Where now for the Community Right to Challenge?

The Community Right to Challenge is taking shape with the passage of the Localism Bill through Parliament. Mark Johnson analyses the key elements of the scheme.

The Localism Bill is passing through Parliament and heading rapidly towards Royal Assent in December 2011. One of the most controversial parts of the Bill will be the new ‘Community Right to Challenge’ contained in Clauses 69 to 72.

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 DCLG published a policy statement which provides some pointers on how this radical proposal will work in practice once the necessary secondary Regulations are in place.

Who can exercise the right?

Clause 69(5) 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 Bill, 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 stalking-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 the Government has signalled its preference for entities in which the employees enjoy a material ownership interest.

Which authorities and services are covered?

County Councils and District Councils are within the current scope of the right and the Government is consulting on extending the right to all Fire and Rescue Authorities, whilst exempting core services including fire-fighting and responding to road traffic accidents. The Government makes the point that some respondents argued that the right should apply to all public authorities and consequently they intend to reserve a power to extend the categories by the simplified affirmative resolution in Parliament.

What must be in the expression of interest?

The guidance states that applicants will be required to include the following minimum information in their expression of interest:

• details of the relevant service provider (including details of any members of a consortium or sub-contractors likely to deliver a significant proportion of any contract. Where the relevant body is employees of the authority this should include details of how they propose to engage staff affected by the expression of interest in development of their proposal);
• details of the relevant body’s financial situation;
• details of the relevant service to which the expression of interest relates;
• the relevant body’s case that it will be able to participate in any procurement exercise (or that it is taking steps to be able to participate in a procurement exercise); and
• the relevant body’s case that it is capable of providing the service.
• details of the outcomes to be achieved, including how it meets service user needs and the social value offered by the proposal.

The guidance indicates that following will be grounds for rejecting an expression of interest:

• the relevant body is not suitable to provide the relevant service (an apparently wide basis for ruling out community involvement!)
• the relevant body provides unsatisfactory, inadequate or incorrect information in the expression of interest
• the service is exempt from the right and therefore not a relevant service (Regulations will set out the exemptions in due course and may for example include sensitive audit or safeguarding duties)
• the service has been stopped or de-commissioned or a decision taken to do this (on the face of it another widely-drawn get out clause which in a time of austerity may prove an attractive ground for refusal).
• the expression of interest is submitted outside a period specified by the authority
• the relevant service is already the subject of a procurement exercise or negotiations for a service agreement (this is intended to protect the integrity of procurements already underway).
• the expression of interest is frivolous or vexatious;
• the authority believes that acceptance of the expression of interest would lead to contravention of any enactment or a rule of law. This could include for example, the Best Value duty or an authority’s duty under the Equalities Act 2010.

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. Instead, moving away from attempting to micro-manage authorities, the Regulations will require relevant authorities to set and publish their own maximum timescales for notifying a relevant body of their decision on an expression of interest. Different periods may be specified for different cases, although local authorities will be required under clause 73(2) to have regard to factors set out by the Secretary of State. In setting their policies, authorities will need to have regard to:

• the need to provide employees of the relevant authority, and other relevant bodies, with a fair and reasonable and realisable opportunity to bid in the procurement exercise for the service;
• the nature, scale and complexity of the service being procured;
• the timescales for any existing commissioning cycle relevant to the service being procured, or any other relevant authority processes (e.g. Council Cabinet decision making or budget-setting).

What kind of procurement is required?

Clause 71(2) requires a relevant authority to carry out a procurement exercise for a service where it accepts an expression of interest in providing it. Clause 71(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 £156,000 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.

Clauses 71(5) and (6) 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. However, clause 71(7) 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.

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 the Open Public Services White Paper published in July. It will provide a legal basis and route map for community groups and employee-led mutuals to get more involved in delivering public services. Authorities will need 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 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..