Procurement Bill [ Lords ] (Third sitting)

Lloyd Russell-Moyle Excerpts

Committee stage
Thursday 2nd February 2023 Public Bill Committees

[Florence Eshalomi]

As the Minister outlines, the clause obliges authorities to divide larger contracts into smaller lots where that is appropriate for the contract. That is a useful and necessary power, and it is one that we hope SMEs will welcome. Breaking down contracts is a good way of making them more accessible for smaller companies. I mentioned the evidence from John Lichnerowicz, who said that it can be difficult for all but larger suppliers to take on bigger contracts that are not broken down. His written submission states that

“overstretched Procurement Departments would lump requirements into a single large procurement which would go to only the biggest companies in their field who would then have the freedom to pick their favourite sub-contractors effectively eliminating the contribution of equally capable sub-contractors and adding a main contractor’s margin into the sub-contractor’s costs for little benefit”.

[Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)]

In a number of contracts awarded recently by my council, the overall contractor ended up subcontracting people who had made separate individual bids but did not have the capacity to take on the bigger contract and therefore were not awarded it on that basis. Having big contracts is just a way of diverting money away from the taxpayer and into shareholders’ pockets, is it not?

[Florence Eshalomi]

I thank my hon. Friend for that valuable point. What we want for SMEs, and what SMEs tell us they want, is fair access to Government contracts—public money that should be going back into local communities up and down the country. Unless we ensure that larger contracts can be broken up into smaller lots and awarded directly to smaller companies, there will be a repeat of what we see with those big contracts. No one wants those same practices to be employed all over the country. I want the Minister to stress what oversight will be put in place to ensure that the important provisions in the clause are carried out and to ensure that all our SMEs truly benefit from public contracts.

[Alex Burghart]

As the hon. Lady will see in clause 18(2), contracting authorities will be required either to arrange by lots or to report on that; they will be required to give a reason, so there will be transparency.

The hon. Member for Brighton, Kemptown characterised money from public contracts as going into shareholders pockets. Obviously, larger contracts are also going to very successful charities. I can think of lots of examples of that in areas where I have lived and areas where I work and live now, so I do not wish to give the impression that is always the case.

[Lloyd Russell-Moyle]

Even if it were going to these mega-charities, which are huge international organisations and firms, it surely is not right for them to come in and take a contract, and take the top slice off it if the work is still done by small, local organisations. Whether they be for profit or not, local, small organisations should have a chance of just getting the smaller elements of the contract directly, should they not?

[Alex Burghart]

It is wonderful to hear the hon. Gentleman supporting our Bill once more. Making contracts more accessible to small and medium-sized enterprises is a major purpose of the Bill. It is not always mega, international charities that are getting local contracts. In Essex, I see that is not the case.

[Alex Burghart]

My hon. Friend makes an excellent point.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Clause 19

Award of public contracts following a competitive tendering procedure

[Lloyd Russell-Moyle]

I beg to move amendment 95, in clause 19, page 14, line 16, at end insert—

“(aa) must disregard any tender from a supplier that does not guarantee the payment of at least the Real Living Wage to all its own employees and contracted staff and those of any sub-contractors;”

This amendment, together with amendments 96 to 99, is designed to ensure that no public contract can be let unless the supplier guarantees the payment of the Real Living Wage to all those involved in the delivery of the contract.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 96, in clause 41, page 28, line 36, at end insert—

“(3A) A contracting authority may not award a contract under this section to a supplier that does not guarantee the payment of at least the Real Living Wage to all its own employees and contracted staff and those of any sub-contractors.”

See explanatory statement to Amendment 95.

Amendment 97, in clause 43, page 30, line 12, at end insert—

“(5A) A contracting authority may not award a contract under subsection (1) to a supplier that does not guarantee the payment of at least the Real Living Wage to all its own employees and contracted staff and those of any sub-contractors.”

See explanatory statement to Amendment 95.

Amendment 98, in clause 45, page 31, line 14, at end insert—

“(aa) permit the award of a public contract to a supplier that does not guarantee the payment of at least the Real Living Wage to all its own employees and contracted staff and those of any sub-contractors.”

See explanatory statement to Amendment 95.

Amendment 99, in clause 119, page 77, line 41, at end insert—

“‘Real Living Wage’ means the hourly wage rates for London and for outside London calculated annually by the Resolution Foundation and overseen by the Living Wage Commission (or their successor bodies);”

This amendment inserts a definition of the Real Living Wage for the purposes of Amendments 95 to 98.

[Lloyd Russell-Moyle]

From July in Scotland, grants will require that the real living wage is paid, and it is already included in procurement rules. That has led to Scotland now having fewer, in percentage terms, workers earning less than the real living wage than in England. We in England and Wales deserve the same. It pushes up wages across the sector. For too long, public authorities have used procurement as a way to undermine salaries and salary rates. It is an ideological viewpoint that the private sector is always best but, in reality, far too often, what “best” means is paying poverty wages. Sometimes innovation from the private sector and the charity and third sector is important, but if it is on the back of paying wages that are below standard, it is not acceptable. That is why I beg to move amendment 95 and linked amendments 96 to 99. Hopefully, they will start to redress the balance.

My hon. Friend the Member for Leeds East (Richard Burgon) asked the Minister’s colleague previously about the Government’s position on this, and the Government said that they do not believe in dictating employees’ wages. The reality is that by not setting a minimum floor—no one is suggesting a maximum—we are undermining good companies that pay good wages. Decent employers can lose out from people playing fast and loose with wages. We have seen numerous scandals, including fire and rehire, TUPE rules not being enforced and collective bargaining being undermined.

Wages below the real living wage require universal credit support. Let me be very clear: if someone is paid below the real living wage, the Government subsidise them. That is, in reality, a subsidy for that piece of work—that procurement. That puts companies whose workers do not receive that subsidy in a worse situation. To create a level playing field, all should receive the real living wage. That would mean that no employees in those companies have to receive a state subsidy for their work. That basic principle—that level playing field—must be enforced in this Bill.

Procurement bodies can incorporate a number of tests relating to the real living wage, but they cannot require that absolutism in contracts. If a company does not fulfil the living wage requirements set out in its procurement tender, but it does fulfil the other requirements, it is required to be offered the contract. That directly undermines the small and medium-sized organisations that work hard to pay the real living wage.

In Brighton, we have a great collaboration between the chamber of commerce, which requires all its members to pay the real living wage, and the trade unions. That kind of collaboration between businesses and unions needs to be supported. People who are not members of a chamber of commerce-registered body should not be able to come in and undermine those contracts.

The Minister might say that this proposal endangers international obligations, or that it means that UK workers are more fairly treated, but because Scotland has already incorporated it, we know it is not a breach of international agreements. It is important to ensure that British workers are respected when British money is being paid out—I should say English and Welsh money, because that is what these rules will be for. We need to ensure they get their just desserts and are not undermined by offshoring with low wages, and companies that are paying their fair share must not be undermined by universal credit subsidies. I commend these amendments to the Committee.

[Kirsty Blackman]

I congratulate the hon. Member for Brighton, Kemptown on these excellent amendments. I am glad that he mentioned what is happening in Scotland, and I will talk a bit more about that.

It is interesting that the Government say they do not believe in dictating employees’ wages, given that they literally set the national minimum wage and they refuse to lift it to the level of the real living wage. They absolutely could lift it to a level people can afford to live on, but they refuse to do so. They chose to change its name, rather than changing the amount and sorting out the significant age discrimination in the national living wage.

The hon. Gentleman is absolutely correct that in Scotland, 91% of people are paid at least the real living wage, which is significantly higher than the minimum wage in the other UK nations. In October 2021, we started to routinely mandate payment of the real living wage in Scottish Government procurement contracts. In 2022 we published updated statutory guidance under the Procurement Reform (Scotland) Act 2014 to reflect the change and the extension of the Fair Work First criteria to include specific reference to provision of flexible working and no use of fire and rehire. We have gone even further than the real living wage; our public money must be spent in a way that requires fair work practices. That is incredibly important because we have the opportunity to spend public money in a way that supports workers and ensures people are best placed to manage the cost of living crisis that we currently face. It ensures that people are fairly paid.

We are not asking for much. Ensuring that people are paid a wage that they can live on and does not need to be subsidised quite so much by universal credit is not a big thing to ask for. We are asking for dignity and respect for people. We are asking for people to be paid a fair wage and to be treated fairly.

[Lloyd Russell-Moyle]

There is an alternative to these amendments, which is for the Government to adopt Labour’s policy to change the rules of the national minimum wage so that they take into account the cost of living in this country and therefore adopt the standard of the real living wage. I am sure the hon. Lady would support that Labour policy.

[Kirsty Blackman]

Absolutely. We have for a long time been calling for the UK Government to change their national pretendy living wage to an actual real living wage. We have also asked for the age discrimination to be removed, because it does not cost a 17-year-old with one child any less to run a house than it costs a 32-year-old with one child; people face exactly the same costs. The UK Government are trying to require people to live with their parents, which is exclusionary and discriminatory because not everybody has that option.

The Minister is right to say that the Bill applies in England and Wales and also in reserved functions carried out in relation to Scotland, so there will be some impact on Scottish procurement, or on procurement that affects Scotland or is in Scotland. But I fear that he misunderstands the devolution settlement and the constitution when he suggests that perhaps I, as a Scottish MP from a Scottish constituency, elected to this place that makes laws, should not express an opinion. I was elected to this place in the same way as he was. There are not two tiers of MPs in this place, or so we were told by the Conservative Government when they put through the English votes for English laws rules. There is no two-tier system, so it is appropriate for me to comment on these situations and support amendments, and to consider whether the impact on workers is important. Whether they are in England, Wales or Scotland, it is important.

It is also appropriate for me to consider the Barnett consequentials of any decisions made. For example, if there is a change in the way that procurement legislation works so that more people are paid the real living wage, we might see a situation where procurement ends up with slightly higher costs and universal credit ends up with slightly lower costs, meaning that we end up with more Barnett consequentials for the Scottish Parliament to spend and greater flexibility within our very limited budgets.

If the Minister is going to continue criticising the Scottish Government’s and the Scottish Parliament’s approach to procurement—he is within his rights to do so—he has no high ground in talking to me if I talk about the England and Wales approach to procurement. I am perfectly entitled to do so. In fact, he has not been elected to the Scottish Parliament, which has power over procurement in Scotland; he has been elected to this Parliament, which does not.

--- Later in debate ---

[Alex Burghart]

Amendments 95 to 99, tabled by the hon. Member for Leeds East, would place legal requirements on contracting authorities in respect of the Resolution Foundation’s real living wage in their procurements. That would ensure that no public contract could be awarded unless the supplier guaranteed the payment of the real living wage to all those involved in the delivery of the contract, including subcontractors.

While the principle behind the amendments is admirable, the Government cannot support them. It is imperative that all contracts are awarded on the basis of the best value for money for the taxpayer and that staff employed on the delivery of public contracts are paid fairly, in line with existing legal requirements. But using procurement rules to compel private sector employers to pay their workers beyond minimum legal requirements would be disproportionate.

The hon. Member for Brighton, Kemptown talked about a floor. There is a floor: for this Government, it is the national minimum wage, or the national living wage for workers over 23. He also mentioned insourcing. Obviously, procuring authorities are completely at liberty to insource if they so wish, and the Bill does nothing to prevent that. If procuring authorities feel that they can get better services, a better deal or better conditions by insourcing, they are entirely at liberty to do so.

I should also let hon. Members know that when constructing a contract, a procuring authority can stipulate pay and conditions as part of that contract. Procuring authorities have big levers at their disposal.

[Lloyd Russell-Moyle]

Can the Minister give me an assurance that the terms and conditions that procuring authorities can issue can be the sole reason for not awarding a contract, if a supplier does not fulfil that sole clause?

[Alex Burghart]

I cannot give the hon. Gentleman an absolutely categorical answer, but I can tell him that procuring authorities have it within their power to use that as part of a suite of conditions.

[Lloyd Russell-Moyle]

I am not quite clear whether the Minister is unable to give me an assurance from his position, or because procuring authorities cannot do so. If he just cannot give me an assurance from his position, I would appreciate his writing to me to confirm whether procuring authorities have the ability to put in a clause that says, “We can disregard contracts that do not fulfil our wages and conditions requirements.”

[Alex Burghart]

I will certainly let the hon. Gentleman know.

The hon. Member for Aberdeen North raised a number of general points; I encourage her to go back and read Hansard. I am delighted that she is here; I am delighted that Scottish MPs are in the UK Parliament, and that the Scottish people voted to keep them here at the last referendum. I am very pleased that she is on the Committee and bringing her experience to it.

The hon. Lady will have heard me say in the Westminster Hall debate the other day that I wish the SNP was more involved in the running of the constitution of the United Kingdom. I wish, for example, that it was prepared to take up its seats in the House of Lords, in order to engage with debate there and further the interests of the people of Scotland. Alas, it would seem that the SNP has better things to do.

The hon. Lady said that I have said that she should not be talking about these matters. I really do not mind at all if she talks about these matters, but obviously, some amendments have Barnett consequentials and others do not. As long as she is happy for me to discuss what goes on in Holyrood and in Scotland, I am very happy for her to discuss what goes on in Westminster and in English authorities. I have no problem with that at all.

Returning to the issue at hand, as I say, it remains open to contracting authorities to include conditions or criteria around pay and remuneration in their tenders. Should they feel it is appropriate in the individual circumstances, they can design a procurement around those criteria. I respectfully ask that the amendment be withdrawn.

[Lloyd Russell-Moyle]

I would have been willing to withdraw the amendment if the Minister had been able to give me a cast-iron guarantee that procuring authorities could reject a contract solely on the basis of a failure to meet a wage level. He has not been able to give me that guarantee—although I welcome that he will be writing to me to confirm the position—so I do want to test the water on amendment 95. I will not move the other amendments.

Question put, That the amendment be made.

--- Later in debate ---

[Florence Eshalomi]

While our response to amendments 30 and 31 is lukewarm, we think that they are important. We want all contracting authorities to consider value for money for the taxpayer when making procurement decisions, but there is a substantial risk of accepting below-value tenders for bids. Procurement has to be sustainable, and we know too well the risks when we get that wrong.

When considering the Bill, we must all remember 15 January 2018 and the collapse of Carillion. When it went into liquidation, it employed 42,000 people, including nearly 20,000 people in the UK. It also had a liability of £2 billion to some 30,000 suppliers and subcontractors, some of which sadly fell into insolvency themselves as a result of the collapse. While there are excludable grounds relating to poor procurement practices set out in later clauses of the Bill, I do feel that these amendments provide another check against the reckless behaviour of companies such as Carillion.

In 2018, following the collapse of Carillion, the then Chair of the Public Administration and Constitutional Affairs Committee, the hon. Member for Harwich and North Essex (Sir Bernard Jenkin), said:

“It is staggering that the Government has attempted to push risks that it does not understand onto contractors, and has so misunderstood its costs. It has accepted bids below what it costs to provide the service, so that the contract has had to be renegotiated. The Carillion crisis itself was well-managed, but it could happen again unless lessons are learned about risk and contract management and the strengths and weaknesses of the sector.”

[Lloyd Russell-Moyle]

To some extent, has that not already happened again on the east coast franchise? Twice, unrealistic bids have been accepted and then collapsed, requiring the Government step in. It is not unusual for that to happen, so the amendments are good but probably not strong enough.

[Florence Eshalomi]

I thank my hon. Friend for highlighting that those lessons do not seem to have been learned.

The hon. Member for Harwich and North Essex went on to say:

“Public trust requires that outsourcing better reflects public service values. The Government must use this moment as an opportunity to learn how to effectively manage its contracts and relationship with the market.”

The amendments will not fully solve the problems associated with Carillion, or the problem just mentioned by my hon. Friend the Member for Brighton, Kemptown, and a culture shift in procurement should have taken place following the collapse of Carillion. However, they do provide a safeguard for authorities to use against abnormally low and unsustainable bids.

Finally, will the Minister outline the wider impact of changing “most economically advantageous tender” to “most advantageous tender”?