Public matters newsletter, April 2015

Birmingham Exeter London Manchester Nottingham
www.brownejacobson.com
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Birmingham Exeter London Manchester Nottingham
www.brownejacobson.com
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Page
The great devolution debate
Richard Barlow
2
The election manifestos – a local government perspective
Stephen Matthew
3 – 6
Cost budgeting nightmare
Nichola Evans
7 – 10
Take a dip in the pool?
Neil Walker
11 – 21
The best value duty (part 2)
Angelica Gavin
22 – 27
Employment update
Sarah Hooton
28 – 30
Procurement Policy Notes: January – March 2015
Anja Beriro
31 – 35
Awarding contracts under Public Contract Regulations 2015: new guidance
published
Anja Beriro and Emma Graham
36 - 38
The articles in this newsletter are for general information only. They do not represent legal advice. You should always
take legal advice before pursuing any course of action discussed in this newsletter. If you would like to instruct any of
our lawyers on any matter please call +44 (0)115 976 6000.

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Devolution to local government in England will be a key issue for many in the run up to the general election.
Many local authorities are demanding the right exercise wider powers so that they can make important
decisions for the benefit of their areas. These authorities are beginning to lobby central government for
greater autonomy, and we are seeing the results of this in the devolution deals which have been agreed for a
number of combined authorities. Devolution to local government looks set to continue in one form or
another, and whatever ‘colour’ of government is returned on 7 May; it has the potential to make really
significant changes to the way in which public services are delivered.
We recently held a round table event which was attended by local and central government leaders,
stakeholders and policy influencers at which we discussed devolution to local authorities and how it might
change the local authority landscape in the near future. Following on from that, we produced a report which
discusses some of the key issues faced by local authorities. These issues include the pressure placed on
authorities by cuts to central government funding, which has fallen by 37% in real terms between 2010/11
and 2015/16 and how that pressure might be alleviated through the devolution of powers to raise taxes and
borrow money. We also look at the current powers of local authorities to raise money through taxation,
borrowing and through charging and trading. We see many authorities using these powers to great effect,
and believe that this is likely to continue in future.
We go on to make a number of recommendations which we hope will be useful to those in local and central
government in trying to negotiate a sustainable settlement for devolution in England. A copy of the report
can be found here. We hope you find it interesting.
Richard Barlow | +44 (0)115 976 6208 | Richard.Barlow@brownejacobson.com

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This is our summary of the party election manifestos as they affect councils. Inevitably, this is a selective
summary and other policy issues (e.g. the minimum wage) will also have an impact. We thank all councils for
the hard work they do in making any election possible.
Conservative
Key message: “Strong leadership; a clear economic plan; a brighter, more secure future”
Devolution:
 devolved powers to large cities with directly elected mayors
 growth deals for other areas where locally supported
 more powers over economic growth, transport and social care for local authorities.
Local government:
 savings to be made from identifying wasteful spending and making government more efficient,
effective and accountable; this will mean an increase in scrutiny and transparency on those using the
public purse
 local authorities to keep a higher proportion of business rate revenue
 encouragement of more public sector shared services to drive efficiencies
 10% stake for local authorities in the sale of any public land in their area.
Housing and planning:
 200,000 new homes and the extension of the Right to Buy scheme to housing association tenants and
an obligation on local authorities to manage their housing assets more effectively
 Right to Build scheme requiring local authorities to allocate land for people to build/commission
their own home and a ‘Brownfield Fund’ will be set up to facilitate more housing on Brownfield sites.
Education:
 a freeze on the amount of government spending per pupil, the pupil premium would continue at
current protected rates
 free school meals for all infants
 3 million more apprenticeships to be created
 conversion of all failing or ‘coasting’ schools into academies.

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Other proposals relevant to local authorities:
 strengthening of the Community Right to Bid by way of extending the time communities have to
purchase an ‘Asset of Community Value’ (under the Localism Act 2011)
 an increase in free childcare for working parents of 3-4 year olds up to 30 hours and the introduction
of regional adoption agencies working across local authorities
 every public sector worker in a customer-facing role must be fluent in English
 EU migrants will not be considered for a council house unless they have been living in an area for at
least four years.
Labour
Key message: Budget responsibility and a commitment to reach budget surplus within the life of the
next parliament
Devolution:
 to pass an English Devolution Act, handing £30 billion of resources and powers to our great English
city and county regions
 to give new powers for communities to shape their high streets, including power over payday lenders
and the number of fixed-odds betting terminals
 to give 16 and 17-year-olds the vote
 to give local areas freedom to choose their governance arrangements.
Local government:
 multi-year budgets for local authorities, and a local Public Accounts Committee; to account for how
‘every pound’ is spent.
Health:
 a promise to ‘rescue the NHS’, bringing physical health, mental health and social care into a single
‘system’. The Health and Social Care Act 2012 will also be repealed and commissioning and budgets
brought together at ‘a local level’.
Education:
 the Free School programme will end and new ‘Directors of School Standards’ given powers for
commissioning new schools, it seems these will be national appointments
 free child care will increase from 15 to 25 hours for 3-4 year olds with doubling of paternity leave
and smaller class sizes are promised for 5-7 year olds.

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Housing:
 a promise to build 200,000 new homes by 2020 and the abolition of the ‘bedroom tax’.
Other points of note for local authorities:
 use of digital technology to create ‘a more responsive, devolved, and less costly system of
government’ and all the country will have high speed broadband
 expansion of rail links to boost regional economies and long-term investment in strategic roads
 the establishment of a new British Investment Bank to help support co-operative and mutual
organisations, as well as small businesses
 a cut in tuition fees and the promise of new apprenticeships in the public sector.
Liberal Democrats
Key message: “Stronger economy, fairer society: opportunity for everyone”
Devolution:
 reduce Ministers’ powers to interfere in democratically elected local government
 remove the requirement to hold local referenda for Council Tax changes, and the introduction of
‘fair votes’ to ensure councillors are properly accountable for their decisions
 devolve more power and resources to groups of local authorities and local enterprise partnerships
and greater devolution of financial responsibility to local authorities.
Local government:
 overhaul of the voting system with the introduction of proportional representation
 extend of the Freedom of Information Act 2000 (FOI) to private companies delivering public services
 increase in public sector shared services to improve public services and generate efficiencies
 introduction of a ‘community trigger’ mechanism to enable the public to require a review of
consistently poor delivered public service
 elevation of data protection standards to be enforced.
Education and childcare:
 pupil premium to be increased to £1000 per pupil per year
 free school meals to all primary school children
 20 hours free childcare for children aged between two and four
 extended paternity leave of one month a ‘use it or lose it’ basis.

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Housing and planning
 300,000 new homes to be built per year and 10 new garden cities as well as a continuation of the
Right to Buy scheme
 changes in ability to appeal local planning decisions for communities and developers.
Health and social care
 combined working between NHS, local authority social services and the voluntary sector in relation
to public health and £500million to be spent on mental healthcare; the delivery of public health will
be returned to local authorities
 increase in carer’s allowance.
Environment
 five new ‘Green’ Acts to provide for energy efficiency and achieve goal of zero carbon emissions.
Green Party
The Green Party manifesto contains many similar provisions to that of the Labour Party but their differing
key proposals affecting local authorities are:
 an increase of Corporation Tax from 20% to 30% (which would affect local authority trading
companies)
 an increase in spending on recycling and waste disposal by £4 billion a year with a view to increase
recycling of domestic waste to 70% by 2020
 the prevention of new building on flood plains
 the requirement that 40% of public sector boards must be women
 an increase in spend of £1 billion per year on disability living allowance/personal independence
payments
 an end to private finance initiative contracts in the health sector and the sale of NHS assets
 academies and free schools to be integrated into the local authority system
 the restoration of education maintenance allowance for 16 and 17 year olds
 the introduction of higher council tax band
 the building of 500,000 new social rental homes and the abolish bedroom tax
 an increase in child benefit to £40 a week per child.
Stephen Matthew | +44 (0)20 7871 8505 | stephen.matthew@brownejacobson.com

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Cost budgeting is an area of litigation that parties seem to have struggled to get to grips with and the most
recent case of CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd & Ors [2015] EWHC 418 (TCC) (CIP
Properties) is an example of where the claimant’s solicitors got it very wrong and paid the price.
This case is the latest in a string coming from the higher courts in relation to cost budgets.
The provisions in the CPR are very wide and we should be reminded that CPR 3.15-(1) states “In addition to
exercising its other powers, the court may manage the costs to be incurred by any party, in any
proceedings.”
Background
CIP Properties involved a contractor being sued by an investor for a number of defects to a large
development on the site of a former hospital.
The case was in Coulson J’s view not a particularly complex one but with six parties involved and experts, he
was of the opinion that the experts would take up the bulk of the costs.
In a previous judgment from October 2014, Coulson J ruled that the court had discretion to order cost
budgeting despite the claim being for £18 million. CPR 3.12 and Practice Direction 3E states that for cases
over £10 million a cost budget is not required and so the decision by Coulson J to order a cost budget was
not usual.
Before the first case management conference (CMC) the claimant’s CMC Information Sheet estimated that
they had spent £1,575,425.39 and total costs for the case would be £3,420,425.39.
One year later, CIP Properties then stated in its ‘Form H’ costs budget that it had incurred costs of
£4,226,768.16 and that its estimated costs were £5,050,469 making a total of over £9.2 million. All that had
taken place in that time was a preliminary issue pursued by the defendant which was subsequently
abandoned and disclosure which had not been completed. Coulson J was at a loss as to what the claimant
had done in that year to justify costs of over £2.5 million and was also unimpressed at spending a second full
day of the court’s time on costs for this case.
The defendant, on the other hand, had incurred costs of just under £1.5 million and estimated incurring
future costs of around £3 million making a total of £4,483,140.41.

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The judgment
One of Coulson J’s main issues with the claimant’s costs budget was in relation to the schedule of
assumptions and contingencies which contained so many contingencies that made the budget “wholly
uncertain and therefore unreliable.”
Coulson J’s judgment is quite damning of the claimant’s costs and he clearly felt aggrieved that so much
court time was being spent dealing with such issues and states in his judgment:
“Such satellite litigation, and the costs incurred in consequence, is very far removed from the spirit and
purpose of the new costs management provisions in the CPR.”
Coulson found the defendant’s cost budget to be at the upper end of the proportionality test and therefore
the claimant’s highly disproportionate. He said that the main factor in judging proportionality for this type
of case was the complexity.
The recent case of Savoye v Spicers Ltd [2015] EWHC 33 (TCC) was applied where the claimant’s cost budget
was cut by over half as it was not proportionate to the overall amount claimed.
In CIP, as the value of the claim was at the very best £18 million (although this was highly disputed and
thought inflated) the claimant’s cost budget of £9.2 million was simply disproportionate to the value of the
claim.
Significantly, Coulson J went further to identify the causes of the unreasonableness of the costs budget.
Firstly, he identified that the claimant’s solicitors, Squire Patton Boggs, were based in Birmingham and were
claiming £370 per hour for a Grade A partner despite the guideline hourly rate being only £217 per hour.
Secondly, too much work was being inappropriately done by the partner instead of more junior lawyers or
assistants and in addition, he considered that the hours claimed to have been done and estimated at each
phase were excessive. Coulson J failed to see what work had actually been undertaken for the amount of
hours claimed.
The judge analysed the costs at each phase starting with pre-action costs which were stated by the claimant
to have been £1.3 million which Coulson J thought was completely unjustified. His condemnation followed
for the costs incurred and estimated for every single phase through to Contingencies. After he made
reductions at each stage the cost budget had been reduced by more than half to £4.28 million in total.

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Following this he set out a number of orders available to him:
1. Ordering a new budget - he ruled this out as it would only seek to increase costs further.
2. Decline to approve the claimant’s costs budget - not a viable option as, although it would be the
easiest option, it would not provide any assistance to the case or any of the parties.
3. Setting budget figures - Coulson J did not particularly like this option as it would allow the claimant
to “ride roughshod over the costs management process” and would still leave the overall figure of
costs too high and disproportionate to the case.
4. Refuse to allow any further costs - this option was rendered unworkable due to the fact that the
claimant may end up being penalised twice as it would leave the door open for the defendant to
seek a reduction on the costs already incurred.
From the above options Coulson J said that there was no alternative but to make a cost management order
which set specific figures for each phase looking at not just prospective costs.
This meant that the costs estimated would fall to be reduced pound for pound to the extent that the
amounts actually recovered for costs incurred were higher than the figures the judge ordered for each
phase.
The defendant’s costs budget was reduced by around £256,000.The other three additional parties’ budgets
were approved in full.
Conclusion
Hourly rates and the level of fee-earner doing the work should be carefully considered on the costs budget
and the guidelines checked as both will be easy targets for judges to seek to reduce budgets. It was
previously thought that these issues were not to be looked at by a judge at a CMC but should be left for
detailed assessment. However, it seems that some judges are prepared to go that one step further.
CIP Properties not only reminds us that judges have very wide powers in relation to making cost management
orders but that they are prepared to use them. In Redfern v Corby Borough Council (unreported) [2014]
EWHC 4526 (QB) a costs budget was reduced where it was equal to the amount claimed and obviously
disproportionate.

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The case reinforces and goes further than some of the other recent cases such as Yeo v Times Newspapers
Ltd [2015] EWHC 209 which looked at whether the court could look at hourly rates and provided guidance in
relation to contingencies.
Contingencies have certainly been a trickier area and have been dealt with inconsistently across the courts.
Any assumptions or contingencies should be clear, not fall within the categories on ‘Form H’ and should be
work that is ‘more likely than not to be required’. Anything short of this standard should be omitted.
Certainly, what this case does highlight is that the cost budget should be seen as a reliable source of
information for the costs incurred and estimated. Proportionality will be one of the first things a judge will
look at compared to the amount claimed, complexity and the other parties’ costs.
It has been a while since the Jackson reforms were introduced but it seems only now that we are starting to
see judges feeling confident about making strict cost management orders.
Nichola Evans | +44 (0)161 300 8021 | nichola.evans@brownejacobson.com

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Local authorities and land collaboration/joint venture agreements #3
This is the third and final article in our series of articles dealing with local authority land
collaboration/joint venture transactions.
You may recall that we started this series in December 2014 with our first article which examined the
objectives of the parties and the heads of terms for proposed arrangements between Brownshire
Metropolitan Borough Council (the Council) and Jacobsons Strategic Land (Brownville) Limited (the
Developer), collectively owners of 100 acres of land (the Site) with the potential to support a new urban
extension of approximately 1,500 dwellings (Brownville Village).
Our second article in January 2015 reviewed a number of the more common joint venture structures at
which the Council and the Developer might wish to consider in order to turn their ‘in principle’ agreement in
relation to Brownville Village into something more contractually binding and robust-the contractual joint
venture, land pooling/trust and the use of special purpose vehicles (SPVs).
This third article considers the last stage in the collaboration timeline the disposal of the Site itself.
Although others may refer to ‘exit routes’, ‘delivery structures’ or some other form of words, we are using
the term ‘disposal structures’ to consider how the Site may be disposed.
Do we need to decide yet?
Most of what we have looked at so far deals with setting up a framework for the promotion (and possibly
‘infrastructuring’) of the Site, so in essence setting up a site for disposal. Ultimately, both the Council and
the Developer will want to unlock value from the Site (and recoup their investment in it) and so the choice
of disposal structure is relevant to that.
Neither party is legally or commercially compelled to agree at the date of the joint venture which disposal
structure they will agree to follow, but unless the agreement provides for the method of disposal (whether
by identifying a preferred disposal structure, or providing for a mechanism for such a disposal structure to be
agreed or determined) the arrangements will be at risk of deadlock at best unless and until a further
negotiation takes place and the parties agree the way forward.
There is a risk that either of the parties may perceive a commercial advantage in not providing for the
disposal structure in the joint venture documentation, believing (rightly or wrongly – the future is likely to
determine this) that in refusing to agree to the other’s preferences, it can in the future hold the other to
ransom. Good faith provisions may help but the more comprehensive the joint venture documentation the
less the parties are exposed to the inherent risks of having to seek to enforce them.

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If the parties never agree that way forward then it would seem illogical for the parties to remain bound by
the terms of the joint venture, and either of the parties may rightly consider they need the ability to
determine those arrangements and ‘go it alone’ with their own land.
Apart from the practical issues of terminating a joint venture (reconciling any outstanding costs balances,
providing for copyright licence/reliance documentation in relation to technical reports, removing any entries
made against Land Registry titles etc.) there could be far more significant issues to address.
For example, if one party is able to go it alone, will that crystallise any section 106 agreement or Community
Infrastructure Levy obligations, and if so how are the parties going to provide for these in financial and
practical terms? Will one of the collaborators simply have used the other to part fund the promotion of its
own part of the Site?
In short then, whilst there is no absolute requirement for the disposal structure to be agreed at the date of
the joint venture agreement, leaving this to be decided at a later date has clear risks, and can provide a
number of complications in relation to the unravelling of the joint venture agreement on termination.
What are the disposal structures then?
There are others, or variations on the following themes, but we will look at three:
1. direct development and sale (of completed dwellings)
2. sale of land, and
3. partnering-by way of promotion agreement or option.
What are the influencing factors?
1. We say now, and will reiterate later, that the objectives of the parties, and in particular the extent
to which the parties are prepared to invest their own money and accept promotion risk in order to
recoup greater rewards later, will be a significant factor influencing the parties in settling upon a
preferred disposal strategy. Conversely the determination of a required disposal structure may
influence the form of the joint venture arrangements.
2. Public law considerations which must be borne in mind by any local authority collaborator
throughout the joint venture process, particularly Section 123 Local Government Act 1972 requiring
Secretary of State Consent (subject to limited exceptions, and the provisions of the General Consent
Order) for disposals of land for less than the best consideration that can reasonably be obtained (and
the state aid regime).
The Galaxy case (R v Durham County Council and others ex parte Galaxy Land Limited [2015] EWHC

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16 (Admin)), which we reviewed in the February 2015 addition of the Public Matters Newsletter, is a
salient reminder of the risks to local authorities in proceeding to enter into disposal contracts or
other disposal documents (in that case an option) without a proper assessment of the value of the
land asset and the likely disposal proceeds (all of which must be backed up with proper valuation
advice, and an appropriate reporting and decision making paper trail),and without a proper
consideration of Section 123.
The Galaxy judgment also highlighted some rather striking detail in relation to the commercial terms
of the disposal documents in that case – a long term (30 years) option period granted for a nominal
option fee, which effectively prevented the Council realising any value during that period, or holding
the purchaser to any contractual timetable for action to be taken, and with no termination
provisions.
To compound matters, the party which held most of the substantive (although limited obligations)
was an SPV with no covenant strength and no guarantor to support its obligations.
Fundamentally then, in our scenario the Council needs to ensure that it is not locked into an
obviously bad deal for too long, or to be obliged to give away too much for too little.
3. Public procurement law. Whilst this may not be the overriding factor, some disposal structures (e.g.
partnering by way of promotion agreement) are more likely to invoke the need to comply with
procurement law than others (e.g. simple land sale).Wherever procurement rules need to be
followed, the costs and timetables need to be factored into the deal. Even where the disposal
structure does not inherently require compliance with public procurement, wherever the
collaborators are appointing planning consultants or engaging others to carry out works (e.g.
infrastructure building contracts) and one or more of those collaborators is a public body, it will be
necessary to consider procurement law.
4. The nature of the parties. Local authorities are generally not developers, but neither are many
major landowners. However a number of joint venture agreements are entered into between parties
which are fundamentally different in terms of nature and aspirations. Where the parties are very
different in nature the joint venture may need to provide flexibility and permit direct development
and sale as well as land sales.

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Direct development and sale
A fairly simple concept, though not without its challenges in terms of implementation.
The collaborating parties would themselves:
a) promote the Site through the planning process
b) obtain a satisfactory planning permission
c) procure the installation of defined ‘primary’ on-site and any necessary off-site infrastructure (spine
or distributor roads, junction improvements with main roads, rail or waterway crossings, sewers,
possibly community facilities required by a section 106 agreement and other items required to be
provided to enable the development of the Site, and any necessary site preparation,
decontamination and groundworks)
d) construct or procure construction of secondary infrastructure and properties for sale (houses, flats,
any commercial properties (for example district centre shops, medical or pharmacy facilities)), and
e) dispose of the sale properties to a number of end purchasers.
The joint venture documentation would contain suitable provisions to reflect the parties agreed
commitments in relation to these matters.
Costs and receipts would be shared in agreed proportions.
To avoid a disorderly chaos, the parties would do well to consider incorporating terms in their joint venture
arrangements to regulate the marketing and disposal of the properties by way of a marketing and disposals
strategy which could cover (among other matters) phasing of the development, target sales rates (in order to
seek to produce a regular income stream starting as soon as practicable), maximum sales rates (to avoid
flooding the market and depressing sales values) and regulating the number of sales outlets operating from
the site.
The parties could also agree to market the properties for sale through sole or joint agents, and could provide
for a co-ordinated approach to signage, promotional materials and the like.
This disposal structure is ideal where the two landowners are each in the business of property development
as their interests will be aligned: each will intend in the ordinary course of its business to develop land for
the purpose of sale of completed dwellings and other units.
It is somewhat more challenging where one of the collaborating parties is not in the business of property
development i.e. the Council in our scenario.

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If direct development and sale is likely to produce best value/consideration for the Council as well as the
Developer, it might be worth the Council considering terms under which the Developer could in addition to
development of its own land, develop out the Council’s land as well.
Alternatively, the parties might agree that the Developer is able to direct develop and sell from its part of
the Site, and the Council is able to sell parcels of land from its part of the Site (in all likelihood to other
developers).
In this case the terms of the joint venture agreement will need to provide for a fair way of equalising land
value. The intention here is likely to be in that the Developer will want to provide for a return on its
investment in its part of the Site, and is likely to want to be able to deduct a sum equivalent to ‘X’ per cent
of the ‘gross development value’ of its part of the Site (to reflect its usual profit requirements) in arriving at
an appropriate residual land value.
As with all forms of disposal route, it is vital that a Council takes appropriate professional valuation advice
from surveyors experienced in collaboration deals and residential/mixed use and development so that an
equitable basis for sharing of costs and receipt can be set out (ideally in the heads of terms, to avoid
unnecessary future argument over the basis on which the parties will share the spoils).
As a general point, a direct development and sale is the most cost intensive form of disposal structure in
that at least one of the collaborating parties will be investing not only in promoting the Site through the
planning process and procuring shared infrastructure, but also in building the ‘product’ for ultimate sale. A
Council would clearly need to be wary that it is not inadvertently agreeing to contribute towards a
proportion of those product costs.
Sale of land
In circumstances where the collaborating parties are each landowners, and with no ‘direct development’
experience or aspirations, their interests may be best served by seeking a purchaser of the combined site, or
defined parcels of it, by offering the Site up for sale.
The collaborators could offer the Site up to the open market by placing it with sole or joint sales agents
(note procurement of services here), either as a single lot or in tranches (if the latter ensuring that each sale
tranche is granted all required rights over any retained tranches, and ensuring that each retained tranche
reserves all necessary rights over each sale tranche).
Advice should be sought from appropriately qualified property consultants as to whether the Site should be
marketed for disposal as a single lot or in (and if so, how many) tranches. Those consultants should also be

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asked whether there are any potential ‘special purchasers’ who may be prepared to bid more than the
market in general.
On the simple premise that a site with planning permission and the benefit of use of shared infrastructure
such as roads, sewers and utilities (a serviced site) it is almost certainly going to commend a higher value
than an unserviced site without planning permission, the parties need to weigh up the pros and cons of
deciding whether to themselves promote the Site through the planning process (which is not without
considerable cost) and with or without installing a common infrastructure (which will clearly have
significantly greater cost).
As with the disposal of completed dwellings, there is the potential for market values to be depressed unless
parcels of land are marketed and sold in an orderly fashion. Advice from appropriate sales agents is vital.
The disposal of a large number of parcels on a piecemeal basis could impact upon the appetite of purchasers
for earlier (or later parcels) and the receipts to be realised could fall well short of the landowners’
aspirations.
Worth pausing for thought here. What are the collaborators’ aspirations in terms of return? Each of the
collaborators may have its own views on what makes a viable disposal scheme, but of course a council has
wider public law concerns in relation to achieving a consideration which complies with the requirements of
section 123. A council needs to be wary of being compelled to sell land without appropriate safeguards.
Whilst the General Disposal Consent (England) Order 2003 (annexed to circular 06/03) provides some
protection for local authorities against disposal of undervalues less than £2m where the disposal will
contribute to the achievement of the promotion or improvement of the economic, social or environmental
wellbeing, that cannot always be relied upon (for example, land held by local authorities for planning
purposes). Section 233(3A) of the 1990 Town and Country Planning Act as facilitated by section 8 of the
Growth and Infrastructure Act 2013) enables the Secretary of State to issue a general consent in relation to
land held for planning purposes and is in force, but no consent order has yet been issued.
As Durham County Council found out in the Galaxy case, where land is ‘open space’ within Section 336 Town
and Country Planning Act 1990, notice of intention to dispose must be advertised, and objections considered
under the ‘other’ limb of Section 123 (sub-section 2A).
In determining best value for Section 123 purposes whilst the price achievable in the open market is
relevant, all bids (including bids from special purchasers) must be considered and so if the property has
strategic importance in a wider site and is more valuable to particular purchasers that cannot be ignored.

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A lower ‘base’ price may in fact be better value than a higher base price in circumstances where the lower
base price is ‘guaranteed’ to be significantly topped up with overage (R v London Borough of Barnet and
Others ex p London Jewish Girls High Limited 2013 EWHC 523 (Admin)). The overriding issue though is
whether the overage is virtually guaranteed, or rather less certain. A public body needs to be wary of placing
too much reliance upon overage, but equally should not ignore it.
Whilst a simple sale of land without the collaborators having first obtained a suitable planning permission
and procured common infrastructure is likely to realise less value than a serviced site, from a public
procurement perspective, the Council is of course unlikely to be troubled with the requirement to undertake
any procurement exercise – as long as the land disposal is just that and does not involve the procurement of
works or services by the purchaser for the Council.
Partnering – options and promotion agreements
In circumstances where the collaborating parties are landowners rather than developers, and particularly
where the collaborators may not have the appetite or financial wherewithal to seek to promote the Site
through the planning process, they may consider ‘partnering’ with a specialist property promoter, or with a
developer (by way of option).
An option agreement or promotion agreement will enable the collaborators to avoid the initial expense of
promoting the Site as the optionholder developer or promoter will be required to fund these and take on the
risk of an unsuccessful promotion. Whilst this may assist with cashflow, the promoter/optionholder will
recoup its investment down the line in terms of discounted purchase prices or promotion fees.
What are the main features of options and promotion agreements and what are the differences between
them?
A promoter will use its expertise in order to promote the Site for development by seeking its allocation
within the planning framework for development purposes, then obtain planning permission and finally
marketing the property for sale with the benefit of the planning permission.
An optionholder may do the same although is more likely to promote the Site with a view to acquiring it for
its own development purposes.
Under a true promotion agreement, the promoter acquires no interest in the land (so there should be no
SDLT charge to the promoter, at least not upon the grant of the promotion agreement), and the ultimate
sale documents will be entered into between the collaborating parties as vendor, and the ultimate
purchaser(s).

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The promotion agreement will govern the extent to which (and the terms upon which) the collaborating
vendors are compelled to enter into sale documents, normally only after a satisfactory planning permission
has been obtained. The promotion agreement may well contain minimum land value/sale price provisions so
that the landowners are not compelled to sell land on the cheap.
Conversely, with an option agreement, the collaborating parties would as grantors confer upon a developer
(as grantee) an option to purchase the Site either in whole or (more likely) in phases at a date in the future,
subject to first having obtained a satisfactory planning permission, and so the developer optionholder
acquires an interest in the Site itself.
There may be SDLT payable by the developer optionholder upon the grant of the option, though this will
depend upon the value of any option fee paid. SDLT will ordinarily be payable upon the transfer of the land
following exercise of the option although the optionholder is likely to require the ability to sub-sell (so that
the landowners transfer land direct to the ultimate purchasers at the request and direction of the
optionholder) with a view to avoiding a double SDLT charge.
With a promotion agreement, the promoter would typically take a fee based upon a percentage of actual
sale receipts realised from disposals (plus reimbursement of some or all of its planning and promotion costs-
although query whether this may be double counting for the promoter’s benefit) but no money would be
payable to the collaborators until land was sold.
With an option agreement, the option would typically enable the Developer to purchase the Site (albeit for a
discount against its full market value). An option agreement would usually provide for the payment of an
option fee (perhaps also payment of the collaborating vendors’ legal and surveying costs relating to the
option agreement) although this may be relatively modest, and may be deductible from the ultimate sale
price if the option is exercised. On completion of sales following exercise of the option the landowners will
receive further payment.
The commercial terms of option agreements and promotion agreements can fluctuate, both over time to
reflect the market, and to reflect the specific circumstances of a Site and the negotiating strength of the
parties, and all collaborating vendors will need to take their own professional advice to establish that those
commercial terms are ‘market norm’ and will enable any public authority collaborator to pass the ‘best
value’ test.
We mention the Galaxy case again to remind those dealing with promoters and developer optionholders to
consider some of the basics - the covenant strength/ability to deliver of the contracting promoter/developer
(any guarantees or other security required?), the term of the arrangements, suitable milestones for action to
be taken/results delivered (consider termination provisions if not met) and to ensure that the commercial

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terms are market norm (in terms of option fee, promotion fees, discount of land price against market value)
and will comply with Section 123 (and not infringe state aid rules).
It is worth reminding ourselves when best value is to be assessed for Section 123 purposes. R v Hackney
London Borough Council ex p Structadene 2001 or ER 225 establishes that the relevant time of the disposal is
the date of completion of that disposal, but also that the date of the grant of the option is the relevant
date. In the Galaxy and Structadene cases the court referred to the grant of an option to purchase as a
disposal of land (authority: Trustees of the Chippenham Golf Club v North Wiltshire District Council [1991] 64
P & CR527). So the terms of the option including any option fee and the basis of calculating eventual sales
prices will need careful scrutiny.
A word of warning in relation to option agreements and promotion agreements. As we have said above, the
substance of the arrangements is more important than what names the parties choose to call them. Over the
last few years there has been considerable blurring of the differences between the two, to the extent that
some promotion agreements contain (or effectively are) options. This blurring can fundamentally distort the
analysis of the arrangements, and can have significant tax implications.
Private sector landowners and developers will be particularly concerned by direct tax consequences, but VAT
and Stamp Duty Land Tax (SDLT) also need to be considered in detail based upon a review of the actual
agreed terms, as it is generally not in any of the collaborators’ interests for any party to be faced with an
unwelcome and unexpected charge to either, or irrecoverable VAT. So, always check that tax advice has
been obtained and is followed.
Care also needs to be taken in relation to the procurement regime. It is highly likely that in engaging a
promotion partner (either alone or jointly with other collaborators), works and/or services are being
procured by the Council. However, care also needs to be taken in dealing with an option agreement if the
developer option holder is to be contractually obliged to submit planning applications, carry out works or
provide other works or services.
In general commercial terms, as a promotion partner’s return is likely to be based on a percentage of
ultimate sales values realised, the interests of landowners and promoter are aligned in that it is in all of
their interests for sales values/land values to be maximised.
In relation to an option agreement, a cynic might argue that a developer optionholder has a vested interest
in keeping land value lower as this will enable it to purchase the land at a lower value, and generate
additional profit on sale of completed dwellings.

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This risk can be mitigated by way of overage provisions to provide the vendors with a potential further
upside if sale prices exceed forecast sale prices, or if the Developer obtains a further and more valuable
planning permission in the future. Overage may of course also be factored into any deals for disposals
brokered by a promoter, but overage is rather more important in the context of an option.
Different expectations
With Brownville, the Developer is likely to want to dispose of completed dwellings following its own direct
development of its part of the Site. The Council is far more likely to want to embark upon sales of land from
its part of the Site.
So the joint venture arrangements will have to enable different types of disposal whilst ensuring that each
collaborator receives a fair return.
The Council might also wish to appoint its own promoter or grant options over its part of the Site, which
would add a further layer of complexity
Summary
We said at the outset of this article that the disposal structure could influence the form of joint venture
arrangements, and that the objectives can influence the disposal structure.
By way of an extreme example, where two or more collaborators are landowners (not developers) unable to
fund the promotion of a Site through the planning process or the installation of infrastructure, partnering
with a promotion partner or a developer optionholder may be the only realistic option.
Where the one or more of the collaborators are developers and collectively able to fund the promotion of
the Site, new opportunities are opened up, and the parties are likely to be able to realise a larger overall
capital receipt by the sale of consented land which they have promoted themselves.
If they are able to go further and prime the Site with core infrastructure, then those receipts can be
enhanced further.
In relation to Brownville Village, the Council and the Developer would inevitably need to first agree the basis
upon which the Site was to be promoted, infrastructure installed and land or buildings sold, as these factors
will influence what the parties are going to be required to spend, what they are likely to achieve
collectively, and when and how those spoils are to be shared.
Advice will be required from valuation and tax professionals, and property consultancy and legal advice will
be required in relation to structuring the joint venture/collaboration arrangements between the Council and

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the Developer in the most appropriate way (whether by way of land pooling, contractual joint venture, use
of an SPV or otherwise).
It can be tempting to local authorities to dive into arrangements with the private sector in order to further
political or other strategic objectives without having fully considered all of the options available, the pros
and cons of each and the factors that ought to influence the decision making.
Before taking a dip in the pool, always best to know that you’re not going to be out of your depth.
Neil Walker | +44 (0)115 908 4127 | Neil.Walker@brownejacobson.com

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Following the article in our February edition of public matters, we continue to look at the best value duty
(the Duty). In this article, we explore the statutory regime surrounding inspection and enforcement in
relation to the Duty, and some of the other duties of local authorities which support compliance with the
Duty.
The Duty
To recap, the Duty, as set out in s.3 of the Local Government Act 1999 (the LGA 1999), provides that “a best
value authority must 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.” There is
also a wide duty to consult on how the Duty should be fulfilled.
In order to comply with the Duty, an authority must demonstrate that it is making arrangements to improve
service delivery in the present as well as in the future. It must also be delivering services which provide best
value at the present time. The Duty applies very broadly, to both duties and powers of the authority and the
way in which those duties and powers are delivered. Most activities of a local authority, including those
which are carried out by an arms-length company on behalf of the authority are therefore subject to the
Duty.
Background to the Duty
The basis of the regulatory regimes surrounding the Duty are ‘the four Cs’, which came out of the White
Paper ‘Modern Local Government: in touch with the people’, which was published in 1998. The four Cs
require best value authorities to:
 challenge why and how a service is being provided
 invite comparison with others’ performance (including organisations in the private and voluntary
sectors)
 consult with local taxpayers, service users and the wider business community in the setting of new
performance targets, and
 embrace fair competition as a means of securing efficient and effective services.
Initially, best value authorities were required to apply the four Cs to their functions in order to demonstrate
that continuous improvement was being achieved. They would then produce a best value performance plan
(BVPP) to demonstrate how they would satisfy their best value duty and to show progress against best value
performance indicators. BVPP’s were quickly replaced with a comprehensive performance assessment (CPA)

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which established a star rating system, and then a comprehensive area assessment (CAA), intended to
provide a holistic view of a local authority’s area rather than focussing on the authority itself.
The current regime
The CAA was abolished in 2010 on the basis that its removal would reduce inspection costs for best value
authorities and allow them to spend money on frontline services. The foreword to the single page of
statutory guidance which replaces the CAA says that the intention is to “remove barriers to more open and
efficient local public services by freeing local authorities from targets, prescriptions and duties”. The new
guidance was intended to “allow [best value authorities] the flexibility to exercise appropriate discretion in
considering the circumstances of individual cases...” In essence, the guidance requires authorities to:
 consider overall value, including economic, environmental and social value when reviewing service
provision
 consult representatives of the local community at every stage of the service commissioning cycle,
including when the authority considers decommissioning services
 give at least three months’ notice of an intention to reduce or stop service provision
 engage stakeholders before making a decision on the future of services, and
 allow stakeholders and the local community to put forward opinions on how to reshape a service or
project.
This guidance is extremely minimal and provides little by way of clarity for authorities as to what practical
steps will enable them to demonstrate that they are complying with the Duty. The guidance is supported by
an inspection regime and the powers of the Secretary of State under the LGA 1999. Under the LGA 1999, the
Secretary of State may require an inspection of an authority’s compliance with the requirements of the LGA
1999 in relation to specific functions. We have seen this power used recently in the cases of Tower Hamlets
Council and Rotherham Metropolitan Borough Council, where inspections produced reports which were, in
both cases, highly critical of the performance of the authorities. The inspection regime may be used by the
Secretary of State in order to investigate a diverse range of issues, and, therefore, any failing falling within
the scope of the Duty may result in an investigation. The Secretary of State has a wide discretion to decide
when intervention is required, and indeed, there is no obligation for him to give reasons for requiring an
inspection to be carried out. In November 2014, the High Court rejected a second application by the London
Borough of Tower Hamlets to bring judicial review proceedings on the basis that the Secretary of State had
not given adequate reasons for appointing an inspector. The court held that there was only a duty to identify
in general terms why an inspection was being held. This creates the inherent risk that the duty may be
exercised in a political way by a Secretary of State. The ability of best value authorities to challenge the
wide discretion afforded to the Secretary of State will be extremely limited.

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The consequences of failing to meet the Duty
The powers of an inspector appointed by the Secretary of State are provided for by section 11 of the LGA
1999. These powers include the right to access the premises of a best value authority and to be granted
access to any document which appears to be necessary for the purposes of the inspection; the right to
request that authority staff and members give information or explanations for particular documents, and to
check computers. The authority is required to provide the inspector with “every facility and all information
which he may reasonably require for the purposes of the inspection”. Obstructing the inspector or failing to
comply with his or her requirements is a criminal offence, punishable by a fine of up to £1000. The authority
is also required to pay the inspector a fee for carrying out the inspection.
Following an inspection, the inspector will produce a report which may be published by the Secretary of
State, setting out any areas in which the authority is failing to meet the Duty. The inspector may also make
recommendations that the Secretary of State gives a direction under section 15 of the LGA 1999, which
provides that if the Secretary of State is satisfied that the authority is failing to comply with the duty, he
may:
 order it to carry out a review of the exercise of specified functions
 direct a local inquiry to be held into the authority’s exercise of specified functions
 direct the authority to take any action which he considers necessary or expedient to secure its
compliance with the Duty
 direct that a specified function of the authority shall be exercised by him or a person nominated by
him for so long as he considers appropriate, and
 direct that the authority shall comply with the instructions of the Secretary of State or his nominee
in relation to the exercise of a specified function and provide such assistance as they shall require
for the purpose of exercising that function.
Before making a direction of this nature, the Secretary of State is required to give the authority an
opportunity to make representations about the report and the proposed direction. However, he is not
obliged to take the representations of the authority into account in making any decision. If the Secretary of
State considers it sufficiently urgent to make the direction without allowing the authority time to make a
representation, he may do so. He is entitled to mandate compliance by the authority with the direction if it
does not voluntarily comply.
These powers can be used to take control of the operation of a local authority. In the case of Rotherham,
the Secretary of State appointed a team of commissioners who are expected to exercise all of the executive
functions of the authority and oversee “a rigorous programme of improvement to bring about the essential
changes in culture and ensure there is in future effective and accountable political and officer leadership”.
These directions will be in place until March 2019 unless they are revoked or amended at an earlier date.

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Additionally, the Secretary of State also has the power under section 16 of the LGA 1999 to “modify or
exclude the application” of an enactment in relation to all best value authorities or a particular authority or
class of authorities if he “thinks that an enactment prevents or obstructs compliance by best value
authorities” with the Duty.
Alongside the powers under the LGA 1999, the Secretary of State also has powers under the sections 86 and
87 of the Local Government Act 2000 (LGA 2000) which allow him to specify the years in which a local
authority holds elections of councillors and the scheme for elections.
The penalties for an authority failing to comply with the Duty are therefore extremely severe, risking not
only financial and economic damage, but huge reputational consequences.
How to comply
There are a number of other duties of local authorities which interact with the Duty and may assist in
demonstrating compliance with the Duty. The Public Services (Social Value) Act 2012 (Social Value Act)
requires local authorities to consider how the services they are procuring could bring added economic,
environmental and social benefits. This ties in with the statutory guidance on the Duty, which requires
authorities to consider the overall value contributed by their suppliers, with the aim of encouraging “public
agencies and civil society to collaborate more, including greater involvement for voluntary and community
organisations as well as small businesses in the running of public services”. Authorities are required to
consider “overall value, including economic, environmental and social value when reviewing service
provision”. Demonstrating that this has been appropriately considered is a key element of complying with
the Duty, and may be supported by strong and transparent procurement processes which give appropriate
weight to the social value which may be achieved through the purchase and running of public services.
The public procurement regime is particularly relevant in demonstrating compliance with the Duty. In the
case of R (Risk Management Partners Ltd) v Brent London Borough Council [2009] EWCA (Civ) 490 Lord Justice
Moore-Bick said that the Duty involved obtaining “a reduction in the cost of goods or services wherever
possible”. The Public Contracts Regulations 2015 (the 2015 Regulations) provide at regulation 67 that
contracting authorities “shall base the award of public contracts on the most economically advantageous
tender assessed from the point of view of the authority” which requires the authority to take into account
“qualitative, environmental and/or social aspects linked to the subject-matter of the public contract in
question”. Authorities may therefore use their procurement obligations to assist in demonstrating
compliance with the Duty. However, it is worth noting that simply because a particular requirement is
consistent with the Duty does not mean that it will be consistent with procurement law. In particular,
section 67 of the 2015 Regulations provides that the additional requirements of the authority must be
“linked to the subject-matter of the public contract in question”. The Duty is therefore somewhat wider

26
than the 2015 Regulations because it does not require the additional value which may be gained from a
public contract to be linked to the subject matter of the contract. It should also be noted that any
requirements of suppliers must be sufficiently transparent to comply with the duties of contracting
authorities to “act in a transparent and proportionate manner” under section 18 of the 2015 Regulations.
The four Cs remain the cornerstone of the best value duty regime, and if appropriately applied should
provide an authority with a good base from which it can evaluate its performance and make the changes
needed to secure best value from its services. The role of overview and scrutiny committees in this process
is significant. Louise Casey’s report into Rotherham MBC’s compliance with its best value duty highlighted
the failings of the authority in its duty to scrutinise its own performance. She noted that “the Council does
not use inspection to learn and improve. Members are overly reliant on officers and do not challenge
tenaciously enough to ensure improvements. Meetings and action plans are numerous but unproductive,
with a tendency towards inertia”.
Overview and scrutiny committees (which must be appointed by authorities using the executive system of
governance under section 9F the Local Government Act 2000, and which may be appointed by authorities
using the committee system under section 9JA of the same Act and the Local Authorities (Committee
System) (England) Regulations 2012) have the power to:
 review and scrutinise decisions made, or other action taken in connection with the discharge of any
functions, whether they are the responsibility of the executive or not
 make reports and recommendations to the authority or the executive with respect to the discharge
of any functions, whether they are the responsibility of the executive or not
 make reports or recommendations to the authority or the executive on matters which affect the
authority’s area or the inhabitants of that area, and
 recommend that a decision is reconsidered.
Under section 9FB, an authority with the executive system of governance is required to designate a scrutiny
officer to:
 promote the role of the overview and scrutiny committee
 support the committee, and
 provide support and guidance to members, the cabinet and the officers of the authority.

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Comment
It is absolutely essential that authorities consider the framework which supports their compliance with the
Duty, including the public procurement regime and the Social Value Act and use these to structure their
procurements in order to assist them 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” from the start of service delivery.
In addition to procurement considerations, best value authorities should learn from the recent lessons of
Rotherham MBC and empower the resources available to them in their overview and scrutiny committees and
other governance arrangements to challenge their service provision and provide constructive feedback to the
authority in order to highlight areas which require improvement and identify key steps to take which will
assist in making the necessary improvements. The risks of failing to do so are significant both for service
users and for the authorities themselves. This is partly about changing cultures but also about making
officers aware of their duties under the legislation and enabling them to perform them. It is not the case
that this is the only factor in achieving improvements in service delivery; authorities are under incredible
financial pressure at the moment as a result of significant cuts in public spending which ultimately have an
effect on service delivery and the ability of authorities to achieve improvements. Nevertheless, the duties of
authorities to comply with the Duty remain, and these are best achieved through a regime which allows
improvement through constructive criticism and challenges to the established routine.
Angelica Gavin | +44 (0)115 976 6092 | angelica.gavin@brownejacobson.com

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Traditionally, April is one of the two key months for legislative employment law changes (the other being
October). Hopefully, you will already be aware of the new provisions which came into force earlier this
month but in case you need a reminder:
Shared parental leave
The right to take shared parental leave and receive shared parental pay applies to qualifying parents whose
baby was due (or placed for adoption) on or after 5 April 2015.
Shared parental leave is intended to allow parents greater flexibility as to how their leave is structured in
the first year after the birth of their child. In particular, it allows leave to be taken by both parents at the
same time and for leave to be taken in discontinuous blocks (with the employer’s agreement).
Parental leave
Not to be confused with shared parental leave, this allows employees with one year’s service to take up to
18 week’ unpaid leave. Previously, such leave could only be taken by parents of children under five (unless
the child had a disability). Now, it will apply to parents of children under 18 in all cases.
Adoption rights
The requirement for an employee to have 26 weeks’ service to qualify for adoption leave has now been
removed. Statutory adoption pay has been increased to be consistent with statutory maternity pay. The
definition of being ‘matched for adoption’ has been extended to include those within the ‘fostering for
adoption’ scheme (i.e. local authority foster parents who are also prospective adopters).
Time off to attend adoption appointments has been introduced. A single adopter or main adopter in a pair of
joint adopters is entitled to attend up to five paid adoption appointments lasting a maximum of six and half
hours each. The partner of the main adopter is entitled to attend up to two unpaid appointments.
Adoption rights have been introduced for eligible employees who have a child through surrogacy.
Additional paternity leave
Employees whose baby was due (or placed for adoption) on or after 5 April 2015 will no longer be eligible to
take this leave.

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Pension rights
Individuals aged 55 or over can access their pension funds and withdraw pension benefits without purchasing
an annuity.
Whistleblowing
Student nurses and student midwives are now included in the definition of ‘worker’ for whistleblowing
purposes.
Statutory pay increases
A week’s pay (including for the calculation of statutory redundancy pay) has risen from £464 to £475.
The maximum compensatory award in capped unfair dismissal claims is now £78,335 (or a year’s salary, if
lower).
The prescribed rate for maternity pay, paternity pay, adoption pay and shared parental pay is £139.58 (or 90
% of the employee’s weekly earnings, if this is lower).
Statutory sick pay rises from £87.55 to £88.45 per week.
Changes to National Insurance
Employers’ National Insurance will not be due in relation to employees under 21 earning less than £815 per
week.
Criminal record checks
Not an April change (it came into effect on 10 March) but still worth a reminder: it is now a criminal offence
for employers to force applicants/employees to obtain and provide their criminal record by means of a
subject access request.
Case law also continues to develop:
Diabetes as a disability?
In Metroline Travel Ltd v Stoute, the EAT overturned an Employment Tribunal’s decision that type 2 diabetes
amounted to a disability under the Equality Act 2010. The EAT could not accept that abstention from sugary
drinks constituted a substantial adverse effect on day-to-day activities. Nor was it the case that type 2
diabetes amounted to a disability per se. Whilst a particular diet could amount to a treatment or correction
that must be ignored when assessing the effect of an impairment, the EAT did not consider that abstaining
from sugary drinks was sufficient for this purpose.

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Holiday pay and commission
Lock v British Gas Trading Limited returned to the Employment Tribunal in February and a reserved
judgment was issued on 25 March 2015. The European Court of Justice had previously held that commission
payments needed to be included within remuneration and this hearing was to determine whether the
Working Time Regulations 1998 could be read consistently with EU law and, if not, whether wording could
and should be added. The Tribunal held that wording could be added to Regulation 16(3) to allow those
workers who receive commission to have their remuneration calculated as if it varied with the amount of
work done. There were a number of issues in Lock which were deferred until after this point was
determined. Therefore it still remains to be seen what approach the Tribunal will take to applying this in
practice and what reference period will be deemed to be appropriate.
Tribunal fees
UNISON has been granted permission to appeal against both decisions of the High Court dismissing its judicial
review challenges to the introduction of employment tribunal fees. Both appeals are expected to be heard
together in June of this year.
Sarah Hooton | +44 (0)115 976 6033 | Sarah.Hooton@brownejacobson.com

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There have been eight Procurement Policy Notes (PPNs) published during the first quarter of this year, the
contents of which have been summarised below. To access the PPN to which the summary relates, click on
the relevant hyper-linked title.
1. Implementing Energy Efficiency Directive article 6: further information
(PPN 01/15) published on 19 January 2015
This PPN applies to central government departments only, including their Executive Agencies and non-
departmental public bodies (NDPBs).
The Energy Efficiency Directive (EED) came into force on 5 June 2014 and this PPN contains practical advice
on implementing obligations detailed in article 6 of the EED.
It details that contracting authorities only need to buy in compliance with the standards set out in Annex III
of the Directive where it is cost effective to do so (i.e. subject to value for money and life cycle costs) and is
consistent with other considerations such as economic and technical feasibility, as well as ensuring sufficient
competition.
It is anticipated this should not be a major change as operational energy related costs are already routinely
taken into account in procurement processes.
2. Public Contracts Regulations 2015
(PPN 02/15) published on 6 February 2015
This PPN applies to central government, local authorities and NHS bodies.
It announced that the Public Contract Regulations 2015 were due to come into force on 26 February 2015.
3. Reforms to make public procurement more accessible to SMEs
(PPN 03/15) published on 4 March 2015
This PPN applies to central government, local authorities and NHS bodies.
It provides some detail and explanation on the Lord Young Reforms under Part 4 of Public Contract
Regulations 2015.

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The key reforms are:
 the abolition of pre-qualification questionnaire (PQQ) stage for below threshold contracts
 the requirement for contracting authorities to have provisions to ensure prompt payment through
the supply chain, and
 the requirement for contracting authorities to advertise public sector contracts (including those
below threshold) in one place, on Contracts Finder, and also to publish award notices and framework
call-offs.
There are some exemptions from these rules, namely maintained schools and academies, that are exempt
from the obligation to publish on Contracts Finder and the prompt payment provisions. Additionally the
procurement of NHS health services is also exempt as such procurements are governed by the National
Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013.
4. Taking account of suppliers’ past performance
This PPN applies to central government departments only, including their executive agencies and NDPBs, and
applies from 1 April 2015 to procurements in respect of all in-scope stand-alone public contracts and
framework agreements for which an Official Journal of the European Community (OJEU) notice has not yet
been published.
The PPN contains guidance which covers the practical application of using the new discretionary ground
under the regulation 57(8)(g) of the Public Contract Regulations where a bidder may be excluded on the
basis of “significant or persistent deficiencies in the performance of a substantive requirement under a
prior public contract, a prior contract with a contracting entity, or prior concession contract, which led to
early termination, damage or comparable sanctions”.
The policy is to ensure that the bidder’s past performance is taken into consideration in the contracts to
which this policy applies. The guidance contains detailed direction on the selection criteria for assessing
bidders and what information and documents can be requested. The power to include such requirements in
the selection criteria is contained in regulation 58 where at sub-clause 15 it states contracting authorities
may impose requirements ensuring the bidders possess the necessary human and technical resources and
experience to perform the contract to an appropriate standard.
In-scope organisations must be satisfied that the bidder’s relevant principal contracts within the last three
years have been performed satisfactorily. If for any reason any of the past contracts have not been
performed in accordance with the terms and conditions, the in-scope organisation must be satisfied that
such a failure would not reoccur if the bidder was awarded the contract.

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Documents and information to be provided by the bidder should include a list of past contracts for the last
three years, certificates of satisfactory performance for each and relevant references. The selection criteria
relating to past performance and the information required for those criteria must be specified in the OJEU
Notice.
The guidance also contains assistance in the process of obtaining certificates of performance, the
clarification/verification of information provided by bidders, the assessment of any reliance by the bidder on
others including sub-contractors, the assessment and the exclusion of bidders and any re-assessment during
subsequent stages in the procurement process.
The guidance annexes templates, including a certificate of satisfactory performance and a draft OJEU
Notice, to assist with the implementation of the processes described in the PPN.
5. Prompt payment and performance reporting
This PPN applies to central government departments only, including their executive agencies and NDPBs.
The note sets out new requirements for prompt payment following the announcement of the 2015 Budget.
Current policy is that 80% of undisputed invoices should be paid within five days of receipt, and the rest
within 30 days.
There is now a requirement for all in-scope organisations to publish the percentage of invoices paid within
five days and those within 30 days on a quarterly basis. There is also a requirement for all interest liable,
under late payment legislation, to be published on a quarterly basis.
Additionally, there will be a ‘mystery shopper’ who will be checking if contracting authorities are complying
with these new measures and ‘name and shame’ those who are falling short in a fortnightly publication on
GOV.UK.
6. Sustainable skills development through major projects
This PPN applies to central government departments only, including their executive agencies and NDPBs;
however all other public sector contracting authorities are encouraged to adopt the approach.
On 24 March 2015 the government announced that it requires public procurers of major construction and
infrastructure projects (including infrastructure consultancy services) with a capital value of over £50m to
use public procurement to drive increased investment in training and apprenticeships.

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The aim is to improve value for money, risk management and long-term productivity as well as encouraging a
more responsive supply chain.
To that end, government departments should include in their procurement documentation the requirement
for the supplier to evidence their commitment to investing and developing skills for staff. Any commitments
made should be captured in the contract and any incentive mechanisms, as appropriate.
A guidance note and a checklist of example objectives are included in the PPN for further assistance on how
to include and manage this requirement effectively.
7. Open standards for technology
This PPN applies to central government departments only, including their executive agencies and NDPBs,
however local authorities and the wider public sector are encouraged to adopt the principles in order to
deliver wider benefits.
If compliance measures have not already been implemented then immediate action is required.
Open standards principles set out in government policy aim to help the government:
a) work more efficiently
b) deliver more innovative services, and
c) encourage more competition for government contracts.
The PPN directs specific action to be taken by in-scope organisations when specifying IT requirements for
software interoperability, data and document formats. In-scope organisations must request that open
standards (in accordance with the open standards principles) are adopted; and use of compulsory open
standards profiles that have been adopted for use in government, subject to restrictions such as spending
controls.
The Open Document Format (ODF) is one of the key standards which must be used which concerns creating
and managing documents in software such as office productivity tools. The use of ODF is contained within
another policy on sharing or collaborating with government documents.

35
8. Tax arrangements of appointees
This PPN applies to central government departments only, including their Executive Agencies and NDPBs (the
Departments).
Following a review of public sector appointees and the extent to which arrangements were in place which
would minimise their tax payments, a set of recommendations were made; the key recommendations being:
 the most senior staff must be on the payroll
 departments must be able to seek formal assurance from contractors with off-payroll arrangements
(of longer than six months and over £220 per day) that income tax and national insurance obligations
are being met, and
 Implementation of all the recommendations by the departments will be monitored and sanctions
imposed for non-compliance.
As part of the implementation process all departments are required to include a clause in all contracts from
23 August 2012 (this also applies to any contract renewal) which gives the department the contractual right
to seek assurance that the worker is meeting their income tax and National Insurance obligations (if certain
conditions mentioned above are met), or preferably for the worker to give that assurance in the contract.
Departments are also required to apply the recommendations to all existing contracts, subject to ensuring
value for money.
To assist the departments, they are now required to use the assurance guide and illustrative clauses
published by the government, which are annexed to the PPN. It is the responsibility of each department to
implement the guidance fully as they will continue to remain accountable to Parliament for figures in their
annual report and accounts.
Action to be taken by the departments from 6 April 2015 consists of:
 determining employment status of all off-payroll workers, regardless of how work was engaged
 ensuring the contractual provisions are in place to enable the assurance to be obtained from the
worker as to meeting their tax obligations.
Anja Beriro | +44 (0)115 976 6589 | Anja.Beriro@brownejacobson.com

36
Awarding contracts under the new guidance published
The Cabinet Office has published new guidance in March to assist with the interpretation and application of
the Public Contract Regulations 2015 (the 2015 Regulations) which came into force on 26 February.
Several pieces of guidance were published on 26 March, one of which provides a more detailed explanation
and analysis of the changes to the contract award criteria provisions under the new Regulations (the
Guidance). There have been a few significant changes in contrast to the rules under the old regime.
The Most Economically Advantageous Tender (Regulation 67)
Previously contracting authorities had to award a contract based on the Most Economically Advantageous
Tender (MEAT). In the UK this concept was assimilated by the government’s value for money policy (based on
the best price-quality ratio).
Under the 2015 Regulations the definition of MEAT has undergone a significant change and it is now much
more flexible. The Guidance states that the definition now includes the ability to have lowest price as a
single award criterion. It is not actually clear from Regulation 67 that this is the case but it is fair to say that
it is clear from the recitals in the Public Sector Directive 2014 (the 2014 Directive) that cost or price can be
a sole MEAT criterion for evaluating a tender, if used correctly. There has been in a shift in emphasis from
the definition under the old regime, as Regulation 67(2) illustrates: “That tender [the Most Economically
Advantageous Tender] shall be identified on the basis of price or cost…” There is more of a focus on price
than previously and certainly more information given as to how price or cost could be evaluated. It should
remembered that the government’s aim is still to secure value for money and this should always still be
borne in mind when carrying out a procurement process; this would imply that the best price-quality ratio
still needs to be included in the evaluation criteria, if not there would need to be justification that the
lowest priced bid would achieve value for money.
The Guidance makes reference to extended discussions on this area, when the 2014 Directive was under
negotiation, as to whether to remove the use of lowest price as a single award criterion altogether.
However, the outcome was that it would be left to the member states as to whether a price only criteria
was to be included when the Directive was transposed. The UK opted to include it in order to provide
contracting authorities with more flexibility. It will enable UK contracting authorities to take account of a
wider range of characteristics during the evaluation process than ever before.

37
Life cycle costing (Regulation 68)
This concept has now been enshrined by the 2015 Regulations at Regulation 68 with further definition at
regulation 2(1), and recital 96 of the 2014 Directive. This is just one example of a cost-effectiveness
approach; contracting authorities are not obligated to use life cycle costing and may use other approaches.
However, it is the mandatory approach under one piece of EU legislation, namely the Clean and Efficient
Vehicles Directive 2009/33/EU. The 2015 Regulations provide that if any legislative EU act in the future
makes the approach mandatory then it must be used.
Recital 96 states that life cycle costing means “internal costs, such as research to be carried out,
development, production, use, maintenance and end-of-life disposal costs”. It can also include “cost
imputed to environmental externalities, such as pollution caused by extraction of raw materials used in the
product or caused by the product itself or its manufacturing, provided they can be monetised and
monitored”. Recital 96 and regulations 2 and 68 make it clear that every stage within the life of the contract
delivery should be taken into account when considering the cost.
This is a method to ensure that all potential costs are priced for and to eradicate the situation where there
is are add-on costs later in the contract which ultimately mean the contracting authority is not getting the
value for money they initially thought they would at the outset.
Abnormally low tenders (Regulation 69)
Under the old regime, a contracting authority had the option to investigate any abnormally low tenders,
before rejecting them. Under the new regime there is now a duty to investigate and disregard that tender if
it is found to be abnormally low. The contracting authority must assess whether any evidence provided by
the bidder does or does not “satisfactorily account for the low level of price or costs proposed, taking into
account the elements referred to in paragraph (2)” (Regulation 69(4)). The bidder must be rejected if the
low price is due to a breach of international environmental, social and labour law provisions (those which are
listed at Annex X of the 2014 Directive).
Other changes
Other additions to the permissible award criteria include:
 the requirement for fair trade products to be used, which can include a requirement to pay a
minimum price and price premium to producers (at Recital 97 of the 2014 Directive and Regulation
67(3)(a))
 the relevant experience and skills of individuals can be taken into consideration when awarding
contracts as well as at selection stage. These must be pertinent for the actual work to be carried on

38
under the contract that is to be awarded and relate to the individuals who will
be performing the services.
You can access the Guidance in full via the link here.
Anja Beriro | +44 (0)115 976 6589 | Anja.Beriro@brownejacobson.com
Emma Graham | +44 (0)115 948 5641| Emma.Graham@brownejacobson.com

Public matters newsletter, April 2015

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