Win one for the kippers

I hope those UKIP Councillors elected earlier this month (Nelson ward in Norfolk seems as appropriate a place as any for them to top the poll) are settling in well to their new positions in elected local government, and finding good ways to make the link between the problems and challenges faced by their local authority in delivering for the people they represent, and the UK’s membership of the European Union. I worry that they are going to find a lot of Council business quite tedious if they aren’t especially interested in the rest of it, but they have their experience as residents to draw on, and Greens around the country have managed to engage with issues which aren’t really ‘environmental’ in any real sense, so who knows.

I thought this might be a good time to help them make one of those links – indeed I’m a little puzzled that it hasn’t already been made more widely – it might just be a really tedious story. Last week there was a rather unfortunate decision in a case before the Court of Appeal (Brent London Borough Council v Risk Management Partners Ltd) which in essence said that local authorities were not allowed to form partnerships with one another without going through the tendering process which they would employ if they were considering outsourcing a function to the private sector.

In brief, a group of London councils believed they could get better value for money from their insurance by clubbing together to self-insure than by buying insurance from the private sector. This is often likely to be true, since insurance is in pure mathematical terms irrational – the “expected value” for each individual is less than you get out, much like betting on horses. The advantage is being protected against large risks for a small guaranteed loss.

Understandably however, a private sector provider was unhappy that the tendering process had been halted and went to court seeking compensation. This recent ruling upheld one which awarded them such compensation, on the basis that halting the tendering process was a breach of the Public Contracts Regulations 2006. Now, I am open to the argument that if a Council is not going to deliver a service directly it should consider all possible providers. However I think there are a number of reasons this is not ‘the whole story’.

Firstly, the public sector (more broadly than local government) is hugely outgunned on procurement. While great strides have been made, big contracts still often see a local authority negotiator on a ‘politically acceptable’ salary of say £60k facing up against a far more experienced private sector ‘client relationship manager’ who is perhaps on the same wage but with the potential to more than double it through commission. The only time I’ve ever been confident in my own work that our lead negotiator on a large contract was really the top player on the field was when we had a very wealthy retired accountant who came in for a far lower wage than he could have commanded elsewhere, because he “thought it might be a fun experience”. Secondly, some private sector organisations overpromise and underdeliver to the public sector, knowing that it is politically and administratively difficult to break certain contracts.

Thirdly, and most importantly, partnership between public sector organisations is, in my view, a qualitatively different thing from outsourcing, for all sorts of reasons of staff morale, democratic accountability, and political acceptability. Whether we are talking about the Sustainable Communities Act, or the Total Place initiative, or David Cameron’s suggestions about pooling local funding for public services, there is progress to be made beyond simply an old model of ‘putting it out to tender’.

Consequently I am not terribly happy about this judgement – I think it puts at risk a number of important initiatives, and so do other people in the field. For example Michael Burton, Editor of the MJ (which used to stand for Municipal Journal but I think it now stand-alone, like BP or YMCA) says the following on his blog – quoted at length because I think it’s important;

Among the pile of correspondence in new communities and local government secretary John Denham’s red boxes this week, the Appeal Court ruling over London Authorities’ Mutual Limited should be stamped ‘urgent: action this day.’

This otherwise obscure ruling over the legality of a new insurance consortium of London boroughs threatens to undermine the entire direction of public sector partnership working by blocking the use of long-established wellbeing powers.

However, the Appeal Court maintains that councils do not have the powers to set up such an entity as LAML, even though it has the support of the CLG, and says that neither the 1972 nor the 2000 Local Government Acts give such legality.

Critics in turn argue that this is a narrow interpretation of this legislation and is a return to the 1980s when councils needed express powers to act and if they did not were ruled ultra vires. The whole point of wellbeing is to allow councils to do anything which is not expressly forbidden, precisely to allow them to be more pro-active and innovative.

John Healey, before he was moved to housing, made a point of telling councils they have these powers, and should just get on and use them, especially when grappling with the recession. Some lawyers said it was not quite as simple as that and the Appeal Court agrees with them. It has turned the clock back and done councils, and residents, no favours. Its ruling must be overturned.

Which is all well and good, and I entirely agree. However (and I’m sorry if this doesn’t quite live up to my billing), it’s not open to the Minister to reverse that ruling. Indeed it’s almost certainly not up to Parliament to reverse that ruling either, because the Public Contracts Regulations 2006 which are getting the blame here are not domestically inspired legislation. They exist to give effect to EC Directive 2004/18 and its predecessors, “on the co-ordination of procedures for the award of public works contracts, public supply contracts and public service contracts [in the EU]”.

Now, there may be UK gold-plating of that directive (though it looks pretty clear to me), or there may be a public policy decision that the benefit to UK private sector companies in being able to compete for public tenders elsewhere in the EU outweighs the inconvenience to the UK public sector in being unable to form public-sector-only partnerships. I don’t know. Nonetheless, I think it is important when we look at what impact legislation is having, to understand at what level that legislation is made, and who does and does not have the power to change it.

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