The Community Right to Challenge edges closer

Shared services iStock 000007489708XSmallThe Community Right to Challenge is taking shape with the publication of new draft Regulations. Mark Johnson analyses the key elements of the scheme.

The Localism Act received Royal Assent on 15 November 2011. One of the most controversial parts of the Act was the new ‘Community Right to Challenge’ contained in Sections 81 to 86.

The Community Right to Challenge enables voluntary and community bodies, employees of the authority that wish to form a mutual organisation to deliver services, and parish councils to express an interest in running a local authority service. A local authority is under a duty to consider expressions of interest and, where they accept them, run a procurement exercise for the service.

The Government consulted on the initial proposals until May 2011 and published the responses in August. In September 2011 CLG published a policy statement which provided some pointers on how this radical proposal will work in practice once the necessary secondary Regulations are in place. The draft Community Right to Challenge (Fire and Rescue Authorities and Rejection of Expressions of Interest) (England) Regulations 2012 were published on 30 April and the Community Right to Challenge (Expressions of Interest and Excluded Services) (England) Regulations 2012 were laid before parliament on 21 May 2012. The Community Right to Challenge provisions will be commenced at the same time as the Regulations come into force; this is expected to be on 27 June 2012. CLG published draft statutory guidance on 21 May 2012. A final version of the guidance will be published once the provisions have come into force.

Who can exercise the right?

Section 81(6) defines a ‘relevant body’ which may express an interest in running a local authority service under the right. These are defined as: a voluntary or community body; a body of persons or a trust which is established for charitable purposes; a parish council; or, in relation to a relevant authority, two or more employees of that authority.

Under the Act, voluntary body means a body, other than a public or local authority, the activities of which are not carried on for profit. The fact that a body’s activities generate a surplus does not prevent it from being a voluntary body, so long as that surplus is used for the purposes of those activities or invested in the community. Community body means a body that carries on activities primarily for the benefit of the community.

These definitions of voluntary and community body have been designed to enable a range of civil society organisations to use the right, supporting the Government’s ‘Big Society’ commitment to enable these groups to have greater involvement in running public services. Critics have argued though that large private sector corporations may form trojan horse entities as a convenient shop front to take over local services.

The Government is committed to giving public sector workers the right to bid to take over running the service they deliver using a John Lewis-style model. This continues the ‘right to provide’ policy started in the NHS and the Community Right to Challenge will implement this commitment for local authority employees. The legislation does not seek to prescribe the precise legal form that employee-led bids would have to take, though in its recent policy paper Open Public Services 2012 the Government has signalled a preference for entities in which the employees enjoy a material ownership interest.

Which authorities and services are covered?

County Councils, Metropolitan Boroughs and District Councils are all within the current scope of the right. The Government makes the point that some respondents argued that the right should apply to all public authorities and consequently they reserved a power to extend the categories by the simplified affirmative resolution in Parliament. Consequently, under the new Regulations the right will be extended to cover all Fire and Rescue Authorities. Community safety, fire safety consultancy may be just some of the services open to challenge in the future. The right could in theory be extended to cover NHS organisations and central government departments in the future.

Relevant Services

The Community Right to Challenge applies to all relevant services; this is defined as a service provided by or on behalf of a relevant authority in the exercise of its functions, except services which are excluded.

The Regulations set out a number of services which are excluded from the Community Right to Challenge:

  1. A relevant service commissioned in conjunction with one or more health services by a relevant authority or by a Primary Care Trust, NHS trust or NHS foundation trust under a partnership agreement or by a relevant authority and an NHS body or a Strategic Health Authority, acting jointly.
  2. A relevant service commissioned by an NHS body on behalf of a relevant authority
  3. A relevant service commissioned or provided by a relevant authority in respect of a named person with complex individual health or social care needs.

The first two excluded services are only excluded temporarily until 1 April 2014; this is to allow the new  NHS Commissioners, which are being established under the Health and Social Care Act 2012, to become fully operational, consider previous contractual arrangements and develop new commissioning arrangements.

Services which are paid using direct payments and which are managed by individuals fall outside the scope of the Community Right to Challenge as the services are not commissioned by a relevant authority.

What must be in the expression of interest?

The draft guidance, expected to be re-published shortly in final form, states that relevant authorities may require applicants to include the following minimum information in their expression of interest:

  • Where the relevant body proposes to deliver the relevant services as part of a consortium or to use a sub-contractor for delivery of any part of the relevant service, the information in points 2 and 3 below must be given in respect of each member of the consortium and each sub-contractor as appropriate
  • Information about the financial resources of the relevant body submitting the expression of interest
  • Evidence that demonstrates that by the time of any procurement exercise the relevant body submitting the expression of interest will be capable of providing or assisting in providing the relevant service
  • Information about the relevant service sufficient to identify it and the geographical area to which the expression of interest relates
  • Information about the outcomes to be achieved by the relevant body or, where appropriate, the consortium of which it is a part, in providing or assisting in the provision of the relevant service in particular: (a) how the provision or assistance will promote or improve the social, economic or environmental well-being of the relevant authority’s area; and (b) how it will meet the needs of the users of the relevant service.
  • Where the relevant body consists of employees of the relevant authority, details of how that relevant body proposes to engage other employees of the relevant authority who are affected by the expression of interest.

Relevant bodies can be asked by authorities to supply further information; however this is optional, the inclusion of further information cannot be a requirement for considering the expression of interest.

When can an authority reject an expression?

The new Regulations specify the following grounds for authorities to reject an expression of interest:

  1. The expression of interest does not comply with one or more of the requirements specified in section 81(1) (submitted by an eligible body in writing) or in regulations made by the Secretary of State under section 81(1)(b). No Regulations have been made as yet under that section.
  2. The relevant body provides information in the expression of interest which, in the opinion of the relevant authority, is in a material particular inadequate or inaccurate.
  3. The relevant authority considers, based on the information in the expression of interest, that the relevant body, or any of its consortium members or sub-contractors are not suitable to provide or assist in providing the relevant service. An apparently wide basis for ruling out community involvement!
  4. The expression of interest relates to a relevant service where a decision, evidenced in writing, has been taken by the relevant authority to stop providing that service. Where the service has been stopped or de-commissioned or a decision taken to that effect, this will be another widely-drawn get out clause which in a time of austerity may prove an attractive ground for refusal.
  5. The expression of interest relates to a relevant service provided on behalf of the authority to persons who are also in receipt of a service provided or arranged by an NHS body which is integrated with the relevant service, and the continued integration of such services is critical to the well-being of those persons. This seems to be aimed at services which are so closely integrated with NHS services that they could not be ‘unbundled’.
  6. The relevant service is already the subject of a procurement exercise.
  7. The relevant authority and a third party have entered into negotiations for provision of the relevant service, which negotiations are at least in part conducted in writing. Again this might be a difficult ground to police in practice: when does a chain of correspondence equate to negotiations?
  8. The relevant authority has published its intention to consider the provision of the relevant service by a body that 2 or more specified employees of that authority propose to establish. I.e. the authority is already actively exploring service provision by a staff-led mutual.
  9. The relevant authority considers that the expression of interest is frivolous or vexatious. A curious get-out conjuring up visions of citizens sat at their kitchen table drawing up plans on a whim to take over their local services.
  10. The relevant authority considers that acceptance of the expression of interest is likely to lead to contravention of an enactment or other rule of law or a breach of statutory duty. This could include for example, the Best Value duty or an authority’s duty under the Equality Act 2010.

What about timescales?

The original proposals in the Bill enabled the Secretary of State to specify in regulations a number of timescales associated with the process for the right. Moving away from attempting to micro-manage authorities, these proposals were dropped in the final text of the Act.

However, the guidance allows relevant authorities to choose to specify periods during which expressions of interest can be submitted. If no period is specified, expressions can be made at any time. In setting policies authorities must consider:

  • the need to provide relevant bodies with sufficient time to prepare and submit expressions of interest;
  • the nature, scale and complexity of the service for which a period is being specified; and
  • timescales for any existing commissioning cycle relevant to the service for which a period is being specified, or any other relevant authority processes.

Relevant authorities are required to publish their own maximum timescales for notifying applicants of their decision on an expression of interest. Different periods may be specified for different cases. In setting policies authorities must have regard to:

  • the need to notify relevant bodies of a decisions within a reasonable period;
  • the nature, scale and complexity of the service for which expressions of interest relate;
  • the complexity of the expression of interest received;
  • the likely need to agree modifications to expressions of interest in order to accept them; and
  • timescales for any existing commissioning cycle relevant to the service for which an expression of interest relates, or any other relevant authority processes (i.e. Council decision making or budget setting processes).

What kind of procurement is required?

Section 83(2) requires a relevant authority to carry out a procurement exercise for a service where it accepts an expression of interest in providing it. Section 83(3) requires the procurement exercise carried out by the authority following a successful challenge to be "appropriate having regard to the value and nature of the contract that may be awarded as a result". Where the service is of a nature or value to which the Public Contracts Regulations 2006 apply, then the relevant authority will still need to follow the procedures for advertising, tendering and awarding contracts set out in those Regulations. But where those regulations do not apply – for example, where the value of the service is below the threshold of £173,934 for local authorities, or the service is otherwise exempt – authorities will have the discretion to decide how to procure the service, just as they already do when contracting out services.

Sections 83(8) and (9) require authorities to consider whether and how an expression of interest, and any subsequent procurement exercise, can promote or improve the social, economic or environmental well being of its area. This is intended to encourage authorities to consider the benefits of including social benefit clauses in the delivery of the service. This is consistent with public authorities’ duty elsewhere in the Public Services (Social Value) Act 2012 to consider how the services they commission and procure might improve the economic, social and environmental well-being of the area. However, section 83(10) requires authorities to comply with existing public procurement law in doing so. Failure to do this could provide a number of grounds for legal challenge.

A catalyst for more grassroots action?

On the face of it, the Community Right to Challenge could be a powerful tool to open up public services markets in line with the Government’s vision in Open Public Services 2012. For the first time, it will provide a legal basis and route map for community groups and employee-led mutuals to get more involved in delivering public services and marks a cultural shift in public service reform to more grassroots action and ideas, rather than top-down initiatives.

Authorities now need urgently to consider their strategy and processes for responding to such requests and will need to have robust procedures in place to avoid the risk of legal challenge. There are however, quite a few get-outs which could be used by authorities to scotch an attempt by community providers to take over the running of services. In the current economic climate, it remains to be seen how much appetite there will be amongst potential applicants to use the right.

Mark Johnson is managing director of specialist public services law firm TPP Law and works with commissioners and staff teams on employee-led service bids. He can be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it..