A sense of community

Ministers have made great play about how the Localism Act will provide communities with new rights. Richard Auton and Anna Sweeney analyse two of these proposed rights – the community right to challenge and assets of community value – and assess their impact on councils.

Among the 241 sections and 25 schedules of the Localism Act there are some that purport to empower communities, including the community right to challenge and the community right to bid (assets of community value). As with much of the Act, further detail will only emerge when regulations are made in due course, but we look here at the basic position and the issues on which legal input will be needed.

Community right to challenge

The right to challenge, in particular, has the potential to cause headaches for local authorities and these could be made much worse if it is not managed properly. Local voluntary and community groups, charities, parish councils and even council employees are given the right to express an interest in running, or assisting in the running of, a service provided by an English county, district or London Borough Council in the exercise of its functions.

The council must consider and (in most cases) accept the challenge, triggering a procurement exercise in which the challenging organisation can bid. The Secretary of State can extend the right to other bodies, make other public bodies (and their services) subject to the challenge and, on the other hand, can exclude specific services from the right.

For councils this raises a range of management and policy issues, from the resources needed to manage the process, through to fragmentation of services if large numbers of local expressions are received. For their lawyers the task will be to avoid legal challenges and, if services are taken over, to ensure that this is properly documented and that the council has remedies to manage the contract that will be required.

Timing

On the face of it, a challenge could come in respect of all, or part, of a service at any time, regardless of the council’s planned commissioning or budget cycle. However, the Act offers a way of controlling when challenges can come in. Section 82(2) allows a council to specify for particular service periods during which expressions of interest may be submitted and councils can refuse to consider any expressions of interest submitted outside those periods. In doing so, councils must have regard to guidance to be issued by the Secretary of State.  A policy document published in October proposes that these factors should be:

• the need to provide 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
• the timescale for any existing relevant commissioning cycle or other authority processes.

Councils also need to specify a maximum timescale for notifying a relevant body of their decision on an expression of interest that is submitted. The maximum timescale must be specified to the relevant body within 30 days, beginning either at the end of the period the council has specified under section 82(2), or beginning when the expression of interest was received, when no such period has been specified.

Setting a timescale may help a council to stay in control of when expressions of interest can come in. It can either identify particular services that are most likely to attract expressions of interest and set a timescale for them, or set an overall timescale for any expression of interest in any service, perhaps based on its commissioning or budget cycle, its capacity to manage both the expression of interest process and the subsequent procurement. However, it will be necessary to identify in advance and define services and in effect advertise their potential outsourcing.

Grounds for rejection

A council can only reject an expression of interest on specified grounds. Frustratingly, this is something else that has been left to regulations. The October policy document suggests the following possible grounds for rejection:

• the relevant body is not suitable to provide the service;
• the service: has been stopped or de-commissioned or a decision has been taken to do this; is already the subject of a procurement exercise or negotiations for a service agreement; is subject to an existing contract (provided that no period for submitting expressions of interest for that service has been specified);
• the expression of interest: is frivolous or vexatious; contains unsatisfactory, inadequate or incorrect information;
• accepting it would lead the authority to contravene any law (such as its best value or equality duties).

If these grounds are included in regulations, councils may, in some cases, consider whether to seek to let contracts for a service voluntarily to avoid the impact of the right to challenge. Whatever the final regulations specify, it will be crucial to ensure that any rejection complies with the regulations, otherwise a judicial review application may follow.

The procurement exercise

Acceptance of an expression of interest does not mean that those submitting it will get to run the service. Section 83(2) requires the council accepting an expression of interest, to carry out procurement in relation to the service. This procurement must be: “such as is appropriate having regard to the value and nature of the contract that may be awarded as a result of the exercise” – which may mean in some cases a full ‘OJEU’ procurement. The council must consider how the procurement can promote or improve the social, economic or environmental well-being of its area (as long as this is done in a way that complies with procurement law).

A key role for lawyers here will be in advising on the procurement process. For instance:

• should the authority set minimum standards of economic and financial standing and/or professional and technical ability, notwithstanding that this may rule out the very people who trigger the process in the first place and leave the field open to established commercial providers?
• what award criteria will be appropriate?
• will any staff transfer under TUPE or property be made available?
• have specifications and contracts been drafted to define and regulate the services, which will still be delivered on behalf of the authority and presumably at the cost of the authority?
• will it be open to the authority to refuse to accept any bid if none is acceptable?

The way the council handles this will be open to review throughout, with potential for legal challenges from the bodies submitting the expression of interest, service users concerned about future provision whether under the equality duty or otherwise, staff and unions, and bidders in the procurement. Perhaps there is more than one meaning to the community right to challenge.

Assets of community value

The Government saw the need to introduce this because of the many local amenities that are threatened with closure where community groups, who want to take them over, do not have enough time to organise a bid or raise the money. The Act requires councils to maintain a list of assets of community value. When a listed asset comes up for sale there is a six-month moratorium, to give community groups time to develop a bid and raise the money to buy it. But will it work? Unlike in Scotland, it is not a right of first refusal, nor does it restrict to whom the owner of the asset can sell, or at what price. So at worst:

• the sale of the land will be held up;
• its value may go down if it is listed as an asset of community value (because this may be taken as a ‘material consideration’ in any planning application for a change of use);
• the council will have to compensate the landowner if he loses out on a lucrative sale to a private buyer as a result of having to wait until the moratorium has ended;
• the landowner is still free to sell to a commercial buyer even if the community group puts in an equivalent offer.

At least the final Act is clearer about what will be classed as land of community value. Land is of community value if:

• its actual current main use furthers the social wellbeing and social interests of the local community;
• it is realistic to think that this will continue (whether or not in the same way).

Worth noting is that land that used to further the social wellbeing and social interests of the local community ‘in the recent past’ will still be caught by the definition if it is realistic to think that there is a time in the next five years when it could be used to further (whether or not in the same way as before) the social wellbeing or social interests of the local community.

This definition is potentially very wide and would include amenities that have closed ‘in the recent past’ (which is up to the local authority to decide) but could be re-opened as something else, as long as the new activity still serves the community.

The net effect of this is likely to cost local authorities both time and money, as they will need to set up (in a form to be prescribed by regulations), publish and maintain, a list of nominated assets and a list of unsuccessfully-nominated assets, deal with requests to add or remove assets from the list, act as an intermediary between the landowner and the community group wanting to bid for the asset, publicise notices of disposal, compensate landowners and enforce the provisions. An updated impact assessment is expected shortly.

Richard Auton is a Director and Anna Sweeney is a professional support lawyer in the Public Sector and Projects team at Walker Morris. They regularly contribute articles and updates to reach…®, the free Walker Morris knowledge database and alerter service.