Another “opportunity” for procurement – stopping stupid hiring practices

Do you ever feel you’re in a sort of Twilight Zone of stupidity?

Listening to BBC Newsnight on Wednesday took me into that place. Why did anyone think it was a good idea to engage the Chief Executive of what was, and is, an incredibly high-profile organisation, (the UK Student Loans Company), on a two-year fixed term contract, but then allow him to take the money through his private company?  Now actually, the benefits to the individual are not as great as many people think. This report from the Guardian is misleading – you will be taxed at 21% Corporation tax, but then to take the money out of your firm, you will be taxed again on the dividends.

But the appearance of it all, with the whiff of tax avoidance, and when there is such focus on fairness and fair pay at the moment, is not good.

The other point (and hence the procurement connection), is that once you engage someone via a company, then my understanding is it comes under public sector procurement regulations rather than it being considered an employment issue. So this contract should, I would argue, have been competed, either through the full OJEU process or via a mini-competition from an appropriate framework.

But as well as wondering who thought this was a good idea, the other point that made me shout at the TV was the way this was reported as a shocking aberration when IT GOES ON ALL THE TIME!

Read Private Eye every fortnight,  and it’s rare that there isn’t a high profile Council or Health executive engaged through his / her service company, often for years on end. And once we move below top management level, the entire public sector is full of people working as contractors, often for long periods of time. The record I saw – going back a few years now – was in a non-departmental public body organisation, where a contractor had been there for 16 years on a day-rate basis, doing the same job.

The other paradox is that over the last few years, it has become impossible to work as a contractor in much of the UK public sector without having your own company! Organisations won’t engage sole traders; and where a managed services firm has been appointed to manage the whole contractor workforce, that firm will insist on only dealing with companies, not individuals. Many people have therefore been forced to create their own limited companies.

But the public sector has a dilemma. Recruitment freezes and controls are rife. There is an imperative to be seen to reduce the numbers of senior managers and staff generally. Equally, many people wouldn’t want to join the public sector permanently just now given wage freezes and the general ambience. Yet work still has to be done, Ministers and Councillors still drive initiatives, hospitals still have to be managed. So contract staff are the answer.

For short term assignments, this is clearly the best answer. But when 3 or perhaps even 6 month assignments turn onto a year, two years or more, then paying people on a day rate basis and / or through companies runs the risk of breaking laws and regulations (we haven’t even got onto IR 35 yet).

So procurement, in our view, has a key role to play in managing "contingent labour" as a complex and potentially high risk spend category. And that's not just at the blue collar end of things, the £8 an hour temps - it should include top management as well.

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Voices (2)

  1. Paul Wright:

    The BBC in particular should not have been surprised because that is how John Birt was initially paid for his role as Director General.

  2. life:

    Very good points. So much of the “fairness” debate is judged on half-story facts and mis-information I don’t think it will get anywhere.

    And having said that I’ve got to say I probably haven’t even got half the story on this one. SLC have had all their very well publicised problems – could it possibly be that this settlement was driven by negotiation and that the arrangements actually present best value to the public purse – possibly not just to SLC, who like everyone else would have been getting beaten up on spend and could have agreed a lower rate but on these terms, but also even to the net benefit of the overarching public purse if savings were achieved given the various tax implications you point out – however that somewhat dilutes the whole potency of the story and so gets somewhat glided over. Unlikely, but along with many other scenarios, possible.

    Also, on the other side of the argument, a few key points don’t seem to warrant any comment – I find myself wondering where the company is registered for example?

    Like you, I suspect it may just not have been thought through very much and anyway, as you point out, “it goes on all the time”!

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