Local government contracts and the ultra vires doctrine

In the light of the recent school facility management case invoving the Isle of Wight Council, Rob Hann takes a look at the weapons now available to local government to avoid the ‘horrors’ of ultra vires.

The ultra vires doctrine and how it has impacted particularly in the local government environment has always fascinated me. There is perhaps a gothic quality to this Latin phrase, rooted, as it is in 19th century judge-made case-law coupled with fact that it continues to spring back to life every now and again to scare the living daylights out of the commercial sector and those dealing in good faith with local authorities. Every time the legislature thinks it has defeated this relic from the past, up it pops again to sink its virtual teeth into the sector - local government’s very own ‘Count Dracula!’

Whilst some individual local authorities may find themselves sheltering behind the ultra vires vampiric robes, the effect of the doctrine and in particular, the effect on the confidence of the market to engage with local government - for fear of having seemingly perfectly proper commercial arrangements being struck down as void and of no effect at some later stage - does the sector as a whole no favours. This is especially true as the UK economy emerges from the recent lockdown caused by the COVID-19 pandemic and we all blink into the recessionary abyss that has apparently been created.

Right now, local government needs an ultra vires problem like a ‘fang’ in the neck!

The latest incarnation of the ultra vires contagion occurred in the case of School Facility Management Ltd & Ors v Governing Body of Christ the King College & Anor [2020] EWHC 1118 (Comm) (‘the SFM case’). In fairness to local government, this was a case of an outbreak in the academy schools’ sector, one step removed from local government proper. But nevertheless the Isle of Wight Council found itself desperately batting away a claim that alleged the council were acting as agents of the academy school when the school entered into a contract for the provision of a sixth form building. Both the council and the school defended the claim on the basis they each had no power to enter into the contract.

In a long, careful judgment which reviewed a number of the now familiar cases which have bedevilled the local government sector during the 1980s and 1990’s, from the Hammersmith and Fulham swaps cases, to Allerdale and beyond, Foxton J agreed that the contract was ultra vires the school and that the council was not the agent of the school for the purposes of the relevant statute. The facts of the case are reported here in an earlier article.

What struck me when reading the SFM case and refreshing my memory of all the ultra vires decisions of time gone by, was the fact that whilst there was a really comprehensive review of the vires case law, there was only a single fleeting mention of one of the key weapons provided by the legislature to address the impact and consequences of ultra vires doctrine for local government -the Local Government (Contracts) Act 1997 (‘The 1997 Act’).

Now, this observation is not meant as a criticism of the judgment – the 1997 Act does not apply to academy schools and so it is not surprising that it didn’t get any meaningful coverage in this case.

However, this short statute is still available to local government to help provide confidence to those who deal with local authorities that they have powers to enter into contracts and that even if the worst should happen, (an ultra vires finding by a court) remedies are available in the form of so called ‘relevant discharge terms’.

The 1997 Act is, of course, closely associated with the steps taken, in an earlier age, to promote and encourage councils to adopt the Private Finance Initiative (‘PFI’) when engaging with private sector providers for the delivery of long term capital intensive service contracts. However, even though the PFI has been abandoned as a methodology for engaging with the market, the building blocks that facilitated the PFI remain and so can be utilised in 2020 and beyond if they assist.

The 1997 Act in fact never mentions the PFI and was always designed to be applicable on a much wider basis than simply to facilitate PFI transactions. It may be that, as PFI has dropped off the agenda, the 1997 Act’s association with PFI may have meant these benefits have also got ‘lost in the fog’!

Just to recap, Section 1 of the 1997 Act provides a very helpful statutory clarification that

 ‘…every statutory provision conferring a function on a local authority confers a power to enter into a contract with another person for the provision or making available of assets or services or both for or in connection with he discharge of that function’.

This section stands apart from the certification process outlined below and is available for all councils seeking to identify powers to enter into contracts.

The 1997 Act goes on to provide a contract powers certification process which is applicable to contracts (at the option of the parties entering into such contracts) which meet certain criteria. In short (see section 4(2)) to be capable of being ‘certified’ the contract must be for services (whether or not for assets or goods) entered into for the purposes of discharging any of the functions of a local authority and which lasts for at least 5 years.

The advantage of following the contract powers certification process includes the fact that the parties to the contract can also set out and make some provision for what should happen in the event (hopefully unlikely event if all the pre-certification processes are followed) that the contract is subsequently held to be ultra vires by a court. These provisions are called ‘relevant discharge terms’ in the jargon of the 1997 Act and were designed to enable a fairer remedy to be provided (or at least considered by a court) than what would otherwise be the case if no certification process had been followed (i.e. a void and unenforceable contract ab initio).

The downside of following these processes, of course, is time and effort in going through a certification process in a (usually) fast-moving commercial environment.

Whilst neither the 1997 Act nor (the later) powers of general competence contained in the Localism Act 2011, have proven to be the ‘stake through the heart’ of the ‘vires vampire’, confidence of the market can be maintained going forward, by utilising the weapons and shields we do have to avoid scaring the market away, as local government seeks to engage with providers to boost economic development, build new housing, construct roads and infrastructure and create jobs in post-pandemic, post  Brexit environment.

Rob Hann is a local government lawyer, author and consultant. A fuller explanation of the ultra vires doctrine and all the cases mentioned above can be found in his new book ‘A Guide to Local Authority Companies and Partnerships available exclusively from Local Government Lawyer.

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