Update: local government

Shared services

In Brent London Borough Council and others (Harrow London Borough Council) v Risk Management Partners Limited [2011] UKSC 7, Risk Management Partners (RMP) brought an action against Brent Council based on the lack of local authority statutory powers to set up a mutual insurance company.

This gap was subsequently filled by a new specific power contained in section 34 of the Local Democracy, Economic Development and Construction Act 2009, which is likely to be made redundant if the new general power of competence contained in the localism bill now before parliament is enacted.

RMP also brought a separate action against Brent alleging breach of the Public Procurement Regulations 2006 by Brent's failure to conduct a tender for the process which led to the setting up of LAML. The Supreme Court has unanimously allowed the appeal pursued by Harrow Council as an interested party, overturning Court of Appeal and High Court decisions.

The appeal hinged on whether the legal principle developed through a series of European cases known as the Teckal exemption disapplied the requirements of the European procurement directives and hence under English law, the requirements of the Public Procurement Regulations 2006 (Teckal Srl v Commune di Viano and Azienda Gas-Acqua Consorziale (AGAC) di Reggio Emilia (Case C-107/98) [1999] ECR I-8121).

There were three issues in the appeal:

• Does the Teckal exemption disapply the 2006 regulations?
• Does the Teckal exemption relate to contracts of insurance?
• For the Teckal exemption to apply, must the control which the public authority (Brent) exercises over the contractor (LAML) be exercised by that authority individually, or is it sufficient that it is not full control, but partial control exercised collectively, together with other public authorities?

The Supreme Court gave an unequivocal yes to all three questions provided that no private interests are involved, and the essential part of the function to be performed by the contractor is to be carried out with the controlling public authorities. Applying this to Brent's circumstances, the 2006 regulations did not apply, and there was no obligation on Brent to conduct an EU compliant tender procedure.

The decision provides welcome clarity as to the extent of the Teckal exemption and how local authorities can benefit from this to work collaboratively through shared service vehicles without the need for external tendering if they wish to adopt a collective in-house solution.

BSF challenge

An early action by the coalition government was to drastically reduce funding of the Building Schools for the Future (BSF) programme, including for some school schemes then at a very advanced stage of procurement.

In R (on the application of Luton Borough Council and others) v Secretary of State for Education [2011] EWHC 217 (Admin), six local authorities (Luton, Nottingham, Waltham Forest, Newham, Kent and Sandwell) challenged the education secretary's decisions relating to their new school schemes and have been successful in their action for judicial review.

However, their victory may turn out to be a pyrrhic one. The High Court (Holman J) upheld the challenge on the grounds of lack of consultation by the secretary of state with the authorities as to the effects of possible alternative decisions, and failure to give due regard to the equality impacts of the proposed decision.

This means the decision procedure for these six authorities must be re-run with an open mind and the authorities able to submit representations, but there is no guarantee that any of the schemes will ultimately go ahead. Nor will it resurrect the future schemes which were to form the bulk of the BSF programme, or enable other local authorities which did not participate in the legal action to mount a late challenge.

New legislation

The wave of Big Society legislation rippling through parliament towards local government is growing by the day '“ not only the massive 400-plus pages of the multi-faceted localism bill, whose provisions reach out into seven distinct areas of local government: the general power of competence and governance, ministerial power to require payment of EU fines by local authorities, changes to non-domestic rating, community empowerment, planning, housing, London and libraries, but also the health and social care bill.

Introducing the localism bill, deputy prime minister Nick Clegg commented: 'No government has ever passed a piece of legislation like the localism bill'¦ because instead of taking more power for the government, this bill will give power away,' marking 'the beginning of a power shift away from central government to the people, families and communities of Britain'.

However, the biggest organisational change for local government will come from the health and social care bill. This will effect the transfer of public health functions from primary care trusts to local authorities, full establishment of health and wellbeing boards, and expansion of health scrutiny.

If enacted, full implementation of this integration is due to be completed in 2013, complementing the radical reorganisation of the NHS. Both the localism bill and the health and social care bill show the government's appetite for a major shift from top-down to bottom-up decision making and accountability.

There are also several smaller bills seeking to create a new duty to provide cultural facilities; imposing tighter planning control before land leaves public use; to compel disposal of unused and underused public assets; to promote volunteering and to introduce a requirement for a social enterprise strategy.

From this broad canvas of impending change, we focus in detail on three important elements of the community empowerment provisions which appear in part 4 of the localism bill.

Assets of community value

The bill requires local authorities to compile and maintain a register to be known as the 'list of assets of community value'. The procedure for compilation of the list allows each local authority to decide what they wish to classify as being of community value, but give rights of nomination to a parish or community council or other specified persons to propose an asset for entry on the list.

Nominations are to be accepted or rejected by the local authority. Landowners and occupiers are to be notified and will have the opportunity to request a review of the decision. The local authority must also maintain a list of unsuccessful nominations so that prospective buyers should become aware that a particular property has been considered for addition to the list on an earlier occasion '“ presumably in due course the form of Con 29 enquiries will be extended to include both a listing entry and an unsuccessful nomination.

Once entered in the list of assets of community value, the protection given by the bill is to make an intended sale of the freehold, or the intended grant of a new lease of not less than 25 years, or the assignment/transfer of a term originally for not less than 25 years, in each case with vacant possession, subject to a two-stage moratorium.

The moratorium is a delay while the community is alerted and given the chance to make an offer for the asset. The authority may choose to extend or reduce the type of sale which triggers the protection. However, unless the community offer matches any competing offer, the seller will not be obliged to sell to the community.

While the market forces driving a site assembly for commercial development are unlikely to be defeated by the basic protection for community opposition afforded by the bill, individual local authorities will be enabled to enhance that protection for the community.

Community right to challenge

The bill includes a 'community right to challenge' existing public service delivery. Under the current proposals, a local authority will be required to consider expressions of interest from certain organisations for the delivery of public services on its behalf. These organisations include voluntary or community groups, charitable trusts, parish councils or two or more employees of that authority.

When considering expressions of interest a local authority must consider whether acceptance would promote or improve the social, economic or environmental well being of the area, but no criteria for this are specified in the bill.

If a local authority accepts an expression of interest, it must carry out a procurement exercise for the relevant service. The organisation that made the challenge would then have the opportunity to bid to deliver the service in a competitive tender. To do this the challenging organisation will require adequate capacity, know-how and resources to take part in the procurement procedure.

The provisions of the bill are clearly skeletal in that the detail of the community right to challenge, if the bill is passed, will be determined by subsequent regulations. However, the current proposals appear to be attracting a mixed response. One area of interest is the extent to which employee groups may spin out of local authorities into either independent profit-making businesses or social enterprises.

In reality, the challenge procedure envisaged may not occur very frequently, but well-organised authorities will ensure all alternative means of service delivery are explored through pre-procurement consultation in which both employees and service users have a voice.

Holding a local referendum

The government intends to repeal the current legislation for holding a local referendum because it is seen as unnecessarily bureaucratic. In its place, the localism bill introduces a duty to hold a referendum if a local authority receives a petition from five per cent or more of its electors in that area, or if it receives a request from one or more elected members of the authority, or if the authority itself has passed a resolution to hold a referendum.

The authority must consider whether it is appropriate to hold a referendum. However, it can only refuse where it considers that any action taken to promote or oppose the referendum is likely to lead to a contravention of a rule of law, or the matter to which the referendum relates is not a 'local matter', or it is exempted by order by the secretary of state, or because the petition or request is vexatious or abusive. The referendum must be held between two and 12 months after receipt of the request.

Following a referendum the authority must consider what action it proposes to take, and must publish its decision and reasons. Although the result of the referendum will be non-binding, authorities will be required to take the outcome into account in decision making.