Putting assets in the right place

Contract 2 iStock 000003466551XSmall 146x219In the first of a four-part series on the new policing system, Nigel Sternberg looks at ICT and commercial agreements.

When police authorities were abolished, there was a transfer under the Police Reform and Social Responsibility Act 2011 of property, rights and liabilities from police authorities to the new police and crime commissioners (PCCs) or in London to the Mayor’s Office for Policing and Crime. The Act made provision for the Secretary of State to direct PCCs and the Mayor’s Office for Policing and Crime to make schemes for further transfers (Stage 2 transfers).

Debate around the approach to Stage 2 has focused on where staff, assets and liabilities should be placed between the PCC and the Chief Constable (CC). Various models are being aired. Generally the debate has overlooked important and useful provisions set out in Schedule 15 to the Police Reform and Social Responsibility Act 2011, which are provided to assist the transfer. Although these should not drive or distort the important decision as to how Stage 2 should operate, nor should the capacity of these provisions (used appropriately in the context of a balanced approach to Stage 2) to save money in future for the Police area be overlooked.

In short these provisions provide in the context of a Stage 2 Transfer a mechanism for reshaping and reallocating a range of rights and liabilities. The process is statutory and does not entail the usual bind of discussions with contractors, licensors and landlords to implement the changes. Nor for that matter do they entail compensation payments to third parties or often laborious discussions to obtain consent to the proposed arrangement. Some specific examples may assist in unpacking the benefits which an artful application of these provisions can bring.

ICT contracts

Many ICT licences are written with devices which severely limit the ability of licencees to flex the licence so as to work in new circumstances where for instance elements of a process which are supported by the licence have been moved to a third party whether through shared service arrangements, outsourcing or partnerships. Consent to the change arrangements must be obtained if these fall outside the strict scope of the original licence. This may often entail lengthy and sometimes fruitless discussions with the licensor.

On occasions it proves faster and cheaper simply to buy fresh licences. In some instances the licensors are simply not prepared to agree to the new structures which the licencee seeks. Sometimes this is driven out of commercial caution that these arrangements would prove to be a back door to changing the licence payment structure: in others the response may be little more than opportunistic. Although the Act will not enable commercial windfall , the timely use of Schedule 15 may enable a constructive restructuring of licence and avoid unnecessary waste of time and resource in the future.  

Commercial contracts

The same principles apply here too. There are some niceties to contract law which are not apparent to the untutored eye. 

For instance, the obligations under any contract and the ability to obtain redress in the event of a failure or breach of the contract are specific to the parties unless these rights have been extended by statute. Customarily commercial contracts have not made use of such extension and so a contract will operate within a relatively narrow set of parameters. As the Act does not contain a general provision which would operate to extend the benefit of the contract generally between the two corporations sole, the PCC and the CC, it is highly arguable that in order to get the benefit of the contract to lie where the parties desire they will have to make use of the transfer provisions so as to access the wider benefits of Schedule 15.

Schedule 15 is a useful tool to split or transfer contracts. It is however a starting point and further work may be needed to allocate costs and to manage a contract which now has more parties than originally anticipated or has been fragmented to become a number of separate contracts. The pragmatic approach might be to identify those contracts which by virtue of value, duration, strategic importance and risk are worthy of more focussed treatment affect an appropriate transfer using the statutory mechanisms as part of Transfer Plan and then negotiate refinement to the arrangement  picking up on such matters as future contract governance, payment and protocols for change or termination. Schedule 15 will force the hand of the contracting party in broad direction and you will then refine the change by mutual agreement.

Whenever transfer of commercial agreements is in view, due diligence is crucial so that all parties understand what they are dealing with and know what liabilities are heading their way. Documentation of the agreed transfer arrangements is a crucial but often neglected step which aids that understanding and informs budgets, service plans and effective performance measurement.

Nigel Sternberg
is a Partner
at Eversheds. He can be contacted on 0845 498 7582 or by email.