Public Bodies, the 1970 Act and the procurement rules post Brexit

One service to local government which Sharpe Pritchard provides for free from the local government lawyer portal and hosted by me, is the question and answer facility known as Sharpe Edge. Local authorities can ask me any question relating to (for example) local authority powers, PFI expiry, LA companies, or indeed anything which I or colleagues at the firm might be able to provide some insight.  One such innocuous looking question came in a few weeks ago:

Dear Rob

We have a very brief ‘yes or no’ type question ?

Council A wishes to sell Services to Council B (Full Contract Value over the 3 year term £300,000). It has been suggested that the Services could be delivered by relying on powers under the Local Government (Goods and Services) Act 1970 and that there would be no need for any procurement process. From our reading around it, however, we think there is actually a need for a procurement process because the power to sell a service to another public body does not override that public body’s obligation to comply with the procurement rules. Do you agree?

This invitation to revisit my old legislative friend, namely the Local Authorities (Goods and Services) Act 1970 (‘The 1970 Act’) was a topic I felt confident about tackling as I have had cause to use this very short and simple piece of legislation over the course of my local government career. My first instinct was that it really shouldn’t take me too long to answer. However, the more I thought about the 1970 Act, particularly in the context of our (now) post-Brexit environment, the more it got me thinking about the seismic changes that have taken place over the past few years and which have shaken the very foundations of our legislative system.

Pre-Brexit my answer to this question would have been along the following lines:

The 1970 Act provides a power but it does not provide any exemption from the EU procurement regime and/or any exemption per se from the Public Contracts Regulations 2015. However, if the parties are able to structure the arrangement as a regulation 12 compliant arrangement (whether teckal or co-operation agreement) that could provide a solution by way of exemption for the parties from the requirement to go out to advert and competition.

Of course, prior to Brexit, the UK, in common with other EU member states was subject to over-arching EU law which also had direct effect when enacted on Member States pursuant to the EU Treaties: The Treaty on the Functioning of the European Union (TFEU) and the Treaty of European Union (TEU), which set the foundation of EU law. Treaties are ratified agreements between member states, which set out rules for EU institutions, how decisions are made and the relationship between the EU and its member state, which are binding in its entirety and directly applicable, meaning once signed and passed it automatically has legal effect on all members states, without the need of any national measures to implement it.

Case law from the CJEU would also have been relevant to answering this question pre-Brexit (note it remains relevant now of course but perhaps not in the same way as before – see below) - see the case of Piepenbrock Diensteisturgen Gmbh & co -v- Keis Duren (C-386/11) 13th June 2013 (‘the Duren case’ for example which explored the boundaries of the Teckal and Hamburg exemptions in the context of inter-authority contracting for soft services (cleaning in this instance).

However, in truth, I never felt 100% at ease with this interpretation of the 1970 Act (as impacted by supervening EU procurement law requirements), as it appears to fly in the face of what was originally intended by the UK Parliament and the basic premise of the 1970 Act.

Why should one public body wishing to enter into an agreement with another public body perfectly lawfully under the 1970 Act (and which incidentally preceded Britain’s entry into the European Community (as was)) have to go out to public tender to see if any other body wishes to undertake the contract and who might well be expected not to be a public body and therefore would not come within the confines of the very statute that facilitates such arrangements?

Moreover, when the definitions of public contracts and economic operator contained in the Public Contracts Regulations 2015 are examined closely it seemed to me at least arguable, that neither party, when seeking to act within the confines of the 1970 Act, is acting as an ‘economic operator’ supplying services ‘on the market’ (see footnote for definitions) given that the only type of organisation that could be considered as within the powers of the 1970 Act to perform such services would be another public body (as defined).

Rather… both public bodies could be said to be engaging with each other exclusively, acting as public bodies pursuant to specific statutory powers which expressly permit such arrangements and (conversely) do not permit persons other than public bodies (as defined) to supply such services under the 1970 Act. It could be argued perhaps that the authority seeking to engage A.N.Other authority should take out an advert first to see whether there is likely to be competition among public bodies (so defined) who could provide such a service, but the terms of such competition (assuming the contract is let using the 1970 Act powers) would need to exclude every other type of (non-public) body from bidding.

Now that circumstances have radically changed in the UK following Brexit, the UK is no longer within the EU legislative environment. Unless it falls under ‘retained law’ status, EU law is no longer binding in the UK, and the recently published draft Retained EU Law (Revocation and Reform) Bill proposes to get rid of EU retained law altogether (with some exceptions). The Bill goes as far as to set out non-exhaustive grounds on which UK higher courts may assert their independence from former ECJ rulings, although ultimately the UK Supreme Court can decide whether or not it wishes to depart from those rulings, as is the case currently.

In England and Wales, new procurement laws are being brought into force via the Procurement Bill but the relevant statute, when enacted, will have the same status as any other statute under UK jurisprudence so that the 1970 Act will ‘rank’ alongside the new Procurement Act (when enacted) and will not be ‘superior’ or apply as some sort of pre-requisite to tender to other enactments.

It is at least conceivable that a domestic court could interpret Reg 12 of the PCR 2015 (or its equivalent successor in the Procurement Act) in a manner that departs from ECJ rulings on public-to-public arrangements.

The 1970 Act facilitates the entering into of contracts by and between public bodies (as defined by the Act or as classified by later statutory instruments). There is no requirement in the 1970 Act for any pre contract procurement exercise and the main requirement to using the Act is that both (or all parties if more than two) must be ‘public bodies’ as defined. This public body to public body contracting requirement necessarily excludes any other body from entering into such arrangements so my question here is what is the point of one public body going out to the wider market if, using these powers, it can only ever enter into an agreement with another public body as defined?

The point of this article is not so much to argue for a new and more radical interpretation of the 1970 Act and its relationship with procurement. Somewhat ironically, the Procurement Bill gives no indication that it intends to pursue this route – if anything, the concept of ‘public contract’ in the Bill has been amended to remove the ‘economic operator’ definition as a component of a public contract. Instead, a ‘public contract’ as currently defined in the Bill, is simply one that is for pecuniary interest and provided to a contracting authority. So, whilst this seems to be a move away from the EU definition of a public contract, it does not move the UK necessarily any closer to a definition that would disapply the UK procurement regime from a public-to-public arrangement.

For now, the safest, or lowest risk approach remains to either go out to tender and/or bring the proposed arrangement within the confines of either Reg 12 exemptions (Teckal or Hamburg) if that is possible in the circumstances. However, the more time that elapses from leaving the EU, the more questions of this nature are likely to arise between what was then (pre-Brexit) and what is or is not now (post-Brexit) permitted or frustrated by the requirement to go out to tender.

Rob Hann wrote this article with input from Juli Lau a procurement specialist at Sharpe Pritchard. If you have a question for Rob or the team please submit via Sharpe Edge here.

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