Tall order for a tender subject

Compulsory competitive tendering may not have been taken up in local authority legal circles but then it may not have been given much of a chance, say Stephen Cirell and John Bennett

Compulsory competitive tendering of local authority legal services has again been thrown into confusion by the results of a review by the Department of the Environment and the subsequent less than clear decision of the minister, Sir Paul Beresford, over what to do about it.

It seems likely that the confusion will affect not just those councils that have already tendered their legal services but also those that have yet to do so.

The compulsory competitive tendering (CCT) regime for

local authority services was introduced in 1988 by the Local Government Act and immediately affected blue collar services such as refuse collection and street cleansing.

But the Government had made it clear in a 1985 Green Paper that the CCT regime could go much further, in particular into the white collar

areas of public administration, including the work of in-house legal departments.

The proposals were given

detailed consideration between 1991, when a major consultation paper was published, and 1993, when the specific proposals for legal services were made known.

The 1994 order that made

legal services a defined activity under the 1988 Act was followed by regulations that specified the proportion of work local authorities have to put out to tender. The first authorities to be given the dubious honour of running this gauntlet were the Metropolitan and London Boroughs, which in April awarded work for the next five years or so.

But the CCT exercises the Government has forced local authorities to undertake have not yielded very satisfactory

results. The market penetration in legal services has been virtually non-existent, with only two authorities out of about 80 awarding work to private sector firms. The majority of the work, in terms of the quantity of contracts and their value, has been awarded to in-house teams.

The poor penetration by private sector firms in this and other areas of white collar CCT has caused outrage among ministers. The minster responsible for CCT, Beresford – who is well versed in local government affairs generally and competitive tendering particularly – immediately ordered a review of how white collar CCT was working.

The Beresford Review, as it became known, began its consultation exercise in May and Sir Paul was not at all satisfied with the operation of the policy. He blamed its non-performance on the authorities given the task of implementing it. What followed, however, was a surprise to even the most cynical of commentators. Beresford's reaction was widely perceived as knee-jerk and was interpreted in some circles as nothing short of deliberate punishment of the private sector in the early tendering exercises.

The minister's conclusions were announced in a consultation paper in May. It was accompanied by a press release, the tone of which revealed the Government's annoyance at the situation; it reported allegations from the private sector that

“local authorities are frustrating competition by any means at their disposal”.

The consultation paper was produced because of concerns that the tendering system was not working. In legal services, as much as £10 million less work is thought to have been subjected to competition nationally than had been anticipated by the Government; in other areas the shortfall is even greater.

The proposals to remedy this are in three parts:

v competition percentages;

v de minimis rules;

v credits and exemptions.

The first of the proposals involves the percentages of defined activity work which local authorities have to subject to tender. The consultation paper recommends that some of these be increased. Financial services, personnel services and IT all come in for this treatment, though legal services stays at its current level of 45 per cent.

The second set of proposals aims to reduce the de minimis levels, which allow some work to avoid competition. For legal services, this level is £300,000 and this remains unchanged.

But it is the third area that is causing confusion among local authorities and those advising them – the proposal to amend the regime for exemptions and credits.

Not all of them apply to the defined activity of legal services but one area that has proved particularly difficult is work undertaken on behalf of local authorities by agent solicitors or counsel. This is clearly within the definition of legal services as laid down by the regulations but it has counted as a credit in the past because the in-house staff do not undertake such work.

The Government's proposals to scrap the credit for “bought in goods and services” caused many authorities to panic, thinking this would mean they could no longer deduct the value of this work from that tendered. In fact, their fears proved unfounded because the Government, in making those proposals, had itself forgotten the golden rule that CCT only applies to work which the authority wishes to carry out itself.

As it does not wish to do so, sections 6 and 7 of the 1988 Act cannot apply, meaning that local authorities can still knock it off the value of work to be tendered.

The severity of the proposals surprised many, given that the new regime had only just got off the ground after five years of preparation. Blue collar services themselves took some time to get going and it is likely that the white collar market will take time to develop.

It seems likely that the DoE's reaction was largely minister-driven and equally likely that the full consequences of some of the proposals had not been fully thought through.

The six-week consultation period came and went and despite the minister's assertion that the changes would be made in “late July 1996” nothing has yet emerged.

It is now likely that Beresford will backtrack. His tone with the local authority associations has become more conciliatory and he has conceded that the DoE will need to “revisit” some of these areas and reconsider what is “appropriate”, the implication being that the current proposals are not. This is

fuelling a widely held view in local government that the proposals were over the top from the start. The consultation paper had also included a detailed timetable based on the changes being made in the summer. As this has not proved possible, the whole timetabling of what changes, if any, will be introduced has been thrown into confusion.

CCT has always been a difficult and complicated area. But the constant changes to the regime do nothing to help its stability or bring private contractors into the competition process.

Once again, it is unclear whether those authorities that have already been through the treadmill will now have to put out more work. And it is far from certain how the proposed changes will affect authorities in Scotland, Wales and the non-metropolitan areas of England, where CCT exercises have not yet started.

It is little wonder that some private firms of solicitors believe this is an area which is best left well alone.

Stephen Cirell is a partner and John Bennett is a consultant at Eversheds, Leeds.