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The Living Wage and EU procurement

Payslip iStock 000005826087XSmall 146x219As interest grows in requiring contractors to pay the Living Wage, Deborah Ramshaw looks at the interplay with EU procurement rules. 

The modern UK Living Wage Campaign was launched by members of London Citizens in 2001. The founders were parents in the East End of London, who wanted to remain in work, but found that despite working two minimum wage jobs they were struggling to make ends meet and were left with no time for family and community life.

In 2005, following a series of successful Living Wage campaigns and growing interest from employers, the Greater London Authority established the Living Wage Unit to calculate the London Living Wage.

In 2011 Citizens UK brought together grass roots campaigners and leading employers from across the UK to agree a standard model, calculated by the CRSP, for setting the UK Living Wage outside of London.

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The current statutory minimum wage in the UK is £6.19 per hour, by contrast the London Living Wage is currently £8.55 per hour and for those outside London the current Living Wage is £7.45 per hour. The rates are set annually and independently and are calculated according to the basic cost of living in the UK.

Employers can voluntarily choose to pay their employees a Living Wage and many public and private companies now do so and receive accreditation from the Living Wage Foundation.

Living wage and contractors

One of the issues for public sector organisations is whether, during a procurement process, a requirement for contractors to pay a UK Living Wage to their staff if successful, would infringe the EU procurement rules.

Social considerations in EU procurement can be problematic, particularly where they are linked to award criteria rather than contract performance conditions. Where social considerations are used in assessing the most economically advantageous tender they must:

  • be relevant and linked to the subject matter of the contract;
  • be proportionate to the needs of the contracting authority and not discriminatory;
  • be reasonably specific and expressly mentioned in the OJEU notice and tender documents;
  • be effective enough to enable identification of the most economically advantageous tender;
  • not confer an unrestricted freedom of choice.

Social considerations incorporated as contract conditions must be:

  • non-discriminatory;
  • indicated in the OJEU notice or tender documents;
  • true contract conditions and not disguised as selection or award criteria – tenderer’s ability to comply with the conditions should not be assessed as part of the selection or award but tenderers must undertake to comply with the conditions if they are successful in being appointed.

The Public Services (Social Value) Act 2012

The above Act applies to all service contracts and frameworks to which the Public Contracts Regulations 2006 (the “Regulations”) apply. As part of pre-procurement planning contracting authorities are under a duty to consider how what is being procured might improve the economic, social and environmental wellbeing of an authority’s area. The authority must also consider how, through the procurement, it can secure that improvement whilst acting proportionately and ensuring any action is relevant.

In certain circumstances the payment of a Living Wage to workers employed by a contractor may be viewed as improving the social and economic wellbeing of an area and so the Living Wage is likely to be a relevant consideration under the Act, where it is relevant to the contract being procured and where the action (imposition of the Living Wage) is proportionate.

How should authorities approach the issue of the Living Wage in EU procurements?

For all service contracts subject to the Regulations, the authority will be under a statutory duty under the 2012 Act to consider social value – it is anticipated that in certain cases this will involve the consideration of the Living Wage.

A blanket approach, “all contractors must pay the Living Wage” for example, is not to be advised. This is because, as illustrated above, any social considerations must always be relevant and proportionate. For example, a requirement for a contractor to pay front line staff a Living Wage on a high value contract may be considered more relevant and proportionate than for a contractor who provides photocopying paper, to pay all his staff a Living Wage. Caution is therefore urged in respect of adopting a blanket approach to the issue.

The EU Parliament, in response to a parliamentary question about Living Wage contract conditions, provided helpful clarification on this issue:

“Living wage conditions may be included in the contract performance clauses of a public procurement contract 'provided they are not directly or indirectly discriminatory and are indicated in the contract notice or in the contract documents'. In addition, they must be related to the execution of the contract. In order to comply with this last condition, contract performance clauses including living wage conditions must concern only the employees involved in the execution of the relevant contract, and may not be extended to the other employees of the contractor”.

In summary our advice to authorities is therefore:

  • for all service contracts a consideration of social value must be carried out pre-procurement and this may be an opportunity to consider whether the Living Wage is a relevant and proportionate matter for the contract under consideration;
  • it may be easier (arguably less amenable to challenge) to include the Living Wage as a contract performance condition than to use theLivingWagerequirementas a contract award criterion;
  • a Living Wage contract condition must be relevant and proportionate in respect of the contract being tendered and should not seek to go beyond those employees engaged on the contract, in line with the EU Parliament clarification of 2009;
  • the authority will need to ensure transparency about the fact that it has a Living Wage performance condition by making this clear on the face of the OJEU notice and/or the tender documents. Ideally we would advise specific reference to the condition in the OJEU notice itself.

Deborah Ramshaw is Head of Procurement at Dickinson Dees. She can be contacted on 0192 279 9836 or by This email address is being protected from spambots. You need JavaScript enabled to view it..

 

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