the end of June 2020. From July 2020, Cabinet Office guidance was updated to allow the arrangement to continue where appropriate. As part of PCS’s campaign to defend and extend the right to full sick pay, it wrote to the Prime Minister in June, setting out the case for all outsourced Government workers to be paid full sick pay from day one. Disappointingly, there has been no response.

Does outsourcing facilities management services achieve social value? The simple answer is no. Section 1(3) of the Public Services (Social Value) Act 2012 requires a public sector authority to consider how a procurement

“might improve the economic, social and environmental well-being of the relevant area”.

When awarding central Government contracts, the Cabinet Office is obliged to consider the wider social benefits of procurement to ensure that cost does not override other Government considerations.

I want to take the opportunity to thank you, Mr Pritchard, for overseeing today’s debate. Let us move forward by initiating an open, frank and honest debate, with which I hope the Government will actively engage in the coming period. Value for money is not always delivered by the current procurement and outsourcing arrangements. For a Government who claim to pride themselves on hating waste, the reality is that nothing could be further from the truth.

The Government should be ambitious and see what services can now be brought back in-house. Fundamentally, the truth remains that when workers are paid properly and valued, productivity is better. After a long, difficult year for so many workers, the Government have often waxed lyrical. It is high time that politicians clearly show whose back they have—the cleaners, the contact tracers, the security staff and all manner of low-paid staff, or the directors of outsourcing companies.