LOCAL GOVERNMENT (MISCELLANEOUS PROVISIONS) BILL

EXPLANATORY AND FINANCIAL MEMORANDUM

INTRODUCTION

1. This Explanatory and Financial Memorandum has been prepared by the Department of the Environment in order to assist the reader of the Bill and to help inform debate on it. It does not form part of the Bill and has not been endorsed by the Assembly.
2. The Memorandum needs to be read in conjunction with the Bill. It is not, and is not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require an explanation or comment, none is given.

BACKGROUND AND POLICY OBJECTIVES

3. The EC Landfill Directive (1993/31/EC) aims to prevent or reduce, so far as possible, negative effects on the environment from the landfilling of waste. The Directive requires Member States to meet recycling targets from 2010 through to 2020 and reduce the volume of biodegradable waste being sent to landfill.
4. District councils are responsible for the collection and disposal of waste and it is imperative that they meet the Landfill Directive targets to avoid possible infraction proceedings. To do so will require the construction of significant new waste facilities (e.g. Mechanical Biological Treatment plants, Energy from Waste facilities and other recycling measures). One of the options under consideration by councils involves the private sector building the facilities and providing recycling services to councils by means of Public Private Partnership (PPP)/Private Finance Initiative (PFI) contracts. At present, however, there are some doubts about the powers of councils to enter into such contracts.
5. The Bill aims to clarify the powers of district councils to enter into long-term service contracts with the private sector and so remove any concerns contractors and financiers might have about such contracts. The proposed legislation needs to be in place as soon as possible so that the necessary contracts can be awarded and the infrastructure provided in time to meet the Landfill Directive targets.
6. The Bill will provide additional powers to councils and certain joint committees in relation to the granting of joint and several liabilities, warranties and indemnities in connection with their waste management functions. It will also enable councils and certain joint committees to acquire land otherwise than by agreement (i.e. to vest land) for waste management purposes.
7. The Bill will make preliminary arrangements for the reorganisation of local government. It will introduce controls on specified financial activities by the current 26 district councils in the period leading up to their dissolution and the establishment of the 11 new district councils as part of the reorganisation of local government. The aim is to ensure that the new councils are not constrained by being bound to long-term financial commitments entered into on their behalf by the current councils. The Bill will give the Department powers enabling it to introduce the system of controls by direction.
8. The Bill will enable the Department to make regulations to establish statutory transition committees for the purpose of preparing for, and giving full effect to, the reorganisation of local government.
9. The Bill will enable the Department to make regulations to provide for severance payments to be made to councillors who resign during a specified period.

CONSULTATION

10. In 2005, the Department established a Waste Infrastructure Task Force – a partnership between central and local government – to elicit the views of key stakeholders on proposals for delivering a new waste infrastructure for Northern Ireland. Those stakeholders were generally in agreement with the Department’s proposals.
11. The Department also carried out a formal consultation exercise with interested parties on its contracts and compulsory purchase proposals over a 3-month period between December 2008 and March 2009. While the 14 respondents who commented generally welcomed the Bill and were supportive of the Department’s proposals, 7 mentioned that it did not cover all of the legislative issues that would arise in the waste infrastructure procurement process.
12. The Department conducted a consultation exercise on its proposal for a Waste Bill from April 2009 to July 2009 which included provisions to address the remaining legislative issues which were considered necessary for the waste infrastructure procurement process. On the recommendation of the Environment Committee, those provisions were mover from the Waste Bill into the Local Government (Miscellaneous Provisions) Bill.
13. There has been no formal consultation on control of disposals, etc. by existing councils; however, the Local Government Taskforce Finance Sub-group, which submitted its final report to the Taskforce in July 2006, flagged this up as an issue to be addressed. Membership of the sub-group included elected members and officers from local government and officials from central government.
14. Proposals in relation to the composition, governance arrangements and functions of the statutory transition committees were developed through the Strategic Leadership Board, chaired by the Minister, and including elected representatives from the five main political parties. A formal consultation exercise was carried out from 6 April 2009 to 31 May 2009 on the composition, role and governance arrangements for statutory transition committees. The consultation will largely inform the subsequent subordinate legislation.
15. Severance arrangements for councillors was one of the areas considered by the Councillors’ Remuneration Working Group which reported in June 2006. Membership of the Group included representatives of the Northern Ireland Local Government Association, the National Association of Councillors, the business sector, the voluntary sector, trade unions, the Department and an independent. The report was issued to councils and local government representative bodies for comment. A formal consultation exercise was carried out from 6 April to 31 May 2009. The consultation will largely inform the detail of the severance scheme which will be set out in regulations.

OPTIONS CONSIDERED

16. There is a lack of private sector confidence concerning the powers of councils to enter into long-term service contracts. To do nothing would run the risk of EC Landfill Directive targets not being met and possible infraction proceedings. The Department is therefore proposing to clarify the contractual powers of councils in the Bill so that contractors are encouraged to compete for contracts for the construction of the necessary waste infrastructure in Northern Ireland.
17. Consideration was given to whether it would be prudent to introduce a system of controls on existing councils in the run up to reorganisation. It was concluded that such an approach would be desirable to ensure that the new councils would not be bound into long-term and significant financial commitments over which they have no control. Consideration was also given to a wider range of controls, but the conclusion reached was that this would be too restrictive, and that controls should apply only to disposals of land and contracts in excess of specified thresholds, with additional scope for exemptions in certain cases. The Department agreed with the recommendation of the Environment Committee that there should be a mechanism to allow a district council, which disagreed with the decision of its statutory transition committee regarding the proposed disposal of land or a contract being entered into, to refer the matter to the Department for decision.
18. Consideration was given to whether the new councils should operate in shadow form for a period after the 2011 elections before assuming full powers and responsibilities. The public will, however, expect to see modern, effective public services in place as soon as possible. It was therefore decided that statutory transition committees should be established and be responsible for a significant programme of work in the run up to the elections to ensure that the new councils will be in a position to take full executive control for services from the outset.
19. Following an Executive meeting on the Review of Public Administration in relation to local government, the then Minister of the Environment, Arlene Foster, announced, on 31 March 2008, that she would introduce a severance scheme in order to recognise the contribution of long-standing councillors who opt not to stand for re-election. No other options were considered.

OVERVIEW

20. The Bill has 27 clauses and comprises 3 Parts. Part 1 contains 8 clauses concerning contracts of councils; Part 2 contains 12 clauses concerning local government reorganisation matters (e.g. control of disposals, etc. by existing councils, transition committees and severance payments to councillors); and Part 3 contains 7 clauses on the exercise of waste management functions by district councils and joint committees and on supplementary matters.

COMMENTARY ON CLAUSES

A commentary on the provisions follows below. Comments are not given where the wording is self-explanatory.

Clause 1: Functions to include power to enter contracts

This clause clarifies the power of councils to enter into contracts for the provision of assets or services (or both) for the purpose of discharging any of their functions. Although this provision will enable councils to enter into PPP/PFI type contracts, it is not restricted to such contracts. The clause also enables councils to enter into separate or collateral contracts with the financiers, or insurers of or trustees for the financiers, of the contracts. This will give a third party, who provided finance to a contractor, “step-in” rights in the event that the contractor produces an unacceptably poor performance, becomes insolvent or is otherwise unable to honour the contract.

Clause 2: Certified contracts to be intra vires

This clause is the first of a two-staged approach providing “safe harbour” protection from legal challenge to private sector contractors and their financiers. It does so by introducing a presumption that a certified contract is legal for private law purposes. The clause provides that, even if a council had no power at all to enter into a contract or had abused a power it did have, a certified contract is presumed to be legal unless it is successfully challenged by means of a public law review (i.e. by judicial or audit review).

Clause 3: The certification requirements

This clause sets out the certification requirements a council must satisfy for a contract to be a certified contract. One of the requirements is that the contract will operate, or is intended to operate, for a period of at least five years. The clause also provides that the Department may make regulations concerning certain certification requirements.

Clause 4: Certified contracts: supplementary

This clause provides that, where a council has satisfied the certification requirements in respect of a certified contract, the certificate that is issued will have effect and is not invalidated by anything in the certificate which is inaccurate or untrue.

Clause 5: Special provision for judicial reviews and audit reviews

While clause 2 introduces the presumption that a certified contract is lawful, this clause preserves the right to challenge the lawfulness of such a contract. Such a challenge is restricted to public law challenge by means of judicial review or audit review. Clause 5 also provides the second stage in giving “safe harbour” protection to private sector contractors and their financiers. It does so by providing that where, on public challenge, a court takes the view that a certified contract is unlawful (because the council did not have the power to enter into the contract or had exercised any power improperly), the court may nevertheless decide that the contract can continue to have effect. In reaching such a decision, the court may take into account a number of factors, in particular the likely consequences for the financial position of the council and the provision of services to the public if a decision were made that the contract should not have effect.

Clauses 6 and 7: Relevant discharge terms and Absence of relevant discharge terms

These clauses provide for special terms (i.e. relevant discharge terms) of a certified contract, whether the main or collateral contract, which come into play in the event that a court finds the contract to be unlawful and that it should be set aside. Clause 6 provides for terms to be agreed between the parties for this eventuality and clause 7 provides for the situation where no discharge terms have been agreed or where the court finds that such terms are unenforceable.

Clause 10: Control of disposals and contracts of existing councils

This clause sets out a system of controls on disposals of land, and capital and non-capital contracts being entered into, by the current 26 district councils in the period leading up to their dissolution and the establishment of the 11 new district councils. The Department will have powers to direct that councils must obtain consent from a relevant statutory transition committee before engaging in the specified activities, subject to minimum thresholds. Where such consent is refused by a relevant statutory transition committee, the clause permits a council to refer the decision to the Department for decision.

Clause 12: Consideration to be taken into account for purposes of direction

This clause provides that a transition committee considering an application from a council for a disposal or a contract shall take into consideration any other disposals or contracts undertaken by the council from a date specified in a direction from the Department.

Clause 13 Referral to Department where consent refused or granted subject to conditions

This clause permits an existing council to refer a decision of its statutory transition committee not to give consent to a proposed disposal or contract, to the Department for decision.

Clause 15: Statutory transition committees: constitution

This clause makes provision about the establishment of statutory transition committees to manage, at a local level, the transition from the current configuration of 26 local government districts to the new 11 districts as set out in the Local Government (Boundaries) Act ( Northern Ireland) 2008. The clause also provides the Department with the power to specify in regulations the level of membership of the statutory transition committees, the process to be adopted by the current councils to determine their representation on the relevant transition committee, and the governance arrangements for the committees. It also provides for the regulations to make provision in relation to making payments to and facilities available to statutory transition committees.

Clause 16: Statutory transition committees: functions

This clause provides the Department with the power to specify in regulations the functions and powers of a statutory transition committee in relation to delivering the transition process. It is intended that the functions of a statutory transition committee will include the development and management of the convergence of the plans and programmes of the current local government districts that will form the new districts; the development of strategies for estates and accommodation; the management of the transfer of assets and liabilities; the development of a preliminary staff structure for the new council; the appointment of a Chief Executive designate and key senior managers designate, and the preparation of a budget and the fixing of the rate for the new council district.

Clause 17: Power to modify existing legislation

While clauses 15 and 16 set out specific provisions in relation to the making of regulations for the establishment and operation of statutory transition committees, this clause provides a power for the regulations to apply (with or without modification) or disapply the provisions of relevant local government or rating legislation.

Clause 18: Guidance to statutory transition committees

This clause permits the Department to issue guidance to statutory transition committees in relation to the exercise of any of their functions and requires committees to have regard to such guidance.

Clause 19: Severance payments to councillors

The clause confers a power on the Department to make regulations providing for the making of severance payments to councillors who resign as councillors before the end of a specified period and who meet such other criteria as the Department may specify. The clause also amends section 4 of the Local Government Act ( Northern Ireland) 1972 to provide that a person who has received a severance payment is disqualified from being elected, or being, a councillor.

Clause 20: Power to modify legislation in connection with local government re-organisation

This clause permits the Department to make subordinate legislation which would modify local government legislation and rating legislation in connection with the re-organisation of local government.

Clause 21: Acquisition of land otherwise than by agreement

This clause provides that councils may vest land for any of their purposes in Part 2 of the Waste and Contaminated Land ( Northern Ireland) Order 1997 – a provision that had been inadvertently omitted from that Order.

Clause 22: Exercise of waste management functions of councils

This clause clarifies the powers of councils concerning the granting or the provision of warranties and indemnities. This clause also makes provision for a district council to enter into an agreement with one or more councils for the exercise of specified waste management functions, to enter into waste contracts on their behalf or to acquire and hold land on behalf of and in the name of other councils.

Clause 23: Application of certain provisions to certain joint committees constituted as bodies corporate

Northern Ireland councils have formed themselves into 3 joint committees (Waste Management Groups) to address waste management issues. Two of the joint committees have been constituted as bodies corporate by orders made by the Department. This clause amends those orders to apply certain provisions of the Bill to those bodies. The amendments will permit arc21 and SWaMP2008 to enter into certified contracts, vest land for waste management purposes and provide warranties or indemnities in relation to contracts.

Clause 24: Regulations and orders

This clause essentially sets out the means by which the Department may make different regulations as provided for in the Bill.

FINANCIAL EFFECTS OF THE BILL

21. The contracts provisions will not have any direct impact on public sector costs. They will, however, give confidence to the private sector concerning the powers of councils to enter into long-term service contracts and should enable councils to enter into contracts to improve the waste infrastructure in Northern Ireland.
22. The introduction of the controls regime does not place additional demands on public sector financial costs or manpower.
23. The cost of the statutory transition committees is estimated to be £1.5M to £2M per annum up until the new councils come into operation.
24. The cost of the severance payments to councillors will depend on the number of councillors who apply and meet the criteria to receive an award. The Department estimates that it could cost approximately £5.25M. The detail of the severance arrangements will be set out in the subordinate legislation and more detailed information about the costs of scheme, including whether the cost will be met by local or central government, will be available then.

HUMAN RIGHTS ISSUES

25. The Department believes that provisions in the Bill are compatible with the Human Rights Act 1998.

EQUALITY IMPACT ASSESSMENT

26. Under the terms of section 75 of the Northern Ireland Act 1998, the Department carried out screening for equality impact and is satisfied that the provisions in the Bill will not lead to discriminatory or negative differential impact on any of the section 75 groups.

SUMMARY OF THE REGULATORY IMPACT ASSESSMENT

27. The Department did not complete a regulatory impact assessment in respect of provisions in the Bill as they do not give rise to any associated costs or savings on business, charities, social economy enterprises or the voluntary sector.

LEGISLATIVE COMPETENCE

28. The Minister for the Environment had made the following statement under section 9 of the Northern Ireland Act 1998:

“In my view the Local Government (Miscellaneous Provisions) Bill would be within the legislative competence of the Northern Ireland Assembly.”