Challenging times

The government has made a big play of the opportunities to operate local services that the Localism Bill – through the Community Right to Challenge – will give local organisations. Jack Hayward examines the procurement implications for local authorities.

The Localism Bill sponsored by Eric Pickles is currently before Parliament and is one of the key pillars of the ‘Big Society’ programme. Since the main thrust of the programme is the transfer to local organisations of the operation of local services, the provisions of the Bill that relate to this area are obviously of great interest to those in local authorities who will be tasked with consideration of the transfer of affected services. One of the drivers for the Bill is the frustration felt by ‘localism’ activists that no matter what change is sought at a local level, someone higher up the food chain will stop, change or reverse it.

The provisions relating to possible service transfer are contained in Chapter 3 of the Bill under the rather ominous sounding heading “Community Right to Challenge”. Chapter 3 enables voluntary and community bodies, charities, parish councils or public sector employees delivering the service, to express an interest in running a local authority service. Where it accepts an expression of interest, the local authority must carry out a procurement exercise for the running of that service.

Essentially the process for outsourcing commences with the submission of an ‘expression of interest’ (EOI) to a ‘relevant authority’ (i.e. a local authority to all intensive purposes or interestingly “such other person on body carrying on functions of a public nature as may be specified by regulations”) which must consider an expression of interest if:

• it is submitted to the authority by a relevant body, and
• it is made in writing and complies with such other requirements as set out in statutory regulations.

The relevant body can be a voluntary/community body (defined as a body other than a public/local authority whose activities are not carried on for profit), a charitable organisation, a parish council, any body or person specified by the Secretary of State and finally two or more employees of the relevant authority.

Although a relevant body may submit an EOI at any time, the relevant authority subject to requirements as to advertisement may specify periods when an EOI in respect of a service may be submitted. The only compulsory element of advertisement appears to be a requirement to advertise on the relevant authority’s website.

Once the EOI has been made, subject to any time limits as set out above, the authority must either:

• accept the EOI, or
• reject it, or
• consider a modification within the ambit of Clause 69(1) of the Bill.

The decision must be notified in writing to the relevant body and where rejection or modification is the decision, reasons – presumably written although the Bill is silent on this point – must be given. The decision must be published on the authority’s website and in such other manner as it may choose.

Acceptance of the EOI

By accepting the EOI the authority must carry out a procurement exercise in respect of the service to which the EOI relates. There is a requirement that this procurement exercise must be “appropriate having regard to the value and nature of the contract which may be awarded as a result”. The Secretary of State also reserves powers to specify regulations, which cover the following issues:

• The minimum and maximum periods between the acceptance of the EOI and the commencement of the procurement exercise
• To what extent the relevant authority considers the EOI would promote or improve the social, economic or well being of the authorities area
• Rather curiously includes a requirement that when the procurement exercise is being carried out consider how it might “promote the social economic or well being of the authorities area by means of that (procurement) exercise” which is then qualified that this only applies insofar as “it is consistent with the law applying to the awarding of contracts for the provision on behalf of the authority of the relevant service in question”.

Rejection of the EOI

This can only be done on one of the grounds specified in regulations made by the Secretary of State.

Consideration of a modification

Under this provision the relevant authority may modify the EOI only if the relevant authority thinks that the EOI would not otherwise be capable of acceptance and the applicant relevant body agrees to the modification.

Policy Background and EU Regulation

The Control Shift Green Paper that the Conservative Party published prior to the Bill made the point that the implications of the general power of the potential Act were vast: “The fact…will be that they have the power to change things, to provide services that are missing, to correct market or public service failures—in short to provide whatever it may be that local people want or lack or are prepared to pay for”.

Essentially therefore the policy is to implement a mechanism, which permits local services to be operated by local people. Nevertheless whatever the policy aspirations insofar as they affect procurement they can only be addressed in the context of the Public Service Directive 2004/18 particularly since the implementation of Directive 2007/66 (the so-called Remedies Directive).

Unfortunately it is not yet possible to see how the Bill would deal with any possible conflict with the EU legislation since as yet we have not seen the draft regulations or the guidance, which is to be issued in support of the proposed Act. However, as we know the principal aim of the PSD is create a single market and to eliminate local preference. On the face of it the Bill must come into conflict not only with the PSD but also potentially with the underlying TFEU principle of non-discrimination.

Indeed the requirement to comply with the Remedies Directive could lead to a situation where a procurement exercise is triggered as a result of an EOI from a community group but the eventual award is made to a commercial entity. Such a result would contradict the underlying purpose of the Bill. Therefore are there PSD compliant ways to deal with an EOI triggered procurement?

The Committee Stage

Although significant, the outsourcing provisions only make up a part of the Bill and at Committee stage various amendments were tabled particularly with regard to the ‘two employee’ rule as a number of committee members felt that this was an area ripe for abuse. None of the proposed amendments were accepted.

Another area of concern was around the cost of procurement exercises. In the impact assessment it was suggested that 331 services may be subject to expressions of interest from relevant bodies or authorities’ employees in each of the first three years, with an estimated cost to local authorities of £120,000 to £140,000 a year.

There is a further guesstimate that 60% of expressions of interest will lead to a procurement exercise, the cost of which has been put at £9,100 each, or just less than 5% of contract value. The total additional burden on all local authorities is judged to be just less than £3m, based on one procurement exercise per local authority. Certain of the Committee members treated these figures with considerable cynicism.

Issues for compliant procurement

Realistically what contracts will be caught? Certainly a number will be below the EU threshold for services. Although underlying EU Treaty principles will still technically apply in any procurement exercise that is triggered, nevertheless authorities may have scope around the way they formulate their contract standing orders and financial regulations to weight in favour of local NFP organisations.

However, where the public procurement regulations do apply authorities may have to resort to the use of qualifying criteria to try to sift out commercial organisations. Perhaps this could be achieved by using CV based award criteria where employees trigger an EOI. But experience has shown that one of most vulnerable areas of any public procurement exercise is the award criteria used to calculate the successful bidder.

Another possible point is whether or not the modification procedure allows authorities to offer to ‘partner services’ with all the Teckal implications that follow. In any event the effects of the Bill on the procurement of local services is potentially far reaching but quite how far reaching can be better gauged when the guidance and regulations are issued. Let us hope that is not too far away!

Jack Hayward is a consultant procurement solicitor in the corporate law team at City of Bradford Metropolitan District Council. He can be contacted on 01274 434784 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..