Academies set their own school rules

The Court of Appeal has ruled that the Secretary of State does not have to comply with public procurement rules when establishing an academy, writes Nicola Williams.

In February this year, the High Court ruled on the judicial review challenge (R (on the application of Chandler) v the London Borough of Camden [2009] EWHC 219 (Admin), 13 February 2009) which sought to challenge the way in which academies are established.

The claimant argued that the funding agreement for an academy sponsor was subject to the public procurement  regime (the rules that govern the process whereby public authorities make contracts for the provision of goods, works and services). The Administrative Court rejected the challenge, on the basis that the Public Contract Regulations 2006 (“the 2006 Regulations”) do not apply to the process of approving a sponsor for an academy.  

The claimant appealed to the Court of Appeal in relation to the public procurement issue. In dismissing the appeal, Lady Justice Arden commented that this was one of the few cases on public procurement to ever reach the Court of Appeal and dealt with some important issues. The court confirmed that the Secretary of State is not obliged to comply with public procurement legislation when establishing an academy.

Had the court found in the claimant’s favour on either of those issues, it would have made the process of establishing an academy inherently more complex and prone to challenge.

Background

Academies are publicly funded but independently managed schools. The government meets the capital and running costs of academies but sponsors play a major role in their operation and in the development of their ethos. An academy is not maintained by a local education authority, but is directly funded by the Secretary of State under a funding agreement under section 482 of the Education Act 1996. Potential sponsors of an Academy must submit an Expression of Interest (‘EoI’), which the Secretary of State for Children, Schools and Families (“the Secretary of State”) considers.  

The procedure for establishing an academy differs from that which the local authority must follow when establishing a new maintained school. Under the Education and Inspections Act 2006 (“the EIA 2006”) a local authority must consult with all interested parties when establishing a new school and after the responses to that consultation have been gathered and considered, it must then publish a notice inviting proposals for the establishment of a school. The consultation process does not apply to the Secretary of State when he works with a sponsor to establish a new academy (the ‘funding agreement route’) under section 482 of the Education Act 1996.

In the appeal to the Court of Appeal the claimant sought to challenge two issues raised by the first instance decision:

- Does the public procurement regime apply to the expression of interest by a sponsor; and

- Whether the claimant had sufficient standing to contend that the public procurement regime is applicable to the arrangements between the Secretary of State and a sponsor of an academy.

The procurement issue

Directive 2004/18 sets out the procurement regime which has been implemented in UK law by the 2006 Regulations. The 2006 Regulations apply where a contracting authority (which can include the Secretary of State and a local authority) engages a person to provide services.  

The issue in Chandler was whether the Secretary of State was obliged to comply with the 2006 Regulations before deciding to approve the EoI submitted by the potential sponsor in this case, University College London (“UCL”).

Public services contracts

The court considered whether UCL’s arrangements with the Secretary of State fell within the definition of a ‘public services contract’. Under the 2006 Regulations this is a contract under which a contracting authority engages a person to provide services for “consideration” and Article 1 of Directive 2004/18 states that public contracts are contracts for ”pecuniary interest”. The 2006 regulations go on to indicate that the term “services provider” means a person who offers “‘on the market’ services”.  

“On the market” services

The claimant argued that the Secretary of State was required to comply with the public procurement regime because UCL’s offer to sponsor the academy was “on the market” services. This was because, as the claimant alleged,  the sponsor could be said to be a participant in the educational services market. The Secretary of State argued this could not be said to be true as the parties were not competing against each other for some gain.  

The court considered that the words “on the market” requires the participants in the market to be intending to make a profit from contracting to provide services. This requirement was not met in this particular case because UCL and the Secretary of State did not intend for the sponsor to make a profit (see below).

‘Consideration/Pecuniary interest’

It was stated in this case, that it is the Secretary of State’s policy that the sponsor of an academy should only be able to recover its costs of establishing the academy and not make any profit (reflected in the terms of the draft funding agreement).

The claimant stated that this amounted to a sufficient “pecuniary interest” or  “consideration” to ensure that the process for setting up an academy should fall within the public procurement regime. The Secretary of State argued that the mere reimbursement of expenses should not trigger the regime.  

The court, in its consideration of relevant European case law (Case C-135/05 Commission v Italy [2007] ECR I-0000 and on Jundt v Finanzamt Offenburg C-281/06), determined that the ability to make a profit was not required to satisfy the definition of a “public services contract”, but that the decision of the Secretary of State to approve an EoI even if it resulted in a tax benefit being obtained by the sponsor, in the court’s view, was too indirect and remote to constitute a ‘pecuniary interest’.

Therefore the court determined that the Secretary of State’s decision to establish an academy in not satisfying the ‘on the market’ requirement of a “public services contract” and there being no “pecuniary interest”, meant that the establishment of an academy was not caught by the public procurement regime.

Whether the claimant had sufficient standing to contend that the public procurement regime is applicable to the arrangements between the Secretary of State and a sponsor of an academy?

The second issue examined by the Court of Appeal was whether, under the 2006 Regulations, a parent of school age children was able to challenge the Secretary of State’s approval of an EoI. A challenge to a procurement process run by a contracting authority can, in certain circumstances, be brought by an economic operator (usually a contractor, supplier or services provider who has not been awarded the contract). The Court of first instance determined that the claimant did not have standing to bring a claim under the 2006 Regulations because she was not an economic operator.

The Court of Appeal also determined that the claimant had no standing to challenge this matter, not because she was not an economic operator, but because her challenge was borne out of opposition to the institution of academy schools rather than any interest that the Secretary of State was not observing the public procurement regime. The court considered that it would be beyond the proper function of public law remedies to give the claimant standing to pursue her claim.

Implications of the Court of Appeal judgment in Chandler

The Court of Appeal’s decision has established that the Secretary of State would not be expected to comply with the public procurement process when entering negotiations and agreeing the terms of a funding agreement with a potential sponsor for a prospective academy.  

Nicola Williams is a partner at Eversheds