All for one? Nash v Barnet LBC

Shared Services 3 iStock 000009458297Small 146x219A local authority has successfully defended a high-profile procurement on time limits, but the Court of Appeal chose not to deal with the requirements to consult. John Houlden, Chris Jackson and Ian Tucker analyse the key issues.

After successfully defeating a judicial review challenge to its substantial and controversial One Barnet outsourcing procurement, Barnet LBC has now signed two contracts with Capita to take the project forward.

Synopsis of key points

Barnet LBC is outsourcing over £470m of services for a ten-year period in two contracts with Capita with a claimed saving to the taxpayer of £165m plus substantial investment.

Local opponents supported a challenge by campaigner Mrs Nash against the decision to award the first of the contracts in December 2012.

In April the High Court agreed with Mrs Nash that Barnet had not properly consulted on the decision. Nonetheless, it rejected her claim on the basis that it had been brought too late.

She appealed the timing issue and Barnet cross-appealed on the obligation to consult. The Court of Appeal gave judgment on her appeal on 2 August 2013:

  • It agreed with Barnet that the claim was too late; but
  • Made no comment on the obligation to consult. In that respect the High Court decision remains.

Mrs Nash has requested permission to appeal the decision to the Supreme Court but in the meantime Barnet and Capita have signed the contracts.

The outsourcing procurement

Barnet built up to its outsourcing over an extended period. The council's Cabinet initially commenced a review of options for changing the delivery of services in May 2008.

Initial considerations and reports followed which recommended that the council should itself "conduct those activities that only the council can," but otherwise outsource the bulk of its functions to private providers. 

Eventually in March 2011 Barnet placed a procurement notice in the Official Journal of the European Union (OJEU Notice) for one of the outsourcing contracts and subsequently in June 2011 approved the commencement of the competitive dialogue process for the procurement.

These decisions were taken following careful and detailed review of the options and on the basis of recommendations from investigatory reports. Records of meetings were made available to the public (on the internet and elsewhere) and general statements of policy and intent were published. General consultation exercises (including in particular in relation to Budgets and the Financial Strategy) took place and touched on the intention to outsource much of the work. Many of the meetings were held in public and there was some engagement in residents' forums. 

However, no formal consultation took place on whether or not to substantially change the nature of the delivery of public services from internal to outsourced. The intention, nonetheless, attracted much local press attention.

Two ten-year contracts were to be procured:

  • For Development and Regulatory Services (DRS) including planning, building control, environmental health trading standards and highways;
  • For a New Support and Customer Services Organisation (NSCSO) including the customer services interface, estates, finance, HR, IT, procurement project management and revenue and benefits.

These were hoped to produce savings in the first year of £1.5m and £12.5m respectively and overall savings in the region of £165m over the decade.

A substantial and expensive procurement process then took place, costing over £4.5m in development costs and fees. In December 2012 Barnet announced an intention to contract with Capita for the NSCSO.

Mrs Nash's challenge

Mrs Nash (and other local activists) objected strongly to the outsourcing. She was in the words of the Court of Appeal "sceptical about the consequences of outsourcing and the efficiency saving." She obtained legal aid funding and issued a claim in January 2013.

Although, initially, she raised issues about compliance with the public sector equality duty and the council's fiduciary duty to residents, her main complaint (and the only one to survive to the Court of Appeal) was that the decision to outsource had been made without "proper, indeed any, consultation".

In the High Court the judge agreed with her. He accepted that Barnet should have specifically consulted and that failure to do so was a breach of due process (which in retrospect was an inauspicious start to a nationally trailblazing procurement exercise).

However, that failure to consult first occurred when Barnet took the decision to commence the procurement procedure. It should have consulted in relation to that decision in 2011. 

Judicial review has a very strict time limit. More recently for planning cases and many procurement related cases (although probably not a claim of Mrs Nash's type) this time limit has been reduced to 30 days. At the time it was three months.

The time limit for Mrs Nash consequently ran out in Autumn 2011 over a year before she brought her claim. On this basis, the judge threw out what was in substance (but not timing) a good claim against the outsourcing process.

Mrs Nash appealed the judgment on the time limit and in June, before the appeal was heard, Barnet announced its intention to award the second contract (DRS) to Capita as well. Consequently the signature and commencement of both contracts, and the savings they are said to bring, hung on the Court of Appeal's decision.

The case was heard urgently because Barnet demonstrated the impact of the delay including demoralisation and departure of staff, freezing of investment and the potential to lose the deal. On 2 August the Court of Appeal gave judgment confirming that Mrs Nash's claim was out of time. Barnet immediately signed the contracts.

The Court of Appeal

The Court of Appeal's judgment on timings substantially confirms the original judge's views. In essence:

  • The relevant 'decision' here was to outsource the services (March or June 2011). That was the decision which required consultation and that consultation should have taken place before or at the time of the decision;
  • Consequently the breach complained of took place in June 2011 and Mrs Nash was out of time;
  • The decision to award the contracts (December 2012) was not actually the decision being complained of. Which provider was chosen and the terms of the contract is not a matter for consultation – that is simply the output of the process. It does not give rise to a challenge for failure to consult;
  • The time limits are to protect the public interest in ensuring decisions made by public bodies can be implemented without undue delay, cost or the need to be 'undone' some time later. The decision to outsource (2011) had resulted in substantial public cost expenditure in conducting the procurement process. It was in the public interest to make sure that any challenge to that expenditure was made before it was incurred or not at all.

It is fair to say that the subtle distinction between claims which have arisen early in a procedure and claims which can be anticipated from the conduct of the procedure but only crystalise when the final decision is made, is often likely to be hard to identify practically. In many cases it is likely to be a technical legal question which all parties may have difficulty with.

In this case, both the High Court judge and the Court of Appeal judges probably had in mind the intention to save public funds at a time when budgets across the public sector are under pressure. A late challenge which could result in loss of substantial costs already incurred, is unlikely to find favour in such circumstances.

Less helpfully, despite Barnet cross-appealing on the need for councils to consult, the Court of Appeal simply refused to consider this issue. This leaves the finding of the High Court intact (although of debateable legal force) in this respect.

When the dust has settled around Mrs Nash's claim (which may only be after the Supreme Court has a chance to consider the issue), councils will need to consider this finding and its implications.

The duty for councils to consult

The Duty to consult upheld by the High Court in these circumstances is in s3(2) of the Local Government Act 1999. It extends (amongst others) to representatives of taxpayers, users of council services and those with an interest in the relevant area. Consultation must have regard to government guidance including in this case July 2008 guidance from the Secretary of State on Creating Strong Safe and Prosperous Communities

The questions were around which decisions need consultation and what constitutes adequate consultation. 

The duty to consult in the Act relates to how the council fulfils its duty to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness. Not every outsourcing decision can fulfil that requirement - council administration would grind to a halt. The judge nonetheless decided that this was such a fundamental change to the manner in which the council delivered its services (touching everything except its core functions which could not be delivered by another body) that the requirement was triggered.

And what constitutes consultation? Barnet did consult – it consulted through online questionnaires regarding its budgets and its financial plans (which included reference to the proposals to outsource). However, that consultation was general and not asking the specific question about whether to outsource or not. Did Barnet have to ask that specific question when the issue was a matter of live public debate through the press? According to the High Court judge the answer is, yes. A specific consultation was necessary on this topic.

Assuming that this remains good law, councils should now review when they run specific consultation about procurements. Anything which goes to the way in which services are delivered can, in principle, require a specific consultation. Clearly public knowledge and general consultations on council actions which reveal the plans are not enough.

Practical points about using time limits in procurement processes

The positive result of this case for councils running procurements is the rigour with which the court upheld the time limits. Judicial review courts have in the past been criticised for finding ways to extend time for apparently meritorious claimants. In this case, they did not.

It is increasingly becoming a feature of all procurement related legal challenges that timetables and the announcement of (interim) decisions are key parts of a council protecting itself from challenge. In a long procurement process, a number of decisions or obligations may arise from time to time. Where those are known to potential challengers the clock runs against those challengers. A cautiously run procurement will consequently ensure that possible later steps are not taken until the time for challenge of an earlier step has passed. Against bidders that can be 30 days. Against others it may be longer (three months). 

That time can often sensibly be allowed by councils for challengers to 'put up or shut up' before further public funds are invested on a process which could otherwise be saved. 

Conclusion

The Court of Appeal has upheld a firm line on time limits for claims against council procurement. At the same time however it has declined the opportunity to give firm guidance on what procurement or outsourcing decisions need to be the subject of consultation under the 1999 Act and how specific that consultation must be.

That leaves councils to review all their procurement processes for the potential need to consult specifically (and the cost this may incur).

John Houlden leads Burges Salmon's procurement team. Chris Jackson and Ian Tucker are litigators specialising in procurement disputes and judicial reviews. They can be contacted on 0117 939 2000.