UK: The Public Face Of Contract - Public Sector Regeneration And Other Opportunities For The Private Sector

Last Updated: 19 January 2010
Article by Avril Smith

The current economic climate has highlighted the role of the public sector which – as yet – remains less affected by the downturn than other sectors of the economy. In this article we consider two main areas of public sector activity which continue to offer opportunities for the private sector and look at their ongoing importance in light of the recession: regeneration projects and creating "well-being" in the community.

Recession Regeneration Tips For Developers

In light of the current recession, and its implications for residential and commercial housing regeneration, plus the Government's house building targets and the limited funding available, developers are having to reconsider various aspects of projects that would have previously been considered 'standard practice'.

The downturn in the number of private sector developments that have been progressing in the recent climate has encouraged the Government to increase its support and encouragement for development within the public sector. As a private developer, contracting for the public sector in these times can be a very attractive option.

Outlined below are a few tips and issues to bear in mind when undertaking a development scheme with the public sector.

Know Who You Are Contracting With

For a regeneration project to be successful, the partners must trust one another and the traditional tendering process may be insufficient to find the right private sector partner. A successful tendering technique may involve discussing proposals with a range of potential partners over an extended period. Whilst this may be sometimes costly and tiresome for private developers, provided the developer secures the work, entering into dialogue with a public sector body enables the parties to develop their goals and aspirations for the project together and providing a private developer with a good indication of whether the goals in mind are achievable.

Restructuring Public Funding

It is old news that private sector funding is no longer as forthcoming as it was eighteen months ago and that it is not a good time to be marketing private sale homes. Contracting with the public sector, given the reallocation of public funding, can ease the pressure, making a regeneration project more attractive to private developers providing the flexibility of commencing marketing and disposal of homes for sale in a more favourable market. The Homes and Communities Agency and the Communities for Local Government Department have acknowledged the financial difficulties developing organisations are facing and have recently introduced the possibility of grant funding availability at the acquisition stage of a public sector regeneration project.

Timing Of Transfer Of Land Asset And 'Practical Completion'

Public sector land owners in a favourable economic climate have generally followed the practice of granting a private developer the freehold interest in the land upfront. However, due to the vulnerability of the construction industry, public sector land owners have been taking a greater interest in the timing and the nature of any land disposal. In recent months, public sector land owners have been taking a more commercial approach common to the private sector – by utilising a building lease to allow a private developer to develop the private sale units, with a subsequent freehold disposal at a later stage, usually at completion. With carefully drafted forfeiture provisions this enables the public sector land owner to have greater control over the development to reduce the risk of the private developer not meeting its development obligations due to issues of viability.

Adapting Existing Plans

Seeking opportunities to adapt existing plans rather than pressing on with new schemes is an avenue worth pursuing to ensure continued viability in the current climate. Market conditions mean that local authorities are more amenable to negotiation, whether that means altering section 106 planning gain agreements, or varying the conditions of planning consent.

Business Opportunities For Creating 'Well Being' In Your Community

Local authorities operate within a confined world where they are only permitted to act where specific legislation provides them with the power to do so. Any actions taken without the relevant authority may be deemed ultra vires. Since the enactment of the Local Government Act 2000, the local authority environment has opened up offering a more flexible framework as a result of the introduction of 'well-being powers', which have served as a very useful power to enable local authorities (with the exception of parish and town councils) to enter into partnerships more readily with the private sector. The Government's purpose in introducing the well-being power was "to reverse the traditionally cautious approach, and to encourage innovation and closer joint working between local authorities and their partners to improve communities' quality of life."

The well-being power enables local authorities to do anything they consider is likely to promote or improve their administrative area economically, socially or environmentally. The phrase 'anything they consider' allows the local authority the discretion to decide what may promote or improve the well-being of their area, and coupled together with 'likely' allows the public sector the flexibility to implement an innovative project that may not achieve the end result borne in mind.

Local authorities may enter into partnerships with local people, local businesses and local voluntary organisations using their well-being powers. Most of us have benefited from a local authority's use of the well-being power at some stage of our lives; for example a joint venture vehicle established by the local authority and a private developer to regenerate your town centre, the grant funding allocated to the sports programme at your child's school, or the establishment of local employment agencies in credit crunch times. One of the more beneficial uses to the community was demonstrated in the Royal Borough of Kensington and Chelsea following consultation with local residents. Here the council used the well-being powers to provide fifteen additional Police Community Support Officers (PCSOs) identified by the Metropolitan Police and funded by the council. A joint service agreement set out the arrangement between the Metropolitan Police and the council enabling the council and its residents to exert some influence over the additional PCSOs.

The 'all embracing' well-being powers do not come without limitations. Local authorities are limited or unable to use the power where legislation provides for a prohibition, restriction or limitation on its use, for the purposes of raising money. However despite an existing prohibition, restriction or limitation the Secretary of State under the Act is able to make an Order amending, revoking or disapplying any enactment without the need for primary legislation.

There is a degree of uncertainty as to the process that a local authority must follow or be seen to follow to confidently rely on the use of the well-being powers and whether it is as straightforward as the local authority asking itself in the first instance:

  • is the proposed action likely to promote or improve the wellbeing in our area?
  • is the primary purpose of the action to raise money?
  • is it explicitly prohibited on the face of other legislation?
  • are there any explicit limitations and restrictions on the face of other legislation?

Where the answer to the first question is 'yes' and the answer to the other three questions is 'no', generally it will be sufficient to rely on the power. A recent case involving the London Borough of Brent and its participation in an insurance mutual implied that, had Brent's decision making process clearly identified how the council's participation in the new insurance mutual would promote and improve the well-being of the community, instead of placing a large emphasis on the savings that were likely to be achieved, the reliance upon the well-being powers may have been justified. Despite the uncertainties, there are a number successful partnerships between Local authorities and the private sector that point towards this being the start of an exciting liaison. Hull City Council, for example, has bought a second-hand milk float for 'Hull Friends of the Earth' to realise their garden waste collection project. The Council's wellbeing powers allowed it to use its Community Initiatives Budget to fund the purchase. The power of well-being is also being put to 'green' use with some councils using it to promote sustainable energy. Kirklees Metropolitan Borough Council has used it to join the UK Emissions Trading Scheme and fund its reduction of carbon dioxide emissions whilst Nottinghamshire County Council relied on it to create Renewable Nottinghamshire Utilities Ltd which encourages the wood heat industry in the East Midlands.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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