Under pressure from Labour to include a requirement for the Living Wage to be guaranteed by those winning public contracts, Deputy First Minister Nicola Sturgeon said her Bill would require public authorities to "set out their policy on the Living Wage in their procurement strategy".
The legislation would also allow ministers to issue statutory guidance on workforce matters, including pay, for the procurement process, Ms Sturgeon said. She told MSPs yesterday that these changes were both "meaningful and legal".
The Deputy First Minister said: "This Bill will impact on £10 billion worth of spending each year. That means it does matter that we do everything we can in this Bill to ensure that money is spent in a way which contributes to economic prosperity, equality and social justice.
"It also means if we get it wrong and end up with court challenges it will be very costly indeed for Scotland's taxpayers. I want to ensure that we abide by the law and we don't put our public bodies at risk of being taken to court."
As The Herald has reported in launching its SME-SOS campaign on small business issues this week, business groups are concerned that the Bill will not change the behaviour of public purchasing agencies unless statutory guidance is strong and effectively monitored.
The Scottish Chambers of Commerce has said most public sector agencies already have procurement strategy documents in place, but "the real issue is whether they are being implemented effectively, and how they are being measured".
Tavish Scott, LibDem MSP for Shetland, failed to secure his amendment which asked for a scrapping of exemptions from the Bill for ALEOs (arm's length organisations) set up by local authorities, and hubcos, the delivery companies for the Scottish Futures Trust.
Mr Scott said the hubco process had effectively excluded SMEs as main contractors, yet businesses who felt aggrieved had nowehere to complain to. "What I am being told by everyone from builders to professional businesses is that they don't have much of a chance of winning any of this kind of work unless they 'partner' with a big firm from Newcastle or wherever."
The Scottish Government says the five hubcos are "committed to being good partners, working together with public bodies across Scotland to deliver excellent community infrastructure".
Ms Sturgeon insisted ministers were tackling the issue of the Living Wage in the "strongest way possible", but said making its payment a mandatory part of public contracts did not meet European laws.
Labour's infrastructure spokesman James Kelly insisted the legal position was clear, saying: "Living Wage conditions may be included in public performance clauses of a public procurement contract."
The Federation of Small Businesses had warned that onerous employment conditions might become a barrier to small business participation in tendering. Policy convener Andy Willox said: "We need to ensure that well-intentioned ambitions to ameliorate low pay don't have a range of unintended consequences."
After a heated debate MSPs voted by 74 to 44 against introducing a Living Wage duty.