Procurement shake-up as Employment Rights Bill changes aim for pay parity

The changes come as part of a range of measures, including the proposed reintroduction in the Employment Rights Bill of the ‘two-tier code’ which would protect enhanced public sector terms when services are outsourced. 

Under the code, which is scheduled to be in place from October 2026, providers of outsourced services would be required to offer new staff the same preferential terms as former public sector staff delivering the services.

“Organisations delivering outsourced services - especially those services with legacy public sector ties - must prepare for increased scrutiny and potential cost implications tied to terms and conditions and pay parity,” said Sue Gilchrist, an employment law expert at Pinsent Masons.

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Totis Kotsonis, a procurement law expert at Pinsent Masons, added: “The new code’s laudable aims of protecting salaries and employment rights may well lead to increased costs in the delivery of affected public contracts, with suppliers seeking to pass on the additional costs that compliance with the new law would entail to contracting authorities. No doubt the government would have considered this risk, but would have concluded that it was a risk worth taking in light of the aims which the Bill is seeking to achieve”.

Separately, the Equalities and Human Rights Commission, which in the absence of any new regulator being appointed is likely to take a regulatory role in enforcing the new rules, has endorsed stronger enforcement rules and heightened transparency requirements to support equal pay reforms. The government is also considering responses to its recent call for evidence on equality law, which included consideration of what measures could be taken “to ensure that outsourcing of services can no longer be used by employers to avoid paying equal pay”. Measures enacted as a result will impact the bottom line for service providers.

Susannah Donaldson, employment and equality law expert, said: “The government is applying pressure via a range of measures to achieve its aims of boosting pay for lower paid workers, including workers providing outsourced services engaged on a lower hourly rate than the employees of the end-user client. Other measures including reducing pay discrimination and enhancing pay transparency are also incoming.”

Finally, new social value rules effective from October 2025 will also mark a shift in public procurement and will impact employers bidding for certain contracts, said Kotsonis.

The new social value guidance, which was introduced in February and becomes mandatory in a number of contracting scenarios from 1 October, expands on the government’s policy initiatives. Factors which are relevant in procurement include ensuring new workers are informed of their right to union membership; opening all roles to flexible working from day one, where appropriate; monitoring and reporting of gender and ethnicity pay gaps; and entitlement to sick pay for the contract workforce from day one of absence, with provision in place for any staff who do not meet the earnings threshold for statutory sick pay.

Kotsonis said: “Applying the revised social value model will be mandatory for certain contracting authorities in certain circumstances and must account for at least 10% of the scores available for the quality aspects of tenders. For suppliers, their social value offering could mean the difference between winning and losing the contract. Suppliers should familiarise themselves with the model and identify areas in which they are weak. They can then work on improving in these areas to improve their chances of winning the next procurement where the social value model is applied.”