Local Government Lawyer Home Page


Sharpe Edge Webpage Banner

Welcome to Sharpe Edge, Sharpe Pritchard’s local government legal hub on Local Government Lawyer.

Sharpe Edge features news, views and analysis from our team of specialist local government lawyers working at the heart of the latest legal developments. Sharpe Edge platform is also the only place where local government lawyers can get e-access to two law books by our Head of Local Government Rob Hann: The Guide to Local Authority Charging and Trading Powers (‘LACAT’) and The Guide to Local Authority Companies and Partnerships (‘LACAP’).

 

                                                                                                  

Slide background

Local Government Investment Programmes and the UK Investment Bank– lessons to be learned?

Icons HazardRob Hann discusses the lessons to be learned from Local Government Investment Programmes and the UK investment bank.

My local government career in law has been a little unorthodox perhaps, in that for nearly 20 years of my 37-year (and counting) career I worked for an organisation placed right at the centre of local government and which was (initially at least) established to help the roll out of the PFI investment programme across all local government sectors and services in England and Wales. Of course, there are no new PFI schemes being approved or funded nowadays, and we only hear about PFI in the context of those remaining operational long-term contracts which have, by now (or are shortly to) run to full term or else have, otherwise been terminated early for various reasons.

Yet the PFI was and remains the largest (in terms of capex) and most comprehensive (in terms of services, sectors and assets delivered) investment programme ever undertaken across local government. Its legacy is all around us in terms of school buildings, tram networks, waste management facilities and other public infrastructure created and delivered through the PFI processes and funding provided by successive Governments from 1996 to 2015.

It is also undoubtedly true that PFI has had a bad press and some of that criticism is justified. PFI was a huge learning curve for everyone involved and it suffered from being ‘the only game in town’ for the funding of new LA projects for the 20 years or so of its existence.

However, if we look behind the PFI label and focus on what was achieved under the local government PFI programme, there is a significant amount of good practice and good processes to learn lessons from and to bring to any new investment programme which might be contemplating lending millions of pounds across the local government spectrum to rebuild local economies blighted by the Covid 19 pandemic. Is such a programme about to be launched?

I was prompted to write this piece following recent government announcements about the establishment of the new UK Infrastructure Bank (‘the UIB’) and its proposed role in local government. I thought it might be a good time to take stock of what worked best under the last major investment initiative (the PFI) to see if any learning from that programme can be salvaged and recycled to good effect?

First, a word about the new bank and its proposed role:

The UIB was set up earlier this year to replace the European Investment Bank, which prior to Brexit, had been a major funder of UK infrastructure projects and programmes (such as Cross-rail and the Greater Manchester Tram network) and which offered up much needed capital funding to both central and local government sponsored capital intensive projects. The UIB looks set to play a key role in future with providing funding for similar schemes to the local government sector (amongst other public bodies competing for scarce funds) and projects aimed at reducing harmful co2 emissions, improving and retrofitting public buildings to make them more energy efficient and rolling out more electric vehicle charging points across the regions to help motorists to make the shift to EV’s.

It is reported that the UIB plans to set up a local authority advisory function that will provide local authorities with ‘oversight skills and assurance’ around what the local authorities are doing and intend to do. The UIB is beginning to promote its own ‘USP’ which it hopes will ‘encourage’ local authorities to choose the UIB as its ‘go-to’ funder of first resort, over other possible and hitherto available options such as the Public Works Loans Board (‘PWLB’). Its USP is that the UIB will offer to arrange loans to local authorities at a rate of 20 basis points cheaper than even the PWLB can muster.

However, (and here comes the ‘sting in the tail’), HM Treasury have concerns about some local authorities who have speculated on the property market primarily to generate income. Whilst some authorities may have prospered from out-of-area commercial property acquisitions, others have reportedly lost significant sums, particularly given the havoc Covid 19 caused with lockdowns of shopping centres, leisure facilities and many other (formerly) income generating facilities over the past 2 years. HMT’s fear is that the full impact of the pandemic’s impact on these investments has yet to fully work its way through the local government sector but already there have been some high-profile examples of financial mismanagement in local government which have ‘spooked’ HMT into action. CIPFA guidance now curbs LA enthusiasm for acquiring property and land purely in search of profit or yield (rather than for regeneration or development purposes).

The UIB, it seems, is also being set up, in part, to police (or at least to thoroughly vet) LA proposals to borrow large sums to fund regeneration and other eco projects. To secure funding the UIB will seek evidence that LA projects are financially viable and will explore whether and how the LA applicant is or will be in a position to repay its loan obligations. Whilst LA’s remain free to explore lending from the PWLB such lending will be at 20 higher basis points than a loan secured from the UIB and so it will not look like value for money to local tax payers or to auditors concerned with prudent LA financial management if such funds are accessed elsewhere and will cost more (such as via the PWLB). The full range of investments to come within the UIB’s remit have yet to be announced but projects and programmes aimed at net zero compliance, reducing carbon emissions, and boosting sustainable economic growth are most likely to be well up the list of schemes potentially in line to seek access to UIB investment.

Whilst the UIB seems on one level to be doing nothing more than any prudent lender, the new loan facility as described, and the vetting role in particular, might not be so attractive to local authorities and may have the effect of putting off LA initiative rather than fostering and encouraging plans and proposals to rebuild local economies. However, for me the processes described don’t go far enough. The ‘due diligence’ involved in assessing applications for funding, on the face of it and from what has been put out in the press to date, seem to be solely focused on financial issues and the LA’s ability to repay loans, as opposed to the wider deliverability of the project, the state of the market and the market’s ability to deliver goods, services and supplies post-Brexit.

So, what lessons might be learned from the PFI to make the new UIB funding process become more attractive to the local government sector and help such projects progress through a pipeline, into market and then into successful delivery?

Here are some pluses from PFI that could be plugged in here:

Firstly, the removal of legal obstacles to the PFI such as the ultra vires doctrine through the process of certification (via the Local Government (Contracts) Act 1997) proved to be the starting gun for the PFI across local government. From this point on, third party funders and contractors were provided with confidence to deal with local authorities via long term contracts. The 1997 Act though was never exclusively tailored for PFI. It in fact, applies to contracts for services over 5 years duration, so there is no reason why these provisions cannot be used to help the next generation of major LA infrastructure projects.

Secondly, the process for securing a promise of PFI funding for the duration of a contract (known as PFI credits and then later – PFI grant) gave the market confidence that any major project approved by the central committee of senior civil servants (known as the project review group or PRG) following full 5-stage business case submission by the relevant LA was both affordable from the LA’s perspective and deliverable in terms of fully worked through proposals signed off both by the LA and central government; Perhaps something similar could be put in place which tests deliverability of the project rather than simply ‘can the LA pay the money back if the project fails’?

Finally, the standardisation of PFI contracts (‘SOPC’), the standardisation of competitive dialogue processes, the establishment of model form sector specific and HMT mandated public sector contract conditions were hugely successful in ensuring continued and effective deal flow as well as holding a line on certain commercially sensitive issues pan-public sector. It is unfortunate (but given the demise of PFI not surprising) that there has been no update to SOPC since version 4 in 2007 but, going forward, it seems sensible to start from these market tested provisions to develop a new generation of standardised contractual clauses fit for a post Covid 21st century investment programme of the type envisaged by the UIB. But who has the authority, remit and funding to undertake this important role nowadays for the local government sector?

I sincerely hope the UIB can find a way to work with local and central government partners and provide essential funding for an investment programme spanning the whole range of local government services and to meet the significant challenges we face both in terms of the Covid recovery but also, as regards local government’s response to the climate change agenda and net zero. Building on the legacy and lessons of past major investment programmes might help speed this up and prevent wheel reinvention.

Rob Hann is Head of Local Government at Sharpe Pritchard LLP.


For further insight and resources on local government legal issues from Sharpe Pritchard, please visit the SharpeEdge page by clicking on the banner below.

sharpe edge 600x100

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email This email address is being protected from spambots. You need JavaScript enabled to view it.

LACAT BookFREE download!

A Guide to Local Authority Charging and Trading Powers

Written and edited by Sharpe Pritchard’s Head of Local Government, Rob Hann,

A Guide to Local Authority Charging and Trading Powers covers:

• Updated charging powers compendium          • Commercial trading options

• Teckal ‘public to public’                                    • Localism Act

FREE DOWNLOAD

LACAT BookAvailable to buy:

A Guide to Local Authority Companies and Partnerships

An invaluable, comprehensive toolkit for lawyers, law firms and others advising
on or participating in Local Authority Companies and Partnerships”

- Local Authority Chief Executive

BUY NOW

  More Articles

<a href=

Momentum for Heat Network Roll Out Gathers Pace

Steve Gummer discusses the increased momentum for a Heat Network Rollout.
Icons Hazard

Unconscious Bias, Discrimination and a Warning to Public Sector Employers

Christian Grierson and Julie Bann discuss two employment tribunal judgements, which provide a stark warning to public sector employers about unconscious bias and discrimination.
<a href=

Levelling up – A new opportunity for further devolution in England?

Rob Hann explores the Government's 'levelling up' policy and looks at whether it is an opportunity for further devolution in England.
<a href=

Time limits for commencing proceedings in procurement challenges

Colin Ricciardiello discusses a landmark procurement challenge judgment on the time limit for commencing proceedings.
Icons Hazard

The Revised National Planning Policy Framework: Better design, greener outcomes?

Alastair Lewis and Sarah Wertheim outline the latest National Planning Policy Framework changes and explain how future developments will be impacted by the new rules.
<a href=

Loose talk costs money: Oral agreement to forego liquidated damages was valid

Michael Comba outlines and analyses a contract dispute resolution: Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC)
<a href=

Procurement reform – an update

Radhika Devesher and Natasha Barlow provide a summary of the proposed and enacted changes to the UK procurement regime post-Brexit.
Icons Court

The Public Procurement Review Service Report: Procurement Pitfalls and How to Avoid Them

Juli Lau and Beth Edwards examine some of the most common procurement pitfalls and provide a checklist of points for local authorities to bear in mind in order to avoid costly errors.
<a href=

JCT Dispute Adjudication Board Rules: a case of “three’s a crowd”?

Peter Jansen who specialises in construction law and dispute resolution, examines the roles and functions of the JCT’s Dispute Adjudication Board and highlights some key considerations for parties planning to adopt the Rules in their JCT contracts.
<a href=

The Electric Vehicle Revolution or…

Emily Knowles discusses new legislation on the requirement of electric vehicle charging points, and its potential impact on the Electric Vehicle Revolution.
<a href=

Consultation on the Electronic Communications Code – What’s Changing?

Lillee Reid-Hunt outlines the legislative changes to the Electronic Communications Code.
Icons Court

You Must Adjudicate First NEC3 imposes obligation to adjudicate first before commencing court proceedings.

Michael Comba discusses NEC3 imposing an obligation to adjudicate first before commencing court proceedings.
Icons Court

Rocking aground the Christmas tree

Clare Mendelle and George Dale discuss and solve a common construction scenario, looking at the position under the Contract, and how the Employer should deal with the Contractor's request.
Icons Hazard

Adequacy Decision Granted to the UK

Charlotte Smith considers two recent adequacy decisions and explains how this affects existing data practices.
<a href=

Managing employees with long COVID and employees who have anxiety about returning to the office

Julie Bann and Victoria Smith consider how Long Covid may be treated under existing employment laws and provide compliance guidance for employers.
<a href=

Environment Act 2021: What Does it Mean for Waste Authorities?

Sally Stock, Juli Lau, Ellen Painter and Beth Edwards discuss notable changes made to the Environment Bill 2021-2022, which received Royal Assent on the 9th November.
<a href=

ESG and its relevance to the public sector

Peter Collins and Sydney Chandler discuss the growing importance of Environmental, Social, and Governance criteria in public procurement.
<a href=

JCT 101: Time and Punishment

Rachel Murray-Smith, Clare Mendelle and Laura Campbell discuss a common Construction scenario regarding the Practical Completion of a project, and the position under the unamended JCT DB 2016.
Icons Court

The importance of due process, communication and fairness in employee conduct investigations – what you need to know.

Julie Bann and James Hughes discuss the importance of fairness in employee conduct investigations, taking a look at the London Borough of Hammersmith and Fulham -v- Mr S Keable case.
<a href=

Becoming More Inclusive: VAT and Public Procurement

Juli Lau, Natasha Barlow and Beth Edwards examine the recently published Public Procurement Regulations 2021, focussing upon amendments to the thresholds within various procurement regimes.
<a href=

The LADs are Alright

Laura Campbell discusses liquidated damages in construction contracts, focussing upon the long-running Triple Point saga which ended in the Supreme Court this year.
<a href=

Procurement Policy Note 08/21

Juli Lau and Beth Edwards outline Procurement Policy Note 08/21, recently published by the Cabinet office.
Icons Court

Hard Times: Improving Air Quality with Clean Air Zones

Rob Hann and James Goldthorpe examine the introduction of Clean Air Zones to improve air quality across the UK.
<a href=

Autumn Budget Spending Review 2021 – What Public Bodies Need To Know

Rob Hann and James Hughes examine the Autumn Budget Spending Review 2021, looking at what Public Bodies need to know.
<a href=

Net Zero – What’s new for local authorities?

Steve Gummer and Sophie Drysdale look at two major climate publications: the Heat and Buildings Strategy and the Net Zero Strategy.
Icons Hazard

Jumping to conclusions: Final Statements, liquidated damages and material breaches of natural justice

Michael Comba looks at a recent Technology and Construction Court case that provides useful guidance on the JCT’s procedural requirements on disputing Final Statements.
Icons Court

Three times one equals one: Several disputed payment applications amount to a single dispute

Michael Comba considers a case in which the High Court dismissed an employer’s argument that an adjudicator lacked jurisdiction because the referral concerned three separate payment applications and, therefore, comprised three separate disputes.
<a href=

Warm feelings or hot air: the Heat and Buildings Strategy and Heat Networks

This week the government published its Heat and Buildings Strategy (Strategy). This contained vital innovations and essential step changes in terms of how heating is provided, writes Steve Gummer.
<a href=

Procurement reforms: update from Cabinet Office

Rob Hann, Nicola Sumner and Juli Lau assess the Cabinet Office's update on the progress of the government's public procurement reforms.
Icons Court

Bond, Performance Bond. Delivering value for the Public Sector?

Justin Mendelle examines whether public sector clients achieve value for money from the provision of performance bonds.
Icons Hazard

Not so personal messages: R. (on the application of Good Law Project Ltd) v Secretary of State for Health and Social Care and Abingdon Health Plc [2021] EWHC 2595 (TCC)

Nicola Sumner, Juli Lau and Beth Edwards look at The Good Law Project's challenge of the direct award by the Secretary of State for Health and Social Care of three contracts for the production and supply of rapid Covid-19 antibody tests (the “Contracts”).
<a href=

Insolvency – Termination and Beyond

Rachel Murray-Smith and Clare Mendelle consider the potential warning signs of, and the compliant manner for dealing with, contractor insolvency.
Icons Court

Settlement agreements – waiving Personal Injury claims

In the case of Farnham-Oliver v RM Educational Resources LTD, the Queen’s Bench Division of the High Court allowed a Personal Injury claim (“PI claim”) to be pursued by an employee against his former employer despite the parties signing a Settlement Agreement in respect of an Employment Tribunal claim on the same issue. Julie Bann and James Hughes report.
Icons Hazard

Mandatory Vaccination for Care Home Workers in England – Update

Rachel Murray-Smith and Francesca Gallagher look at the detail of the government's guidance on compulsory vaccination for care staff.
<a href=

Make your mind up! Liquidated Damages clause upheld despite Employer’s challenge

In the recent case of Eco World Ballymore (EWB) v Dobler[1] , an Employer took the unusual position of challenging their own entitlement to liquidated damages (LDs) on the ground that the LDs provision constituted an unenforceable penalty clause. Clare Mendelle and James Goldthorpe investigate.
<a href=

Are Collateral Warranties Construction Contracts? Timing is Key.

Clare Mendelle and Anna Sidebottom examine the recently decided case of Toppan v Simply[1], which has provided guidance on when collateral warranties may be considered “construction contracts” under the Housing Grants, Construction and Regeneration Act 1996 and so give the warranty holder the right to adjudicate.
Slide background