In the fourth part of our series on contract management pitfalls, we look at the risks arising out of varying the terms of construction contracts.
As a local authority, your strategic plan should show how you plan to fund and deliver core services.
Wholesale outsourcing of delivery to one organisation has sometimes left many local authorities with no control, no money and few options. Conversely, providing services from within the council has often led to difficulties in recruiting the right management and leadership talent, together with certain service issues becoming politicised where this has acted as a blocker to improvement and efficiency.
Many local authorities have assessed that a trading subsidiary or trading structure could be beneficial as part of generating income or the service delivery matrix. However, it is often difficult to know where to start on implementation. Setting up a few wholly owned companies is relatively simple, but there is a whole raft of decisions which need to be taken during that process which must align with the strategic purposes of the companies. If the council gets this wrong, the trading subsidiaries will be nothing more than distractions which cause problems. If the set up supports the outcomes you are seeking, successful delivery is just around the corner!
Taking early decisions on pensions, procurement, employment terms and conditions, State aid and the service requirements which need to be delivered by the subsidiary are key. Ensuring that all these decisions support the outcomes you are expecting as an authority are fundamental. For example, the table below sets out the considerations you need to make for two very different types of subsidiary, one dealing with primarily Council service delivery, and the other with commercial delivery which drives income for the Council. Often the best strategy is to have both vehicles in your structure to maximise flexibility.
|Example Topics||Commercial Subsidiary||Service Delivery Subsidiary|
|Outcomes||Delivering income into the General Fund.||Delivering council services with greater focus and efficiency.|
|Service Contract with council||None – all activity should be external if possible.||Consider how this should be structured to ensure financial sustainability and accountability is adequately balanced.|
|Governance arrangements||Approval of business plan – with the ability to operate outside usual council restrictions.||Tighter controls? Business plan approval, control over significant decisions with capital or revenue implications?|
|Procurement||Could be outside the scope of the EU rules, if it is purely commercial. Scope for intra group trading.||Will be subject to the rules, and should be structured to be a “Teckal” subsidiary. Even here, however, flexibilities can be worked in to enable “commercial” operation.|
|State aid||Broadly, the subsidiary must be dealt with as an arm’s length body with all support provide on a commercial basis.||If services are only provided back to the council, there are no State aid concerns.|
||Often LGPS initially but long term?||LGPS is likely to be continued, but, again, long term?|
For more information
There is support available to navigate this complexity. We are always willing to offer a view using our experience to inform the matters which would need to be addressed in outline business cases and have set up numerous structures. Please contact Richard Brooks.
We have been supporting a number of trading companies to create the not-for-profit National Federation of Local Authority Trading Companies – or the LATCo Network. The inaugural event where local authorities and existing trading companies can meet to network and exchange ideas, takes place on 11 July 2019 in London – click here to get your ticket.
A local authority recently received a "roasting" by the Pensions Ombudsman for their delay in processing an employee’s ill-health retirement pension, following her diagnosis with advanced cancer.
The Times is looking for three or four charities to feature in their editions running in December 2019 and early January 2020.
Cliff Mills defines and talks about the importance of social value in his blog, and its potential within Greater Manchester.
Following a power outage at Anthony Collins Solicitors’ (ACS) Birmingham office, our employees and partners currently have limited functionality, including no access to emails.
Joint ventures present an opportunity for housing associations to build organisational capacity, the revenues from which could help deliver on wider social housing commitments.
Residents are now unable to make applications to prohibit landlords from seeking to recover the cost of legal proceedings through the service charge on behalf of other residents, without consent.
Natalie Barbosa summarises some of the legal challenges facing fundraisers in the charity sector.
We hosted a breakfast roundtable with Insider Midlands magazine that had attendees from a range of organisations addressing housing needs in the Midlands. The discussion explored JVs in more detail.
The decision of the Court of Appeal in The Harpur Trust v Brazel & Unison has made clear that employers can no longer legally calculate part-time holiday based on 12.07% of hours worked over a year.
To receive invitations to our events, as well as information and articles on legal issues and sector developments that are of interest to you, please sign up to Newsroom.