New rules will not alter PFI liability

Chris Fogarty reports

Council officers could still be financially liable for commercial ventures that fail, despite legislation which aims to clarify Private Finance Initiative (PFI) deals, Nabarro Nathanson partner and local government expert Ray Ambrose has warned.

Recently, the courts have found several council officers personally liable for their part in PFI ventures that had collapsed after it was ruled they were ultra vires.

Now the Government is introducing the Local Government (Contracts) Bill in a bid to make it clear to potential private sector partners when a council is acting within its remit. The Bill introduces the concept of a "certified contract", which guarantees that a PFI deal is within a council's statutory powers.

However, Ambrose warned that, although certified contracts will indicate a PFI deal's validity, council officers and legal departments will remain responsible for ensuring it falls within government guidelines which have yet to be announced. He said if the wrong advice was given by council officers they could still be liable for damages arising from the invalid contract.

"If they are held to be culpable they will be liable," Ambrose warned. "Officers will have to watch their backs."

But he added that the new legislation would offer some protection to council officers in that it aimed to provide clearer guidelines and make legal action less likely. "The only circumstances in which a certified contract may be found to be ultra vires is as a result of a judicial review or an action by the authority's auditor," explained Ambrose. "Even if challenged in this way and found to be ultra vires, a court may still declare the contract valid."

Peter Pilgrem, chair of the Law Society Local Government Group, agreed members would remain under pressure to get contracts right.

He added that he was disappointed the legislation did not give local authorities wider involvement in the PFI process.