How to handle the public sector's CL1 contracts

Contractors working in the public sector may have been approached by their agency or client to sign a new contract under the “Contingent Labour One” framework, writes George Anastasi, policy development coordinator at PCG.

As the UK’s trade body for freelance contractors, we have been looking into this new framework, and have prepared the following advice for anyone concerned.

What is Contingent Labour One?

A new recruitment framework is being rolled out across the public sector known as “Contingent Labour One” (CL1). This framework is being administered by large service provider Capita. Essentially this will mean all procurement of contractors, across all Government departments, will be managed by Capita.

Agencies will still place contractors, the difference is that rather than the agency then having a contract with a government department, it will have a contract with Capita. In some cases Capita will contract directly with the contractor and no agency will be involved.

The framework will also apply to “temp” workers.

Why is this happening?

The government intend to simplify and streamline their recruitment practices. Rather than negotiate with hundreds of agencies and thousands of contractors, they will in future need only deal with Capita, who will take this burden from them. There is also an advantage from the government’s point of view as it means that all the different government departments and agencies will be forced to use the same or very similar recruitment practices, making it easier for the government to monitor how much it is spending in this area.

PCG believes that in the long run this could create problems. It reduces the flexibility of contractors and could reduce their ability to negotiate with their agency or end client. We are also concerned that it puts into jeopardy the government’s aspiration that 25% by value of procurement contracts should go to SMEs. 

How does this affect me?

If you are a contractor currently working in the public sector, you may have been offered a new contract under the CL1 framework, to replace your existing contract. New contractors starting in the next few months will also have been offered a new contract to sign.

You will now need to make a decision whether to accept these new contract terms or not. PCG is concerned that in some cases, the standard CL1 contract will put you at a very high risk of being inside IR35.

You may also be required to provide assurance that you are meeting your tax obligations. Although this is a separate process to CL1, (advice on this specific issue is available here), you may be told that proceeding with the contract may be dependent on you completing this tax assurance process.

In order to provide assurance you may asked to complete the “Business Entity Tests” (BETs). These tests were introduced by HM Revenue & Customs as a self-assessment, voluntary test in order to help you identify your risk of investigation for IR35. They do not have any basis in law and do not decide your IR35 status. However, some departments appear to be using the tests to identify how you should be treated with regards to IR35. This is incorrect. Offers of a contract should not be conditional on the outcome of the BETs.

Should I sign the CL1 contract?

PCG believes that in most cases, signing the standard CL1 contract may put you at very high risk of being inside IR35, meaning that you will have to pay yourself accordingly. Therefore you will have to decide whether you are prepared to operate inside of IR35 or under employee-like terms.

In some cases, we have heard of departments delaying implementation of the CL1 contracts pending amendments which may make them more ‘IR35 friendly’. These new CL1 contracts have yet to be drafted and as far as we understand, they will only be supplied to those who are “transitioning” from an existing contract onto CL1 – in other words they will not be available to new contractors starting work. PCG has not seen these new contracts so is unable to comment on their IR35 status. If in the future you are supplied a revised CL1 contract you may wish to seek additional advice in the form of an independent contract review to assess the contract’s IR35 status.

What should I do next?

What you do next depends on what is happening at your particular department and how you want to work:

· If you want to work under IR35 / employee like terms:

If you do wish to work inside of IR35 then the current CL1 contract is very likely to do this. You will have to contact your accountant (or PCG’s tax helpline) to discuss your next steps. A contract that is clearly IR35-caught may have other knock-on effects regarding the way certain legislation like the Agency Regulations apply.

· If you do not wish to work inside IR35:

In this instance, you may have to consider looking for another engagement elsewhere.

However, PCG has heard from contractors that this is not the only option and in some instances you may be able to continue working under your existing contract. At some clients where many contractors have complained about the new contracts, the client has opted to continue using their existing contract framework until a revised contract is provided by Capita. As far as we are aware, these contracts are still under negotiation. It is hoped that these contracts will be better suited to limited company contractor type arrangements. We understand these improved contracts will only be available to contractors who are ‘transitioning’ from their existing recruitment framework to CL1, and not contractors who have yet to start work at their end client.

What is PCG doing about this issue?

We have raised this issue with the head of the government procurement service, Bill Crothers, and the Cabinet Office minister, Francis Maude MP. We are also in communication with bodies that represent agencies and with numerous members affected by this issue.

In addition, we have been speaking to tax and legal experts to identify the various implications of signing the standard CL1 contract. PCG is already seeing examples where government departments have been forced to delay the implementation of the CL1 contract, as a result of the concerns raised by limited company contractors. We will continue working towards ensuring the best possible environment for freelancers in the public sector.

Tuesday 1st April 2014