What is changing?
Section 32 of the Employment Rights Act 2025 will insert a new Part 5A into the Procurement Act 2023, creating a statutory framework intended to prevent two-tier workforces on outsourced public service contracts.
The reforms go beyond preserving the terms of employees who transfer under TUPE. Regulations may require outsourcing contracts to protect transferring public sector workers from less favourable treatment. They may also require contractor and subcontractor workers engaged on the same contract to be treated no less favourably than their transferring counterparts.
Contracting authorities will be required to take all reasonable steps to include the specified protections in relevant contracts and secure suppliers’ continuing compliance. A statutory code of practice will support the regulations and authorities will be required to have regard to it. The framework is therefore expected to create responsibilities throughout the procurement and contract-management lifecycle, rather than only when services initially transfer.
The detail will be critical. Regulations may prescribe model contractual provisions, distinguish between sectors or contracts and provide exemptions. Until the regulations and code are published, it remains unclear which workers and services will be covered and how “no less favourable” treatment will be assessed.
What has happened to the timetable?
The reforms were expected to come into force on 30 October 2026. However, public sector outsourcing was omitted from the updated Employment Rights Act implementation roadmap and no replacement date has been announced. No draft regulations have yet been published.
Although the timing and precise obligations remain uncertain, the likely direction of travel is sufficiently clear for authorities and suppliers to begin considering the consequences for future outsourcing exercises.
Why does this matter for outsourcing?
The reforms could materially change the cost and design of outsourced public services. “No less favourable” treatment may extend beyond contractual pay and benefits to pensions, non-contractual benefits, access to facilities and day-to-day working practices. Contractors may therefore need to compare workforce arrangements at an early stage and reflect potential alignment costs in their bids. This could affect pricing, supplier appetite and the scope to achieve savings through different workforce models.
The impact may also extend to re-tenders and transfers between contractors as existing contracts expire. Depending on the final regulations, suppliers may need to flow relevant obligations down to subcontractors.
For contracting authorities, workforce information, evaluation criteria, contractual remedies and monitoring arrangements may all need to support continuing compliance. Authorities will also need to balance affordability and service continuity against fair treatment, employee relations and the risk of disparities between groups working alongside one another.
Preparing during uncertainty
Public bodies should identify planned procurements, re-tenders and extensions involving transferred staff or mixed workforces. Employment, procurement, commercial, finance and operational teams should be brought together early enough to assess the potential cost and delivery implications.
Authorities may also want to review how supplier compliance is monitored and whether relevant obligations flow through to subcontractors. Early engagement may help identify potential effects on pricing, deliverability and supplier participation.
Major outsourcing exercises have long lead times. Waiting for the final detail before assessing exposure could leave insufficient time to revise procurement strategy, secure approvals or address budget implications.
If you would like to discuss how the proposed two-tier workforce protections may affect an existing or planned outsourcing, please get in touch.
Authored by Emily Crees
