CBI demands probe over pension 'bias'

Published on Saturday 28 March 2009 16:13

CBI SCOTLAND has called for an investigation into the transfer of a maintenance contract to the private sector, claiming that companies are being unfairly forced to pick up multi-million pound pension liabilities.

Connaught, which is due to begin work this week on a share of the 200m contract from Glasgow Housing Association, was suddenly told only days ago that a 3m exposure to the pension fund had rocketed to 20m.

This weekend senior managers of the company were locked in talks with their advisers as they struggled to raise a bond that would allow the firm to start work.

The contract is due to begin at 8am tomorrow and Scotland on Sunday has learned that City Building, the former building department of Glasgow City Council, has agreed under pressure from GHA to cover for Connaught if the company fails to negotiate a deal.

Private firms are forced to pick up pension liabilities when contracts are switched from the public sector. But the CBI claims they are disadvantaged. David Lonsdale, assistant director, said: "CBI Scotland is a strong advocate of a mixed economy in public services. The public can only benefit if there is greater diversity and contestability in the provision of services, not least in terms of affordability and quality.

"But a mixed economy can't succeed if the rules and practices aren't fair for all providers. The CBI has previously voiced particular concern about the lack of transparency and accuracy in costing public sector pension arrangements, and how this can sustain an uneven playing field between competing providers from the public and private sectors.

"The Government and competition authorities must address allegations of bias and ensure private sector firms are not discriminated against when it comes to bidding for work."

In the Connaught case, concerns have been raised about how this liability suddenly soared, amid claims of political interference. Sources point to a behind-the-scenes battle between Glasgow City Council and GHA over allegations that the council resents the GHA's power and financial strength.

Scotland on Sunday has learned that all the tenderers for the GHA contract were told the pension liability was 3m. City Building won the north-east and north-west contracts and Connaught was awarded the south. It will mean 250 of the 750 staff transferring to Connaught.

But just a week ago Strathclyde Pension Fund informed the firm that after a revaluation, its liability had risen to 19.3m. The company would also have to inject 1.5m a year for five years into the pension pot. It is claimed that the revaluation was due to the limited timescale of the contract.

City Building has now agreed to provide 28 days interim cover while the dispute is resolved. It is understood that Connaught has to get its banks to underwrite a 19.3m bond.

The CBI claims that the regulations are "anti-competitive". Under the rules, private firms have to offer comparable pensions and this has led to what the CBI regards as a huge increase in the costs of employing those workers when companies find that they have to contribute more than double what the public sector is charged to fund equivalent pension provision.

The CBI argues that this gives the public sector an unfair advantage and stops private suppliers going for contracts.

One source last week said that the Glasgow case would further deter private firms from bidding.