Outsourcing or Unlawful Delegation?

Celia Cullen considers the increasingly important question of whether a proposed outsourcing arrangement is a services contract or the unlawful delegation of a function.

Recent reports of local authorities such as Suffolk County Council proposing to "outsource virtually everything" and leave behind only a small core of service commissioners and contract managers raises more than just issues of policy with regard to the approach to service delivery.

What is the issue and why is it important?

A local authority cannot delegate the exercise of its statutory functions without express provision. This means that a local authority is not able, without a specific power, to enter into contracts which require a third party and its employees to exercise functions. If it does so, such arrangements would be ultra vires and may be void.

This situation should be distinguished from contracts which only require the provision of services or assets for the discharge of functions by the local authority itself.

What provisions exist which allow delegation of functions?

As between local authorities the Local Government Act 1972 and Local Government Act 2000 contain general provisions which allow the delegation and joint exercise of functions and for officers of one authority to act as an officer of another.

Some Acts contain specific provisions regarding the exercise of functions by third parties. The Deregulation and Contracting Out Act 1994 provides for orders to be made to allow certain functions to be carried out by other third parties and their employees.

The detailed provisions of what is and is not covered are set out in numerous statutory instruments – but they are by no means all embracing either in terms of scope of services or extent of those services. It remains the case that some functions simply cannot be "outsourced" to private third parties.

Even where it can delegate, a local authority will always remain ultimately responsible for the discharge of its statutory duties.

In addition where a contracting out order exists, a scheme of delegation to a third party is usually limited to a maximum period of 10 years. However section 9 of the Local Government (Contracts) Act 1997 allows longer periods in relation to delegations under certified contracts.

Practical Example

A practical example of where this issue had to be tackled when the first wave of "strategic partnership" outsourcings were entered into was the determination of benefit claims.

At the time local authorities were not able to include within their contracts provisions for external providers to carry out the full range of activities in respect of this function and had to keep in-house teams for this purpose. Essentially this led to the administrative aspects of the benefits service being provided by the external partner, but the actual determination of the benefit application being handled by an in-house team.

To address this situation The Contracting Out (Functions of Local Authorities: Income-Related Benefits) Order 2002 was introduced to allow local authorities to contract out functions relating to council tax benefit, discretionary housing payments and housing benefit. However the Order still excludes certain functions from being contracted out and there is a requirement for sample checks and other safeguards.

The need for action

With local authorities increasingly considering outsourcing and divestment as a means to deliver public services this is an issue that needs to be addressed at the outset. With the raft of new legislation being proposed around local government, including a general power of competency, now would seem a good time to have the debate and to lobby on this potential obstacle to ensure that it is adequately dealt with – one way or the other - rather than overlooked until someone raises a challenge to a delegation masquerading as a services contract.

Celia Cullen is head of local government services at Pinsent Masons. She can be contacted on 0161 234 8308 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..