The legal questions raised by One Barnet

Do you care who delivers your local services? Are there any services which should always be delivered by your local council? What is the role of a local authority and what are its core functions?  

These are all issues which surfaced when Barnet council decided to become a commissioning council and an application for judicial review (R (Nash) v Barnet LBC) went before Lord Justice Underhill in April and then to the Court of Appeal last month.

From a public policy viewpoint, One Barnet is interesting because of the intense public debate surrounding: whether private sector organisations can genuinely evince the public sector ethos necessary to deliver public services; where the dividing line between public and private should be drawn; and, at its most extreme, whether public services should ever be externalised at all.

One Barnet raised novel legal questions. For example, when is a public authority’s decision a final decision? What is the demarcation between the exercise of a public function and its discharge? Does a council officer always have to be employed by the council? What is the nature of consultation? What is the difference between commissioning and procurement?  What is a ‘best-value arrangement’, as referred to in section 3 of the Local Government Act 1999?  

One Barnet originated in the council’s decision to commission rather than deliver services in order to save money, join up better with other public bodies and have a new relationship with its citizens.  

One of the procurements involved a 10-year £350m outsourcing of customer and support services to Capita.  These included public-facing and back-office functions such as customer services, IT, HR, finance, estates, procurement, and revenues and benefits collection and administration.

Simultaneously, the council decided to enter into a 10-year joint venture to deliver development and regulatory services (DRS): planning, regeneration, environmental health, trading standards, land charges, building control, highway strategy and management, and management of a cemetery and crematorium.

The DRS externalisation was interesting because many of the services, such as planning and licensing, involve decision-making which has a direct effect on citizens’ lives, and thus could be regarded as ‘quasi-judicial’. Therefore, it is not currently legally possible for the discharge of some of these functions to be outsourced in their entirety. As those familiar with local government will know, the powers parliament bestowed on local authorities are embodied in numerous statutes stretching back to the 19th century – all of which are expressed differently according to the drafting conventions of the time. Part of our job was to advise where the demarcation lay between the exercise and discharge of a public function and whether part of the function could lawfully be discharged outside the council.

At this point, it was important to consider the practicalities of how the statutory function tends to be exercised in the real world, not just the legal technicalities.

In some instances, legislation permits delegation of functions externally. In other cases, it does not. Section 70 of the Deregulation and Contracting Out Act 1994 (which is being amended) and the possibility of applying for an order, were not of universal help because of the prohibition in section 71 stopping deregulation of powers of entry, search or seizure. For other functions, existing deregulation and contracting out orders were useful.  

In January, a legally aided local activist launched a judicial review application. The grounds were breach of the council’s duties to consult on a best-value arrangement under section 3(2) of the Local Government Act 1999; to obtain value for money; the public sector equality duty under section 149 of the Equality Act 2010; and (withdrawn before the hearing) breach of the public procurement rules.

The 1999 act abolished compulsory competitive tendering rules for councils and imposed the lighter-touch best-value regime. Under section 3, authorities have a duty to secure economy, efficiency and effectiveness in performing their functions, and section 3(2) imposes a duty to consult residents and others on ‘best-value arrangements’. The extant guidance describing the consultation duty does not unambiguously explain when a council must consult, but refers to ‘all stages of the commissioning cycle’.  The claimant argued this meant the council should have consulted before it decided to pick its contractors. In practice, most councils never do this.

The claimant’s counsel invited Underhill LJ to articulate precisely what ‘best-value arrangements’ comprise and at what point councils should consult.  

Underhill LJ dismissed the claims of breach of the public sector equality and value for money duties.  

With regard to consultation, he was more ambiguous. He suggested outsourcing covered any arrangement by which an authority provides for parts of its functions to be performed by others – whether the voluntary sector or joint venture(s).

The judge considered that the judicial review application was out of time (even considering the principles in R (Burkett) v Hammersmith & Fulham London Borough Council [2002] 1 WLR 1593. There were obiter dicta that he would have held the council in breach of its section 3(2) duty in respect of its failure to consult with regard to its decision in 2010/11 to outsource. Despite this, the judge said he would not necessarily have quashed the decision, as there had been both undue delay and it would have been detrimental to good administration. On 2 August the Court of Appeal confirmed these remarks should be considered obiter and the claimant’s application was decisively dismissed.  

The claimant’s counsel had argued that, despite earlier council decisions being made, the claimant had a right to challenge the council’s final decision to outsource. He based this on Burkett, which the Court of Appeal considered was clearly distinguishable, and considerations of fairness and certainty weighed strongly in favour of the council. It was, in the Court of Appeal’s view, ‘inconceivable’ that the council or the tenderers would have followed a competitive dialogue process had it been envisaged that the council’s whole strategy of outsourcing might be derailed at the end of the day.

The One Barnet programme is a landmark because it is the actual realisation of the commissioning council concept. This is potentially relevant to all public authorities, regardless of political control, given the significant funding cuts. The commissioning council is not just about outsourcing, but can involve alternative models for public service delivery, including wholly-owned companies, employee-led mutuals and shared services, or a combination of all of them.

Perhaps in these austere times, we need to be open-minded about how our public services are delivered – especially where externalisation might achieve savings and other benefits which the public sector could not otherwise achieve on its own.

Helen Randall is head of public sector at Trowers & Hamlins. The firm acted on behalf of the London Borough of Barnet advising it on One Barnet procurements, and in the first instance and Court of Appeal hearing in R v Barnet London Borough Council ex parte Maria Nash)