Healthcare FM TUPE: Higher Stakes, Different Rules

Standard TUPE transfers in commercial FM are complex enough. Healthcare FM adds three additional layers of obligation: Agenda for Change (AfC) pay scales, NHS pension requirements under the Fair Deal policy, and the Cabinet Office Statement of Practice on Staff Transfers (COSOP). Each of these raises the compliance bar significantly above what most FM providers are used to.

The financial consequences of underestimating these obligations are severe — and they begin at bid stage, not at mobilisation. Pricing a healthcare FM contract on National Living Wage assumptions when the workforce is on AfC Band 2 or 3 is a fundamental bid error that cannot be corrected after award.

Agenda for Change is the NHS pay framework covering the majority of NHS staff. In FM, domestics, porters, and catering staff are typically on Bands 2–3, with pay rates that are meaningfully above the National Living Wage — particularly when unsocial hours enhancements, annual leave entitlements, and sick pay provisions are included.

Transferring employees retain their AfC terms under TUPE. The incoming provider cannot harmonise these terms down to commercial FM rates without an ETO reason — and a desire to reduce costs does not constitute an ETO reason.

A 2026 Employment Appeal Tribunal ruling has added a further dimension to the AfC risk. The EAT found that an incoming FM provider's delay in applying AfC pay rates post-transfer — while the workforce was predominantly from a particular ethnic background — could constitute indirect race discrimination under the Equality Act 2010.

This ruling means that the risk of delayed AfC application is no longer purely a TUPE compliance issue. It is also an equality law issue, with potentially unlimited compensation. FM providers bidding on NHS contracts must take legal advice on their AfC implementation timeline before submitting a price.

Under the Fair Deal policy, employees transferring from NHS bodies to independent sector providers must be offered continued access to the NHS Pension Scheme. The employer contribution rate for the NHS Pension Scheme is approximately 23% of pensionable pay — compared to the statutory minimum auto-enrolment rate of 3%.

This is a 20-percentage-point difference in employer pension cost. On a workforce of 50 employees with average pensionable pay of £22,000, the annual additional pension cost is approximately £220,000. This must be modelled at bid stage — it cannot be absorbed after award.

The Cabinet Office Statement of Practice on Staff Transfers (COSOP) applies to NHS FM contracts and sets out additional requirements around workforce protection that go beyond standard TUPE. In particular, COSOP restricts the creation of two-tier workforces where transferred staff have materially better terms than new hires doing the same work.

In practice, this creates a long-term cost pressure: transferred staff on NHS pension and AfC terms, new hires on commercial FM terms. Over a five-year contract, the differential compounds — and managing it requires careful workforce planning from Day 1.