CCT: a little local difficulty

Private law firms specialising in local government work no doubt hoped that the Compulsory Competitive Tendering (CCT) of local authority legal services would lead to a surge in work, as more legal work in local authorities was exposed to external competition.

The Department of the Environment (DoE), however, is less than pleased with the amount of work that has left in-house legal teams, and many lawyers have been left less than enthusiastic with the value of additional work released under CCT.

But other areas of local government work are being greeted with more excitement, especially the extension of PFI to local government.

The private sector's poor penetration into white collar services has been met by a series of what have been described as knee-jerk reactions by the DoE. The most significant changes to CCT were laid out in a consultation paper earlier this year, which ended the system of bought-in goods and services being treated as a credit to count against the percentage of work that has to be exposed to competition.

In the field of legal services, scenarios such as local councils seeking representation from counsel will no longer count as a credit. This obviously is bad news for local authorities that wish to maintain a level of core work for their in-house legal teams. However, councils who were most co-operative with the spirit of CCT may find these rule changes penalise them the most.

Many local authorities who voluntarily externalised many of their services will now have to expose to competition the same percentage of core work that remains with in-house teams as those councils that did not surrender work to the private sector.

Leonie Cowen of Leonie Cowen & Associates, a local government specialist, feels that these changes can only have an adverse effect on in-house teams. “I feel sorry for local authorities who are finding themselves in an uncomfortable position because of CCT,” says Cowen. “Keeping up staff morale or even keeping staff at all cannot be easy when there is such uncertainty due to CCT, with more changes possible.

“The current position is incredibly complicated, unclear and totally unsatisfactory. The uncertainty surrounding CCT has been going on for a long time and local authorities are doing their best in the face of this to in order to prepare for the CCT implementation deadline next year.”

Matthew Warburton, the under-secretary of housing and public works at the Association of Metropolitan Authorities (AMA), accuses the Government of shifting its priorities on CCT. He says: “We have been negotiating with the Government for the past three years, and we are in the middle of discussions at the moment.

“I remember the Prime Minister's original statement of intent right at the beginning which said that local authorities should compete with the private sector. In what may be its dying months the Government is now saying that the original proposals were not working because not enough work has found its way to the private sector – this shows how the ground has shifted.”

Warburton points out that local authorities are faced with a dilemma: they may need to start implementing the extensive preparatory work to meet the new regulations but a change of government could bring about a reversal of rule changes.

“It is too risky for local authorities to gamble on rule changes but, if the rules are changed back, this is another waste of council taxpayers' money. The AMA are in a very early stage of consultation for challenging the consultation paper in court, which may happen this New Year.”

Another source at the AMA believes that the implementation timetable, which gives the various types of local authority 12 months to prepare to meet the CCT requirements, is a problem in itself. It is seen as far too tight by many commentators who believe the ensuing rush will lead to inefficiency and a waste of public money, rather than the desired savings competition is supposed to bring.

While the CCT proposals have received a frosty reception from local authorities, it seems that local government specialists in private firms feel that the importance of the whole CCT area has been overstated.

David Abram, consultant with Nabarro Nathanson, is of this view. He says: “CCT has been less fundamental to most firms than was first thought. Very little work was exposed to competition, so there is very little interest from large practices because the value of the work to come from these tenders is very low. In short, it is only economically viable for local firms to get involved in any of this low-value work.”

Abram and Virginia Yeend, the main local government partner at Nabarros, are more excited at the prospect of work generated through local government PFI work. One of the two areas of particular interest is the property DBFO (Design Building Finance Operate) which places the risk, ownership and the operation of assets in private sector hands.

This type of scheme is accompanied by a number of sweeteners to encourage take-up by local government, including a DoE allocation of £50m for the current year and £200m for the next to act as additional revenue support.

It is expected that investors that are initially attracted to this type of scheme will stick to projects with which they are familiar – local authority office space is therefore expected to be the first type of project, but it is also hoped investors will apply the scheme to multi-storey car parks, leisure centres and even schools.

David Abram is cautious about the success of this type of scheme. “Will the private sector fund a building project then 'rent' it out to the local authority to use as a school?” he wonders. He is more convinced about the second type of PFI, which is the type of joint venture that has been the traditional way of financing more commercial schemes, such as shopping malls, giving developers their desired returns.

The Nabarros pair point out another area which they predict will be a substantial source of local government work for the future. “Local authorities will be looking at upgrading existing projects,” says Abrams.

“Many developments in city centres would have been built many years ago and they will be in need of refurbishment. There are two areas in which lawyers will be involved; the refurbishment itself and the renegotiation of financial arrangements between developers and the local authority as the landowner.”

Yeend says this explains why local authorities are looking seriously at leisure schemes. It is part of the refurbishment of town centres, she explains: “As out-of-town shopping centres are curtailed by legislation, local authorities are especially keen to market town centres in this way to attract the public and new developers”.

Abrams feels that although a change of government does raise the possibility of alterations to the PFI, these are unlikely. “There is a lack of public money for public sector projects – schools and the like are crumbling – so PFI for local government capital projects seems like a solution that is here to stay.”