Outsourcing challenge by Barnet resident for failure to consult

The recent High Court decision in R (Nash) v Barnet LBC relating to the outsourcing by Barnet of a range of back office support and regulatory services is a reminder that it is not only disgruntled tenderers or contractors who may challenge procurement processes. The potential range of challengers is wider. It also emphasises the importance of making sure that compliant processes – in particular consultation requirements - are followed at the planning stage, well before the procurement is advertised and the detailed public procurement rules kick in.

Background

In March 2011 Barnet Council published a contract notice in the Official Journal of the European Union (OJEU) for the appointment of a strategic partner to deliver Development and Regulatory services (the DRS contract). The DRS contract included building control, land charges, environmental health, registration of births, marriages and death, trading standards and highways related services.

 In June 2011 the Council published a further OJEU contract notice for the appointment of a private sector partner to create a New Support and Customer Services Organisation and deliver a range of customer services ( the NSCSO contract). This included customer services, estates, finance, human resources, information services, procurement and revenue and benefits.

In December 2012 the Council's Cabinet made a decision to award the NSCSO contract to Capita plc and a decision on the award of the DRS contract was due to be made on 31 January 2013.

In early January 2013 Mrs Nash issued legal proceedings against the Council. Mrs Nash was one of a number of local residents who were concerned that the Council's plans to award the two contracts would lead to a serious deterioration in the Council's services. This was partly because they believed that private sector organisations cannot meet the public service ethos in delivery of the services. Mrs Nash did not have legal standing to bring a claim under the Public Contracts Regulations 2006 (PCRs) as she was not an economic operator to whom a duty under those regulations is owed. She therefore brought a judicial review claim.

The judicial review route

Contracting authorities need to bear in mind that it is not just tenderers or contractors who may challenge procurement related processes and decisions. There are now a number of procurement related cases which have gone to trial using the judicial review route, brought by individuals, trades unions and other interest groups.

When brought by individuals the grounds for judicial review have typically been based on procedural matters including failure to consult, failure to discharge obligations under equality legislation or fettering of discretion. Economic operators may also decide to use judicial review as a means for getting before the court, e.g. where they have failed to issue proceedings within the short time limits specified in the PCRs.

Claims made

Mrs Nash argued that the Council did not comply with statutory and other consultation obligations relating to the decisions to award the contracts, failed to have due regard to the Public Sector Equality Duty (PSED), and was in breach of its fiduciary duty to its council tax payers.

Claims for judicial review have to be brought promptly and in any event within three months of when grounds first arise (although reforms to be implemented are likely to reduce this period to 30 days in relation to procurement claims).  Whilst the Cabinet's decision to award a contract to Capita was only made on 6 December 2012 (less than three months before the claim was issued), the court found that any breach of the alleged duties crystallised when the Council took the decisions in 2010/2011 to proceed with the outsourcing. 

The judge did not limit his judgment to the issue of timing but also considered and commented upon each of the three grounds claimed by Mrs Nash. In relation to discharging  the PSED earlier on in the procurement process, the court held that "Such impact as the outsourcing of the functions and services in question might have on persons with protected characteristics was not liable to affect the basic decision to proceed: detailed consideration would only be required when the details of the outsourcing arrangements were being worked out". 

Mrs Nash alleged that the December 2012 EIA was defective as the Council ought to have consulted in order properly to inform itself about the potential impact of such changes. However, the court held that the Council was not in breach of its PSED in concluding that the proposals would have no adverse impact, given the contractual provisions which required Capita to preserve an existing level of service and to ensure that service users would not be disadvantaged.

In relation to the breach of fiduciary duty, the court said that it would have refused permission for this complaint to proceed even if it had been in time because the evidence produced by Mrs Nash did not "come close to establishing the kind of reckless disregard of the principles of financial planning or management that is necessary to make good a claim of this kind".

However, the judge held that, had the application for judicial review been made in time, he would have held that the Council did not comply with its general "best value" consultation obligations under s.3(2) of the Local Government Act 1999.

The duty to consult

Section 3(1) of the 1999 Act requires best value authorities to comply with a general duty to make arrangements to secure continuous improvement in the way in which its functions are exercised having regard to a combination of economy, efficiency and effectiveness. Section 3(2) requires the authority to consult a range of representatives of persons listed in that section for the purpose of deciding how to fulfil the general duty.  Authorities are to have regard to statutory guidance in deciding how to fulfil the general duty, who to consult and how to conduct consultation.

Mrs Nash argued that the Council was under a duty to consult specifically about the proposals relating to outsourcing. The Council argued that the duty to consult was satisfied by the general consultation exercises it had undertaken in relation to its annual budget process. These consultations did not specifically refer to outsourcing, but they did raise a number of high level issues relating to resourcing and service delivery. The general consultations were conducted by way of on-line surveys, via information on the Council's website, in public meetings and a workshop event involving the voluntary sector.

The judge undertook a detailed analysis of s.3 of the 1999 Act and concluded that a general consultation about "priorities" or other general matters which might assist the authority in deciding whether to outsource of the type undertaken by the Council was not sufficient in this case. He took care to emphasise that the duty does not extend to consulting on all decisions, great or small, relating to the implementation; he was, however, of the opinion that representatives should have had the opportunity to express views or concerns about the issue of outsourcing of the functions or services in question.

Reminder of the need to consult properly

This decision is another reminder of the need to consider carefully the precise nature and timing of the consultation required and to build those requirements into the procurement process. It clearly covers decisions whether or not to outsource but probably also covers decisions around whether to work jointly with other contracting authorities particularly where the proposal may involve the creation of new structures such as joint venture vehicles.

It is also worth remembering that the Best Value duty is not the only duty under which authorities are required to consult or consider consulting.  Authorities should not forget their ongoing obligations under the PSED, the pre-procurement consultation consideration requirements under the Public Services (Social Value) Act, duties which may arise from specific legislation, and also legitimate expectations of consultation which may have arisen from a previous course of conduct.