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FRONT LINE FIRST - LAW

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Outsourcing business processes such as payroll, human resources, financial administration and accounting can be an ...
Outsourcing business processes such as payroll, human resources, financial administration and accounting can be an extremely complex process requiring a council to consider a range of issues. In particular, councils need to be mindful of the legal limits to contracting out certain functions.

The principle delegates delegare non potest establishes that one to whom functions are delegated may not legitimately re-delegate those functions to a third party, except as specifically authorised by statute. This has created a situation where councils may have outsourced a particular business process but within that process, they are legally required to retain the performance of some discrete functions. Some councils have questioned whether this results in best value, as some processes are subject to the additional expense of double handling by the council and the private sector provider.

Section 18 of the Local Government Act 1999 gives the secretary of state the power to make an order under s70 of the Deregulation and Contracting Out Act 1994, in relation to the functions of any best value authority. These orders allow councils to delegate functions that would not otherwise be legally capable of delegation.

In 2002 three orders have been placed before Parliament for the contracting out of certain functions currently only exercisable by councils. Of most significance is the Contracting Out (Functions of Local Authorities: Income-Related Benefits) Order 2002.

Currently, only a minority of councils have outsourced their housing and council tax benefit work to private sector companies. However, functions such as making decisions on benefits entitlement, exercising discretion to recover overpayments and making determinations on discretionary housing payments cannot be carried out by anyone other than the council.

Where councils have outsourced benefits work to the private sector, they will invariably retain in-house staff who deal separately with those functions, while the private sector provider deals solely with the administrative tasks.

But the new order clears the way for private sector contractors, or any other authorised persons, to exercise a wider range of decision-making functions in relation to council tax benefit, discretionary housing payments and housing benefit. The Department for Work & Pensions proposes to issue councils with written guidance on this together with model contract clauses.

Lucille Hughes

Solicitor, public sector team,

Nabarro Nathanson

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