PLC Public Sector reports:
… Maybe, seemed to be the answer from last week’s conference hosted by Local Partnerships and sponsored by PLC Public Sector and Nabarro LLP.
Local authorities have, of course, been using all sorts of joint venture arrangements for many years, including simple contract arrangements, pooled budgets, joint committees and JVCs for PFI projects. More recently, joint ventures have included the establishment of social enterprises and local authority trading companies. The focus of the conference was on joint venture companies.
The conference was well attended by lawyers in the public and private sectors, private sector service providers and consultants. The issues for discussion focussed on:
- HM Treasury’s new guidance on joint ventures.
- Use of the well-being power under section 2 of the LGA 2000.
- Structures for joint venture vehicles.
- Teckal companies, local authority control and the future of such entities, including when they will become contracting authorities in their own right under the Public Contracts Regulations 2006. For information on Teckal, see our practice note on public procurement.
The most informative talks from a local authority perspective were from two local authority in-house lawyers: Des Gardner, Head of Regeneration Legal Team, at Manchester City Council, and Peter Ware, Special Projects Adviser at Nottinghamshire County Council, who shared their experiences on innovative joint ventures in the housing, property management and the education services sectors.
A recurring theme of the day was, why bother? The hurdles from the idea to the establishment of the JV vehicle are many and varied. Edward Craft, senior associate at Nabarro LLP, warned against focussing on the wrapper instead of the deal – it is far more important to establish the aims of the project and the level of control the local authority wants to exert, before deciding on the best vehicle to deliver it. Aside from the obvious tax disadvantages of the JVC model, there are regulatory, governance and funding issues to resolve.
So what does a JV vehicle deliver that a simple contract cannot? Aside from raising finance, the answer to this question is difficult to quantify as it relates to whether there is a need to create a distinct entity with ring-fenced budgets, risk and responsibilities, particularly where the project involves more than one local authority. There was also evidence of a culture change in moving an in-house function to the JVC, in which employees felt more invested in the success of the outsourced service.
Another area of keen debate centred on the responsibilities, and potential liabilities, of members and officers sitting as directors of the JV company. For information on this subject see our practice note. The position of the directors is made more delicate by the local authority’s obligations under the public procurement regime which prevents it from discriminating in favour of any organisation, unless it can award the contract direct to the JVC under the Teckal exemption.
However, in spite of these hurdles, the public sector is embracing these innovative solutions to respond to the challenge of reduced budgets while maintaining service quality.
The speakers have agreed to form a consultation group on joint ventures going forward. Their slides are also available to download from the Local Partnerships website.