Local Government Lawyer - The constant gardeners

The constant gardeners

Tuesday, 02 February 2010

With many aspects of public sector spending apparently set in stone, cuts will inevitably be aimed at those contracts with 'discretionary' elements, even if that means reducing frontline services. However, serious savings can be achieved through adjustments to existing contracts if approached in the right way. Bethan Evans looks at how existing contracts can be pruned without killing the roots.

For many public sector bodies, areas of annual expenditure are largely pre-set either through the need to continue to fund key public services or due to long term contractual commitments. That typically leaves only a small “discretionary” element that is often the first in which cuts are focused. However, the need to make quick savings can be achieved by more than these discretionary cuts, without affecting frontline services.

Is there another option with quick results?

The public sector will have entered into many contracts that may not be being enforced or regularly reviewed and thus driving the value for money service that may have been promised in business cases or expected when contracts were first signed. The regularity with which significant elements of committed expenditure in long term contracts are reviewed will need to be addressed if the government's budgets are to be achieved.

The key factors

The contract itself is at the heart of the value for money to be achieved from any contractual commitment. However, the operational management of that contract and the relationship of the parties involved will also have an impact on the financial out turn, particularly in the context of long term contracts over several years (or decades).

The Contract

There are a wide range of specific cost saving and efficiency opportunities within any contractual arrangement. The following are just a few examples of the type of questions to consider:

Do the mechanisms in the terms and conditions allow for refinancing, efficiency savings? For example the contract may require the private sector to look at refinancing a scheme to achieve a gain if (a) the scheme has been operating successfully for some time and therefore the risk for a funder is perceived to be lower and/or (b) long term interest rates are more favourable now than when the contract was initially entered into.
Are there any provisions for benchmarking or market testing of services, costs or income? These provisions may allow the public sector to amend their service requirements and thereby drive revenue savings.
Is the specification clear, consistent and complete? Is it right for current circumstances? Is there an opportunity to vary the service requirements? Variation procedures may be complex and involve effective engagement and negotiation with the private sector. Overall savings may be achieved even if there is a cost to bring the variation into effect.
Can cost savings be driven under the in place arrangements? For example, are any pass through costs from the private sector such as energy or insurance charges being adequately examined and challenged?
Can current contracts be renegotiated and/or terminated? Where the original requirements of long terms contracts have changed radically it can be more cost effective to terminate the contract than to continue with the current arrangement. Early termination fees are common place in most recently concluded long term contracts but it is worth examining older contracts to check whether the same charges apply. Early no fault termination will always carry a cost because the innocent party will be entitled to the cost return that they would have achieved had the contract not been terminated. However, in contracts where it is believed that the private sector may not be getting a viable return an early, negotiated, termination may be worth exploring, particularly if both parties agree that the contractual relationship is not working to their advantage.

The management of the contract

Many contracts are tainted or deliver sub optimally not because of the terms and conditions or specifications but because of human factors:

Lack of trust between the parties. The traditional interface between public and private sector is one of suspicion of each side’s motivations. Just like any other relationship, contractual relationships need to be worked at. Trust may develop over time but failing relationships can be difficult to save.
Lack of continuity of staff between those procuring and those monitoring or delivering the contracts. Those monitoring or delivering contracts the contract may not understand the detail of the contract because they were not involved in the detailed procurement process. Substantial contract terms, schedules and specifications can be rather daunting and therefore the temptation may be to only refer to them if there is a problem. There may also be a loss of corporate understanding as to why contracts were structured a particular way. These factors may mean that what the parties delivering the contracts believe the contract requires can differ (sometime substantially) from what is actually required by the contract, leading to either over delivery or underperformance.
Mismatched expectations. If users of the contract services were expecting something different to what they actually receive then this can lead to the perception of a failed procurement even if the service provider is delivering exactly what the contract requires. This perception can affect the relationship between the parties to the contract and ultimately the success of the procurement.
Lack of visibility. It may be easier to blame lack of delivery under a contract upon those who procured the contract or were involved in the early stages of implementation, rather than to investigate the root cause of failures and address them.
Lack of organisation and/or resources. Complex contracts, particularly those with detailed payment mechanisms require a level of organisation and commitment of resources in order to ensure they managed effectively and in accordance with the contract terms. Particularly in the early stages of contract implementation it can often come as a surprise that the level of resourcing on the client’s side is far higher than expected. This should level off over time but “front loading” of organisation and resourcing in the first few months will reap rewards in the later phases of the contract.
Misunderstanding or ignorance of the contract terms and conditions or specification. Often the operation of contracts turns on the understanding of the most junior members of teams e.g. does the person logging a call within the helpdesk, or reviewing a performance monitoring report know what and how the contract requires reporting to be undertaken. They may not have read the contract in full but early training and support for all levels within the client team should result in optimum delivery.

Take action

Reviewing existing contract commitments does not require any new or cutting-edge thinking, or long-term procurements. However, even small changes to contract management can deliver savings quickly, easily and with minimal cost.

Bethan Evans is a partner at Bevan Brittan.

Add comment

The use of pseudonyms is permitted, but you must supply an email address, which will not be published or used for any purpose other notifying you of new comments on this article (if requested below).
All comments will be moderated before publication. We reserve the right not to publish comments that are offensive, defamatory or irrelevant to the topic.

JComments

Latest Stories Ministers change tack on public sector equality duty 25/08/10: The government has outlined a major shift in approach to the public sector equality duty. There will be no national equality priorities, but the amount of data required to be published by public bodies will increase.
Law Society and SLG call on EC to end confusion over services concessions 24/08/10: The Law Society has called on the European Commission to issue guidance on the law in relation to services concessions in a bid to reduce confusion over its implementation.
Research points to sharp rise in public sector supplier insolvencies 24/08/10: The number of public sector suppliers to go bust rose by 47% in the first six months of 2010, it has been claimed. Accountants Wilkins Kennedy said the problem was being exacerbated by delayed spending decisions.



Balancing act At what point should confidential tender documents be disclosed in the event of a procurement dispute? Jenny Beresford-Jones examines the dilemmas facing lawyers in this situation.	Termination troubles The High Court’s recent decision not to strike out a property developer’s claim for breach of procurement regulations will see the spotlight thrown onto the extent of an authority’s right to abandon a procurement process.
Government sets up taskforce to reduce third sector red tape The government has announced the creation of a new taskforce aimed at reducing the bureaucratic burden faced by voluntary organisations in an effort to make easier for them to provide public services.

Is sense prevailing? A recent HIgh Court procurement case involving waste recycling centres in Hertfordshire saw a rare win for a local authority. Ruth Connorton and Richard Matthews examine the judgement in detail.
The first cut The announcement about cuts to the BSF programme could be the first of a series of statements withdrawing funding for capital projects. Bethan Evans outlines the key questions and answers on the impact of these cuts on procurement.
Random factors Traditionally, economic and qualitative factors are foremost to be taken into account when entering into contracts but issues outside of the commercial arena are becoming increasingly important, write Caroline Finnett and Lucy Carlile.
Council pays out over Christmas lights procurement A local authority has paid a lighting business £155,000 in compensation over the award of its Christmas illuminations contract, it has been reported. Fife Council settled after admitting breaches of procurement rules.
Contracts in trouble As a new survey reveals that 70% of local authorities have seen a construction supplier go bust in the past year, Kirsten Maslen and David Rawson look at what supplier insolvencies mean for local authorities.
OGC warns of dangers of non-compliant framework agreements The Office of Government Commerce has fired a warning to contracting authorities of the risks of joining “framework agreements” set up by private organisations, arguing that they put at them at risk of challenges.
NAO demands reviews of future PFI projects, with stricter criteria adopted The National Audit Office has called for a project-by-project review of future PFI contracts, with stricter criteria being employed than in the last two years. It warned that PFI was less likely to be a value for money option going forwards.
Report slams fire service procurement body, reveals £6.5m legal challenge Firebuy, which was set up by the DCLG to procure equipment for fire services, has cost twice as much to set up and run as it has saved, the National Audit Office has said. It was also hit by a legal challenge that cost £6.5m.
Put to the test The ability of public bodies to use their discretion when procuring supplies or services is constantly being tested in court. Jenny Beresford-Jones looks at some of the lessons provided by recent case law.
Local authorities reveal construction contractor woes More than 70% of the 32 local authorities that took part in a survey by Constructionline have seen a construction supplier they used regularly become insolvent in the last twelve months.
OFT warns on long-term contracts, problems ensuring level playing field Competition must be “hard wired” into the commissioning and procurement of public services to ensure its full benefits are gained, the chief executive of the Office of Fair Trading said this week.
Fair shares The Equality Act’s progress through Parliament was tortuous but it did finally make it through to the statute book. Charlotte Cooper examines some of the key challenges it poses for public authorities.
Look back in anger The European Commission is taking an increasingly robust approach to ensuring that schemes comply with the restrictions on state aid - even after they have been approved, writes Bridget Wilcox.
Communities Secretary demands more cross-boundary service provision The Communities Secretary this week called for much greater provision of services across local authority boundaries. "Is it really necessary to have separate education or separate social services departments?", he asked.
Leeds fails to get procurement claim over arena development thrown out Leeds City Council has failed to get a developer’s claim that the local authority breached procurement laws thrown out. Montpellier Estates claims it was treated "appallingly" and "led down the garden path".
Notts to "market test" trading services, puts all other services under review Nottinghamshire County Council has unveiled plans to “market test” a range of trading services over the next year to see if the private sector can provide better value for money. It has also put all other services under review.
PIckles berates councils for "cornershop mentality" towards procurement Some councils have “a supermarket-sized budget but a cornershop mentality” when it comes to procurement, the Communities Secretary has said. Eric Pickles called for greater use of collective buying power and e-auctions.
Council apologises after tender asks for "female, white and non-Muslim" driver Northamptonshire County Council has apologised after it asked for a “female, white and non-Muslim” taxi driver in a tender for a contract to transport a vulnerable child to and from school.
Bar Council warns local authorities not to exclude Bar from tenders The Bar Council chairman has fired off a letter to local authorities warning them not to exclude the Bar from tender exercises for legal services. He took action after a consortium prepared a tender only for solicitors.
DCLG urges councils to publish £500+ spend, shies away from legal requirement Local authorities should publish details of all spending over £500 in full and online as part of a "revolution in town hall openness and accountability," Eric Pickles has urged. This would "unleash an army of armchair auditors", he added.
Called to account International Financial Reporting Standards (IFRS) are finally being adopted by local government. Paul Mason from CIPFA explains why this accounting change should matter to lawyers as well as accountants.
Spending watchdogs slam "fragmented" approach to public sector procurement Public sector procurement is "fragmented, with no overall governance", a review conducted by the National Audit Office and the Audit Commission has found. The report highlighted the sector's failure to maximise its purchasing power.
All change Local authorities are increasingly looking at how they can achieve value for money by varying contracts. Elizabeth Cooper considers the procurement implications.
Public property? The ECJ's ruling in the Helmut Muller case has provided some welcome clarification of the impact of EU procurement rules on development projects, writes Nathan Holden.
Do the right thing How should public sector organisations respond to requests for procurement information? The devil is in the details of the documents in question, writes Ibrahim Hasan.
Up your street What do councils need to think about when renewing existing highways maintenance agreements? Martin Howe looks at the top ten considerations to be borne in mind.
Alliance of voluntary groups attacks local authority commissioning process The approach taken by local authorities and other statutory agencies to commissioning services is damaging relationships with local voluntary and community sectors, it has been claimed.
Take note There is often pressure to rush to issue OJEU notices quickly, but a decision on 22 April 2010 from the ECJ is a timely reminder of how important it is that a notice is carefully drafted.
Venture forth Stephen Matthew explains what differences the Treasury's new guidance on joint ventures will make to collaboration between local authorities and private sector partners.
Paper promises The government's proposals for Total Place look promising in theory but on closer inspection are not radical enough, argues Mike Morgan-Giles of Localis.
Staying straight The Bribery Act 2010, which overhauls the country’s outdated anti-corruption laws, has just received Royal Assent. Jenny Beresford-Jones looks at what it means for local authorities.
Post dated Do the Public Contracts (Amending) Regulations 2009 apply to procurements commenced but not concluded before 20 December 2009? Tarmina Dent looks for clarity.
The cold shoulder The OGC has revised its guidance on the 'blackballing' of potential contract bidders. Deborah Ramshaw assesses its potential impact.
Going private Collaboration between the public and private sectors is set to increase significantly. Bethan Evans considers the implications for public authorities.
Buyer beware Public procurement is increasingly becoming a minefield for purchasers, writes Local Partnerships' Rob Hann, and things look set to become more complex still.
Complexity of EU procurement rules counterproductive, says Local Partnerships EU procurement rules have become so complex that public authorities have increased their focus on legal certainty rather than maximising value for money, the director of legal at Local Partnerships told MEPs.
Apply Total Place approach to procurement, says government task force More widespread use of the Total Place approach, harnessing of collective buying power and joint chief executives are among the actions that councils should consider in their bid to protect frontline services.
SME building firms slam local authority procurement processes Smaller construction firms believe that they are winning less work because of changes in public sector procurement and a failure by councils to advertise their tenders properly, the National Federation of Builders (NFB) has claimed.
A matter of time A new ruling of the European Court of Justice has significantly extended the period in which disappointed bidders can challenge public procurement decisions, writes David Marks.
Managing the new risks of procurement As part of the legal sign off, an authority should assess the journey of the contract from the Official Journal of the European Union (OJEU) notice through to the final version approved for signature, writes Bill Hull.
Scalpel or Axe? Serious savings can be acheived through adjustments to existing contracts if approached in the right way. Bethan Evans looks at how existing contracts can be pruned without killing the roots.
Third sector partnership working framework updated to bring in local authorities The Commission for the Compact has updated its Compact document setting out best practice for partnership working between public sector bodies and voluntary organisations, in part to make it more relevant to local authorities.
More devolvement of expenditure to councils would save £1.6bn in London alone A major study into public expenditure in London has estimated that £1.6bn could be saved by re-channelling funding to local bodies and ensuring earlier intervention with the most chaotic families.
OGC advises local authorities on remedies changes The Office for Government Commerce OGC has published guidance on the regulations implementing the new Remedies Directive, providing public sector organisations with advice on ways to mitigate the risks.
Not so easy The press has suggested that the recent wardens case was a major blow to Barnet’s ‘Easyjet’ model of council services. The judgment does not support the rhetoric, says Peter Keith-Lucas.
Sweating the Assets The government is pressing local authorities to make more effective use of their valuable asset base. Celia Cullen looks at the investment and development models available to councils.
Procurement panacea? The EU intends to crack down on contracts let without advertisement, by increasing the penalties for getting it wrong, writes Simon McCann.
Double disclosure Rule changes mean that contracting authorities will have to provide more information under debriefing provisions in public procurements, writes Deborah Ramshaw.
Worth the wait? Will the long-awaited OGC guidance on the Roanne cases finally provide some much-needed clarity? Stephen Pearson investigates.
The power of three The 'third sector' is an important channel of public service delivery, but brings its own challenges for L.A.s. Chris Knuckey reports.
Passing the baton Ensuring a level playing field for new bidders when re-tendering a service contract can be tricky business, writes Erika Clarke.
See all articles in this section

ICT managers warn of rise in challenges from providers over open data
09/08/10: The coalition government’s policies on open data and transparency could lead to challenges from suppliers on the grounds of commercial confidentiality, a briefing by an association of ICT managers has suggested.

Featured Jobs

Interim Commercial Contracts Solicitor - 21 hours Temporary, part time commercial contracts solicitor for a well-known commercial organization...
Contracts Lawyer Desirable and sought after London Borough are currently seeking a qualified commercial...
Contracts Lawyer Particular experience of partnering contracts is essential for this post.

Featured Courses & Events

Outsourcing Manchester The Treasury have reacted swiftly to tackle the UK's unprecedented £156 billion...
Lean Government: Implementing Change to Create More Value Date: 23rd September, 2010 Venue: Barbican Centre, London The coalition between...
SEARCH OUR EVENTS CALENDAR More than 150 courses and events.