APPENDICES
CORRESPONDENCE CONCERNING THE PROPOSAL
A. Letter from the Clerk of the Committee
to the Department 23
B. Reply from the Department 27
Appendix A
Letter from the Clerk of the Committee
to the Department
Proposal for a draft Regulatory Reform (Housing
Management Amendment) Order 2002: request for further information
1. Thank you for your appearance before
the Committee on Tuesday, and for the useful briefing you and
your colleagues gave the Committee on the above proposal. The
Committee considered the proposal at its subsequent meeting and
resolved to seek further information from the Office of the Deputy
Prime Minister. The issues which concern the Committee are set
out below, together with questions arising from them. The Department
is requested to respond to these points as soon as possible, and
in any case no later than 10 December, together with any further
explanatory material which it feels may assist the Committee.
Requirement for Secretary of State's approval
for sub-delegation
2. The explanatory statement says that where
an arrangement includes provision for the person with whom the
arrangement is made to:
a. appoint another person to exercise any of
the management functions; or
b. make changes to a person so appointed; or
c. make changes to the terms of the management
arrangement; or
d. make changes to subsidiary management arrangements,
the approval of the Secretary of State/National Assembly
for Wales on the application of the authority will be required
before any of those steps can be taken. For England the First
Secretary of State will expect those tenants affected by the proposals
to have been consulted before the application is made.
3. However, although the explanatory statement
(including the Regulatory Impact Assessment) claims that the arrangements
will be as described above, the Committee has noted that there
appears to be nothing on the face of the proposed order to confirm
that this will be the case. Under new subsections (6) and (7),
it appears that the requirements outlined above will not be statutory
requirements, but merely ones required by the Secretary of State
in giving his approval to an agreement, or the variation of an
agreement. If this is the case, those requirements could therefore
be changed in the future without any further reference to Parliament.
Q1 It would be helpful if the Department would
provide further elucidation of the proposed requirements. In particular,
the Department should distinguish clearly between those aspects
of its proposals which are intended to be included on the face
of the order, on the one hand, and those which would be at the
discretion of the Secretary of State, on the other.
Dealing with matters of urgency: moratorium provisions
4. The explanatory statement suggests that
where the person appointed by the manager needs to be replaced
as a matter of urgency (e.g. in the case of insolvency) a moratorium
period is proposed before the Secretary of State/National Assembly
for Wales' approval must be sought. This is to enable a temporary
manager to be installed and tenant consultation to take place
on a new, permanent manager before the Secretary of State/National
Assembly for Wales is approached to give approval. The Committee
understands that this will enable the continuous provision of
services to tenants without disruption. According to the explanatory
statement, authorities will need to identify the length of the
proposed period and the circumstances in which they would like
the Secretary of State/National Assembly for Wales to specify
a moratorium period so that the Secretary of State/National Assembly
for Wales can consider these prior to granting approval. The explanatory
document says that the moratorium period may not last longer than
six months in the first instance; but may be extended beyond that
length of time "on application and if justified" (para
12.15).
5. As above, the Committee is concerned
that the Department's proposals as set out in the explanatory
document do not seem to be fully reflected on the face of the
proposed order. Rather than requiring either an application from
the parties concerned or any justification for the extension of
a moratorium period, new subsection (10) would appear to leave
the extension of a moratorium period entirely at the discretion
of the Secretary of State.
Q2 Please indicate whether it is intended
that the extension of a moratorium period will be entirely at
the discretion of the Secretary of State, or whether it is intended
to incorporate provisions for the extension of such a period into
the order.
Q3 Please also indicate the circumstances
in which the Secretary of State might withhold his approval to
a sub-agreement made under an agreement in the moratorium period,
and what the implications of the withholding of such approval
might be for anything done under such a sub-agreement.
Appropriateness
6. The Committee notes that these proposals
are intended to enable Private Finance Initiative projects in
local authority housing management to go ahead. As the Department
will be aware, PFI is a subject of some deal of political controversy
and debate. As a result, the Committee is concerned that it may
not be appropriate for implementation by delegated legislation,
through the regulatory reform procedure, rather than being subject
to the much greater opportunity for political discussion and debate
which would be allowed if the proposal were to be brought forward
by means of primary legislation.
Q4 Please justify the Minister's decision
to proceed by means of an RRO to implement a proposal which is
the subject of this degree of political controversy.
Re-enactment of burdens
7. Rather than simply amending the existing
section 27, the proposal would replace the whole of the section
with a new, amended section. In terms of the Regulatory Reform
Act, the Committee considers that the proposal would therefore
re-enact most of the existing burdens currently imposed by section
27. The Regulatory Reform Act provides that burdens may only be
re-enacted if they are proportionate to the benefits expected
to result.
8. The Committee understands that the existing
burdens are chiefly concerned with ensuring that local authorities
exercise their powers and responsibilities in respect of housing
management properly. However, contrary to the requirements of
s6(2)(c) of the RRA, in its explanatory document the Department
neither acknowledges the re-enactment of burdens represented by
the replacement of the old section 27 with the new section, nor
addresses the resulting question of proportionality.
Q5 Please indicate whether the Department
agrees that the proposal would re-enact existing burdens, and
provide an assessment of whether, and for what reasons, those
burdens are proportionate to the benefits expected to result from
the re-enactment.
Removal or reduction of a burden and
maintenance of necessary protection: replacement of the phrase
"as agent"
9. Section 27 currently requires that the
manager should exercise the management functions "as agent
of the authority". The Committee's understanding is that
an agent acts on behalf of the person who instructed him/her,
so that at present the authority is, as principal, a party to
all the contracts which an agent makes and consequently liable
for any obligations that may arise. The Department has suggested
that the intention of Parliament in amending section 27 in 1986
to insert this provision was that the authority should remain
legally, politically and financially accountable for the actions
of its agent.
10. The Department has explained that in PFI
arrangements, the functions will be subcontracted under separate
agreements between the main PFI operator or SPV and one or more
management providers. The Department suggests that the requirement
that a manager acts "as agent of the authority" would
not fit well with such arrangements. It is proposed that the phrase
'as agent of the authority' should be replaced by provisions similar
to those in the Deregulation and Contracting Out Act 1994 (i.e.
new subsections (13) and (14)).
11. Paragraph 4.9 of the explanatory statement
says that "the intention is that the authority remains responsible
for the management functions where they are carried out by others
except where the contract or agreement provides otherwise"
(emphasis added). When you appeared before the Committee you said
that the proposed wording "makes the contractor specifically
responsible for those things identified in the contract as his
responsibility".
12. New subsection (13) provides that
anything done or omitted to be done by or in relation
to a manager, in, or in connection with, the exercise or the purported
exercise of any management function exercisable by the manager
under a management agreement shall be treated for all purposes
as done or omitted to be done by or in relation to, the authority.
13. It appears that new subsection (14) is intended
to reduce the consequent burden on the authority, by
excluding the authority from responsibility
for any act or omission of the manager for the purpose of so much
of the contract as relates to the exercise of the management functions;
and
excluding the authority from liability
in connection with criminal proceedings as a result of any act
or omission by the manager or managers' employees where they exercise
the management functions.
14. The Committee does not accept that subsection
(14)(a) has the effect described in paragraph 4.9 of the explanatory
statement. It appears to maintain the position that the authority
is liable, as respects any third party, for any act or
omission of a party to a management agreement or sub-agreement
in or in connection with the exercise of a management function.
It is only as between the parties to the agreement that subsection
(13) does not apply, so that the manager will remain liable to
the authority for its acts or omissions.
15. The Committee therefore remains unclear as
to the precise extent to which these new provisions are intended
to divide the responsibilities for the discharge of functions,
and the liabilities resulting from the discharge of those functions,
between the authority and the manager.
16. In addition, the explanatory document is
not clear whether there is any practical difference between the
effects of the use of the phrase "as agent", on the
one hand, and the new proposed wording in subsection (13), on
the other. The Department appears to acknowledge that there remains
a certain amount of doubt on this point: in response to comments
made in consultation by Anthony Collins Solicitors (at page 44
of the explanatory document), the Department states that it is
considering further the question of the maintenance of necessary
protection in this context.
Q6 Please explain the intended effect of the
proposed wording of subsections (13) and (14), and how it has
that effect.
Q7 Please explain what effect the use of this
proposed wording would have as opposed to retaining the old wording,
i.e. how the proposed new sections are intended,
in practice, to divide responsibilities and liabilities between
local authorities and managers.
Q8 In the light of this explanation and of
the further consideration the Department has given to the points
made by Anthony Collins Solicitors, please indicate whether, and
explain why, it is still the Department's view that, in respect
of local authorities which do not enter into the proposed new
housing management arrangements, no necessary protection would
be removed by the excision from section 27 of the specific provisions
for delegation to agents.
Imposition of new burdens
17. Your explanatory statement says that new
burdens imposed by the proposals "are in line with existing
requirements", and "the proposed changes are not considered
to impose any significant new burdens" (explanatory document,
paras 7.1-2). Although the Department has apparently therefore
conceded that the proposals impose new burdens, these burdens
are not set out in terms for the Committee to assess whether or
not they are significant. Nor does the Committee consider that
the explanatory statement's somewhat cursory consideration of
the proportionality, fair balance and desirability tests is sufficient
to satisfy the requirements of the Regulatory Reform Act.
Q9 Please confirm whether or not the Minister
considers that the proposal would impose any new burdens.
Q10 If the Minister does believe that it would
do so, please state how any such burdens are proportionate to
the benefits which are expected to result from their creation.
Please also explain why the Minister is of the opinion:
(a) that the provisions of the order, taken
as a whole, strike a fair balance between the public interest
and the interests of the persons affected by the burden being
created, and
(b) that the extent to which the order removes
or reduces one or more burdens, or has other beneficial effects
for persons affected by the burdens imposed by the existing law,
makes it desirable for the order to be made.
Whether the proposal has taken proper account
of consultation responses
Length of consultation
18. The Committee notes that the Department set
27 September 2002 as the closing date for responses to its consultation,
representing a period of only eight weeks (compared to the Cabinet
Office recommended minimum of 12 weeks). The Committee also notes
the Department's statement, "Although we would have liked
to have allowed a full twelve weeks for consultation, the section
27/housing management issue only came to light fairly recently
and, as some housing PFI projects were nearing contract signature,
it was felt important to have the change in place as soon as possible",
but that the Department has indicated that it has nevertheless
taken account of all available responses, including those that
were received after the closing date.
Q11 Please list the consultees whose responses
were received after the closing date.
Scope of consultation
19. The Department has indicated that the paper
was distributed to all local authorities, those building contractors,
finance houses, Registered Social Landlords, advisors, consultants
and other groups currently involved in housing PFI projects; and
tenants' and leaseholder groups. In addition, copies were sent
to trade unions and others who might have an interest. However,
during the presentation it emerged that the consultation paper
had not been distributed to tenants' groups who had previously
opposed the establishment of arms' length management organizations
(ALMOs).
Q12 Please indicate why it was thought appropriate
to confine the thrust of the consultation exercise to those bodies
and organizations engaged in housing PFI projects, and not the
whole of the local authority housing sector.
20. It appears that the present consultation
was not designed with the aim of taking into account workforce
issues (e.g. in respect of staff who are transferred from local
authority employment to employment by a PFI contractor): Unison
has pointed out that a number of other unions representing staff
likely to be affected by the proposals have not been consulted.
The Department's explanatory statement acknowledges that Unison
"raise a number of pertinent points in relation to staff
who transfer to a PFI contractor", but does not appear to
make any attempt to respond to those points.
Q13 Please explain why it was apparently not
felt necessary to seek full consultation with representatives
of all staff likely to be affected by the proposals.
Q14 Please indicate what effects the Department
believes the proposals will have on local authority staff who
may be transferred to employment with PFI contractors.
Q15 Please supply to the Committee the Department's
views on the "pertinent points" made by Unison in its
response to consultation.
Tenant consultation
21. The Committee recognizes that the Department
is keen throughout the consultation document to stress that tenant's
rights to consultation will be preserved under these proposals.
However, it understands that those rights are not specifically
stated on the face of the proposed order, and derive instead from
a combination of tenant's rights under section 105 of the Act,
and the requirements the Secretary of State will impose before
giving his approval to any agreement or sub-agreement. The Committee
is therefore unclear about what exactly the consultation requirements
will be, and the precise effect they will have. For example, will
they, as some respondents to consultation on the proposals suggested,
result in tenants being over-burdened with constant consultations
about changes to the management of their homes?
22. The Committee notes that para 4.5 of the
explanatory document states that "as at present under section
105 of the Housing Act 1985, tenants will be consulted about the
proposed arrangements before approval is sought, and the First
Secretary of State for England will take account of this when
deciding whether or not to give approval". However, in response
to a point made in consultation, the Department has suggested
that "consultation requirements under section 105 may not
coincide with the Secretary of State/National Assembly for Wales'
requirements for consultation under these arrangements" (page
35). On the face of it, these assessments appear to be contradictory.
Q16 Please indicate how the Department envisages
the operation in practice of the requirement for tenant consultation.
Q17 Please clarify the relationship between
the statutory requirement for consultation under section 105 of
the 1985 Act and the envisaged discretionary requirements for
consultation to be made by the Secretary of State/National Assembly
for Wales under the proposal.
Cost-benefit analysis: attitude to risk
23. The Department states in its Regulatory Impact
Assessment that "no risks are associated with the changes
being made" (Explanatory document, Annex A, para 3). Yet
during the course of the presentation to the Committee, the Department
indicated that the PFI projects which are to be enabled by the
proposal bear significant risks.
Q18 Please explain the grounds for the Department's
assessment that no risks are associated with the changes arising
from the proposal.
Broader implications of the changes
24. The consultation document and the explanatory
document accompanying the proposal focus on the application of
the proposed changes to section 27 in the context of proposed
PFI agreements. However, the proposed changes may have implications
across the whole of the local authority housing sector which is
governed by the application of section 27. The Committee cannot
determine from the information supplied from the Department whether
it has considered the wider implications of the changes, and if
so, what its assessment of those implications are.
Q19 Please indicate whether the Department
believes that the proposed changes have wider applications, and
if so, what they might be.
Q20 Please supply the Department's assessment
of the implications of the proposals for Arm's Length Management
Organisations (ALMOs), Tenant Management Organisations (TMOs),
Registered Tenants Associations (RTAs) and local authority housing
co-operatives.
Q21 Please indicate whether the Department
is satisfied that all necessary protections will be maintained
across the entirety of the housing sector presently governed by
section 27 of the 1985 Act if the changes are made.
I hope these requests are clear. Please contact me
if you have any queries.
Clerk of the Committee
27 November 2002
Appendix B
Reply from the Department
Proposal for a draft Regulatory Reform (Housing
Management Amendment) Order 2002: request for further information
Thank you for your letter of 27 November 2002 conveying
the concerns of the Committee. We have considered all the points
raised by the Committee and our response to them is attached.
My apologies that we have just missed the deadline you gave us.
As I explained on the 'phone our legal advisor was taken ill over
the last few days which complicated things.
We would like to reiterate to the Committee that
ODPM does not consider this Regulatory Reform Order proposal is
politically controversial. The proposal centres on enabling local
authorities to sub-delegate their housing management functions.
This is being done in the context of enabling housing PFI schemes
to proceed, but will more generally increase local authorities'
flexibility and ability to achieve the Decent Home target. Section
27 as it currently stands is imposing a burden on housing management
as it is preventing local authorities from taking full advantage
of modern procurements practice.
I hope the Committee will find the responses to their
questions satisfactory. Please contact me if they require any
further explanations or if there is anything further they need.
I understand the Committee may wish to take evidence from our
Minister, Jeff Rooker, in the New Year. I would appreciate it
if you could let me know as soon as the Committee has made a decision
on this.
David Green
11 December 2002
Proposal for a draft Regulatory Reform (Housing
Management Amendment) Order 2002: request for further information
Q1 It would be helpful if the Department would
provide further elucidation of the proposed requirements. In particular,
the Department should distinguish clearly between those aspects
of its proposals which are intended to be included on the face
of the order, on the one hand, and those which would be at the
discretion of the Secretary of State, on the other.
A1 To comment specifically on paragraphs 2 and
3 of the Clerk of the Committee's letter dated 27 November 2002,
paragraph 4.6 of the Explanatory Document identified those instances
where the Secretary of State's approval would be required under
the new arrangements. The following is how the points apply in
practice.
a. Subsection (6)(a) of the proposed draft order
requires the Secretary of State's approval to any management agreement,
which subsection (2)(a) defines as also meaning a sub-agreement.
b. Where it is necessary to appoint a new manager
in place of the current one, the Department considers a new management
agreement will be required similarly subject to the approval requirement
of subsection (6)(a). Such a change is too fundamental to be considered
a variation.
c. Changes to the terms of a management agreement
will constitute a variation of a provision. Under subsection (6)(b)
the Secretary of State is able to identify those instances where
he will want to give approval to any variations to management
agreements. The Secretary of State intends to exercise his discretion
so that there is no requirement to obtain approval where the change
will not affect matters concerning tenants.
d. As above, subsection (2)(a) defines a management
agreement as including sub-agreements. Subsection (6)(b) therefore
covers variations to both management and sub-agreements and the
instances are likewise subject to the discretion of the Secretary
of State.
The purpose of the Secretary of State's approval
is to enable him, in the public interest, to control or influence
local authorities' decisions in entering into management agreements.
He is concerned to ensure that tenants are adequately consulted
on any proposals that may affect them. The current requirements
for tenant consultation are twofold. It is subject to existing
legislation and also subject to the Secretary of State's policy
on these matters. Existing legislation on tenant consultation
is contained in section 105 of the Housing Act 1985 which makes
it a legal requirement for tenants to be consulted about matters
to do with housing management. The existing section 27BA of the
1985 Act also contains powers to enable the Secretary of State
to make regulations requiring an authority to consult with tenants
in respect to the exercise of management functions. No regulations
have so far been made under this power since the Secretary of
State has so far been content that authorities follow his guidance
(see below) on consultation. However, its existence reflects the
importance the Secretary of State places on these matters.
The Secretary of State's policy on these matters
is that tenants should be involved and consulted in the letting
of housing management contracts. He has issued guidance to local
authorities on tenant involvement in these matters in the past.
A copy of the latest guidance with which he requires authorities
to comply is at Annex F of the Explanatory Document. In giving
an approval under section 27 he wishes to be assured that tenants
have been involved in the process as set out in the guidance.
Authorities will therefore have to provide him with evidence that
tenants have been consulted and their views taken into account.
On a more general note and to assist the Committee
further Annex A contains a list of all of the proposals under
section 27 together with details of the Secretary of State's discretionary
requirements.
Q2 Please indicate whether it is intended
that the extension of a moratorium period will be entirely at
the discretion of the Secretary of State, or whether it is intended
to incorporate provisions for the extension of such a period into
the order.
A2 An extension to a moratorium period will be
at the discretion of the Secretary of State. There is no intention
to limit the circumstances in which a moratorium period may apply
in the order. Where a manager has to be replaced, the circumstances
where a moratorium period will apply would have been identified
in the Secretary of State's approval to the management agreement.
In practice the authority will then have to notify the Secretary
of State if they are likely to need an extension to the moratorium
period, the justifications for it and the further time likely
to be required. We have proposed that the Secretary of State should
have discretion in specifying the period of the extension. In
the light of what the authority says in its application for an
extension, the Secretary of State will need to take a view about
progress and what would be a suitable period. The circumstances
where an extension might be required may be where perhaps there
has been difficulty in identifying a new manager or where the
Secretary of State is not content with what is proposed. We do
not propose to incorporate further provisions in the Order but
will issue guidance to authorities on this and other issues.
Q3 Please also indicate the circumstances
in which the Secretary of State might withhold his approval to
a sub-agreement made under an agreement in the moratorium period,
and what the implications of the withholding of such approval
might be for anything done under such a sub-agreement.
A3 The intention is that the Secretary of State's
approval will not be required during any moratorium period. It
is assumed that the Committee are referring to the Secretary of
State withholding his approval to a sub-agreement following
a moratorium period. It is difficult to foresee all the circumstances
where this might happen and we would expect that it would be a
rare occurrence. Nevertheless we have considered it. One instance
may be where the Secretary of State is not satisfied about the
way consultation has been carried out with tenants or where the
guidance on tenant involvement has not been complied with. In
these circumstances he may require consultation to be undertaken
again and will no doubt allow more time for this to take place.
Alternatively he may have information to hand himself that leads
him to think that the proposed manager would not be appropriate
as a manager in the circumstances. The PFI contractor would need
to seek a new housing manager and again the Secretary of State
may give more time to enable this to happen.
In extreme cases if the Secretary of State were unhappy
about the way the contract was being run generally he might refuse
to give his approval. Except during a moratorium period, the Secretary
of State's approval is required for the lawful making of a sub-agreement.
If approval were to be withheld, the authority and the manager
would have to take whatever steps were required to bring their
arrangements within the law: this might mean the termination of
an agreement and the reversion to the authority of the exercise
of the housing management functions. However, in refusing to give
an approval, the Secretary of State must have acted reasonably
in order to avoid the possibility of a legal challenge.
Q4 Please justify the Minister's decision
to proceed by means of an RRO to implement a proposal which is
the subject of this degree of political controversy.
A4 The ODPM's view is that the proposal to enable
the sub-delegation of housing management is not politically controversial.
The proposal is about giving local authorities more flexibility
in delivering their housing management function while at the same
time protecting tenants rights. In this instance it will enable
housing PFI schemes to go ahead but it will give them more flexibility
in delivering their Decent Home targets. As was stated in the
presentation to the Committee, Ministers announced in the Housing
Policy Statement in December 2000 that the Private Finance Initiative
was an investment option for local authorities to bring about
improvements to Council housing. This followed the April 2000
green paper. Likewise, the Deputy Prime Minister has confirmed
his commitment to the Private Finance Initiative generally in
recent speeches.
The decision having been made and the issue of PFI
having being aired in the public domain, the mechanics of implementing
housing PFI should not in themselves be controversial, even less
so where the intention of the proposal is to give greater freedoms
to local authorities and improve conditions for tenants. Should
the changes we are proposing not go ahead, current housing PFI
projects would not be able to proceed in a timely fashion and
the majority of contracts would have to be revised to significantly.
There is a strong possibility they may not be able to proceed
as PFI projects if the balance of risk reverted back to the authority
as a result. Apart from the cost implications, one impact of this
would be to slow down the delivery of the Government's Decent
Home target, an initiative where PFI is part of the accepted policy
for achieving the goal of ensuring that all social housing meets
a set standard of decency by 2010.
Q5 Please indicate whether the Department
agrees that the proposal would re-enact existing burdens, and
provide an assessment of whether, and for what reasons, those
burdens are proportionate to the benefits expected to result from
the re-enactment.
A5 As explained in Chapter 4 of the Explanatory
Document, the draft order enables a management agreement made
by a local housing authority to provide for the sub-delegation
of the management functions which are the subject of the agreement
by the person with whom an agreement has been made. Functions
exercisable under sub-agreements would also be able to be further
delegated under the draft order.
New provision is made largely as a consequence of
this extension of the powers of local housing authorities and
of "managers". The table at Annex A shows the extent
to which the new section 27 substituted by the draft order, contains
existing and new provision.
In considering the necessary changes, it became apparent
that the extent of amendments required to give effect to the whole
of the proposal meant that very little of section 27 would remain
unaffected in its current form. It was considered that it would
be easier to understand what was going on if the whole section
was substituted rather than being subject to a series of amendments.
The aim was to be helpful to users of the section.
The powers in the 2002 Act are novel and we are still
at an early stage of their use. In drafting the order the view
was taken that the object of the whole order was the removal of
limits on the statutory powers of housing authorities and "managers"
and accordingly the removal of burdens within the meaning of section
1(1)(a) of the Regulatory Reform Act 2002 together with new consequential
provision. Restating a subsection of the current section 27, with
modifications to take account of the extension of the powers to
sub-delegate, seemed to us provision made with a view to removing
burdens, not with a view to re-enacting provision imposing burdens,
and so the test in section 1(1)(b) of the 2002 Act was not applied.
If extensive amendment to existing provisions would not attract
that test, it might be thought odd that the same changes made
by way of a new provision drawing on existing drafting should
do so.
It is possible to test this view by assuming for
a moment that section 1(1) of the Regulatory Reform Act 2001 did
not include a power to make provision with a view to the re-enactment
of existing provision. In our view it would still be possible
to substitute section 27 in the terms of the draft, because the
substitution would be with a view to removing burdens, and incidental
and consequential provision following on the changes required
to remove the burdens. The fact that the drafting technique used
would be substitution rather than piecemeal amendment would not
make a difference.
The issue is whether the inclusion in section 1(1)
of the 2001 Act of the power to make provision with a view to
re-enacting provision necessarily reduces what would otherwise
be the scope of the power to remove burdens. If so the power to
remove burdens is only a power to make piecemeal amendments, and
any restatement of existing drafting as part of the removal of
burdens requires the minister to exercise of the power to re-enact
provision. It is clear that the test of proportionality will not
be attracted unless the minister is required to rely on the power
to re-enact, rather than the power to remove burdens. If it were
possible to rely on either power in a particular case there would
be no need to rely on power to re-enact.
We think it is arguable that section 1(1)(b) is concerned
with re-enactment of provision imposing burdens where substantial
restatement of existing provisions is undertaken as part of the
consolidation of existing legislation, where the power to make
incidental and consequential provision would not be sufficient
to cover the re-enactment in question. We accept that this view
does produce a grey area, and that there is force in the contrary
argument. Because the 2001 Act includes a power to re-enact provision
the power to remove burdens does not include the power to restate
any provision which imposes new burdens as part of the exercise
of removing burdens. The power is confined to removing burdens
by piecemeal amendment. For the purposes of this order we are
prepared to proceed on this basis.
We therefore accept that the following existing provisions
imposing burdens in section 27 are being re-enacted.
The aim of current section 27(3) seems to us to be
to enable the terms of a management agreement to be regulated
by the Secretary of State. Although no regulations have ever been
made, the requirement to include any prescribed provisions in
an agreement could arguably be considered a burden within the
meaning of section 2(1) of the 2002 Act. On that basis, new subsections
(3) and (4) would re-enact provision imposing the burden in respect
of agreements under subsection (1).
The current requirement for the approval of the Secretary
of State to the making of an agreement under subsection (1) is
a burden within the meaning of section 2(1) of the 2002 Act. Subsection
(6) of the new section 27 re-enacts the provision imposing that
burden.
Subsection (6) of the current section 27 enables
the Secretary of State to prescribe which functions are not "management
functions" for the purposes of a management agreement under
subsection (1). Although no regulations have ever been made, the
functions which can be the subject of a management agreement are,
potentially, restricted or limited and the provision may be said
to impose a burden on authorities. Subsection (15) of the new
section 27 re-enacts this provision and so the potential burden.
The Department considers that these burdens are proportionate
to the benefit expected to result from their enactment for reasons
similar to those given in the answer to Q10. The overriding reason
is to enable the Secretary of State to exercise some degree of
control in the public interest to any delegation of housing management
functions under new section 27(1). The current burden and the
benefits deriving from the proposed changes were considered quite
extensively in the Explanatory Document at Chapters 3 and 6. The
requirement for approvals enables the Secretary of State to ensure
that, among other things, tenants rights have been maintained
and that they have been consulted in line with his guidance on
these matters. It also enables him to take a view on the value
for money of any proposal and the appropriateness of what is being
proposed. This is particularly his concern where authorities bring
forward proposals for ALMOs and PFI arrangements.
The Secretary of State's powers to make regulations
about the terms of an agreement under subsection (1) and what
may not to be included as "management functions" are
reserve powers to be exercised in the public interest if required
to assist the effective and efficient operation of the powers
to delegate such functions or to implement his policy on the use
of those powers. No regulations have been made under the corresponding
powers in the current section 27 and the Secretary of State has
no plans to do so as part of the proposals in the draft order.
It is for these reasons that the burdens are considered
to be proportionate to the benefits, both potential and real.
Q6 Please explain the intended effect of the
proposed wording of subsections (13) and (14), and how it has
that effect.
A6 The Department would like to apologise for
any lack of clarity in the Explanatory Document. It agrees with
the Committee's views on the effect of subsections (13) and (14)
set out in paragraphs 12 to 14 of the Committee's letter. This
is in line with the explanation of section 72(2) and (3) of the
Deregulation and Contracting Out Act 1994 given by the responsible
Minister in the House of Lords during the Committee stage of that
Bill[60].
The Department considers that this will provide the same degree
of protection to third parties as the words "as agent".
Q7 Please explain what effect the use of this
proposed wording would have as opposed to retaining the old wording,
i.e. how the proposed new sections are intended,
in practice, to divide responsibilities and liabilities between
local authorities and managers.
A7 Under the proposed subsection (13) the housing
authority remains accountable and legally liable for the acts
and omissions of a manager just as they are accountable and legally
liable for acts and omissions of their officials.
The proposed subsection (14) only removes the liability
of the authority where the delegated manager is liable for a criminal
action or where, under the management agreement, in accordance
with the ordinary rules of contract, the manager is to be responsible,
as between itself and the authority, for any act or omission.
The management agreement will be made on the basis
of the general principles of agency if the words "as agent"
are used in section 27. In housing PFI it is the intention that
the "Special Purpose Vehicle" ("SPV") will
be liable for most of the risks arising from the exercise of the
delegated functions instead of the authority bearing these. The
words "as agent" in this context will not convey the
meaning intended. Also in housing PFI there will often be a main
agreement with further agreements made by the manager and various
sub-contractors to exercise some or all of the housing management
functions. The usual rule of agency is that the contracts should
be undertaken on the principal's behalf. This would be difficult
to apply where there are various different sub-agreements. By
virtue of subsection (14), the SPV and any sub-contractors may
make provision in a management agreement for their responsibilities
as between themselves and, if the housing authority joins in such
an agreement, as respects the authority
The interests of third parties will not be affected
by the removal of the words "as agent" as an equivalent
protection is provided by subsection (13).
Q8 In the light of this explanation and of
the further consideration the Department has given to the points
made by Anthony Collins Solicitors, please indicate whether, and
explain why, it is still the Department's view that, in respect
of local authorities which do not enter into the proposed new
housing management arrangements, no necessary protection would
be removed by the excision from section 27 of the specific provisions
for delegation to agents.
A8 Section 27 of the 1985 Act derives from an
early, and rare, power enabling local authorities to delegate
(or contract out) statutory functions to external providers. The
original section 27 (consolidated from Schedule 20 to the Housing
Act 1980) permitted agreements only with housing co-operatives.
It made no reference to a co-operative acting "as agent"
of an authority. The current section 27 was substituted by section
10 of the Housing Act 1986 and the inclusion of the words "as
agent" was intended to have the effect summarised in paragraph
9 of the Committee's letter.
Through Part 2 of the Deregulation and Contracting
Out Act 1994, Parliament conferred on Ministers the power, by
order, to authorise authorities to contract out (or delegate)
other functions. Section 72 of that Act provided for the general
effect of a contracting out by virtue of an order under section
70 of that Act.
The Department took the view, supported by many of
the consultees, that the creation of a statutory agency was not
always suitable for some of the arrangements currently proposed
to be made under section 27 or which might be proposed in the
future. As there is no difference in substance between a contracting
out under section 27 and one authorised by an order under section
70 of the 1994 Act, it was thought appropriate to remove the statutory
agency and align the earlier provision with the later, more modern
formulation by including new subsections (13) and (14) in section
27.
Subsection (13) expressly preserves an authority's
accountability to third parties for the exercise of management
functions by a manager which was one of the more important reasons
for the creation in 1986 of a statutory agency. Subsection (14)(a)
expressly allows the agreement between the parties to deal with
rights and duties as between themselves. If they so wished, the
parties to a more traditional housing management agreement could
agree to the creation of a contractual agency. Whatever they decide
to do, in the case of more traditional agreements, there is no
difference in substance as respects an authority's accountability
to third parties between the statutory agency and subsection (13).
On that basis, the Department considers that no necessary protection
is removed by these changes.
Q9 Please confirm whether or not the Minister
considers that the proposal would impose any new burdens.
A9 As stated in the answer to Q5, the Department
originally considered that the primary aim of the draft order
was the removal of a burden rather than the creation of new ones.
The new provision in the order for conditions or requirements
associated with the new power to sub-delegate were thought to
form an integral part of an overall removal or reduction of the
existing restriction on sub-delegation. The Department moved towards
an acknowledgement that the changes did impose some new burdens
but these were not thought significant. The Department accepts
that the Explanatory Document should have included material on
"new burdens" setting out the proportionality of any
benefit expected to result from their creation and the Minister's
opinion as required by section 3(2) of the 2002 Act; and that
the draft order should have included recitals reflecting those
opinions. It apologises to the Committee for its failure to do
so.
It is considered that the following provisions of
the draft order have the effect of imposing new burdens on either
local housing authorities or managers:
Subsection (5)(a): the requirement that
the local housing authority should consent to a sub-delegation
under this paragraph
Subsection (6): the requirement for the
Secretary of State's approval to the making of a sub-agreement
and to the variation of provision in a head or sub-agreement in
the specified circumstances (currently there is no express power
to vary an agreement approved by the Secretary of State)
Subsections (7) to (10): although the
overall effect of these provisions is intended to relieve authorities
and managers from the requirement to seek approval to a sub-agreement
or variation immediately in accordance with subsection (6), they
are each part of the restriction or condition on the power to
make sub-agreements or variations. By virtue, in particular, of
the requirement that an initial moratorium period should not exceed
6 months, authorities and managers are required to pay very careful
heed to the existence and duration of a moratorium period and
to an implied requirement to apply for an extension of a period
if they are not in a position to submit a sub-agreement or variation
for approval before the end of a current period.
Subsection (13): arguably this statement
of a local housing authority's statutory accountability for things
done or omitted in the exercise of functions is a "burden"
in the widest sense
The requirement in subsection (3) to set out, in
a sub-agreement, the terms on which functions are exercisable
by a manager could, arguably, be considered a new burden but seems
to us merely to state the requirements of the general law of contract.
The terms of a sub-agreement are not subject to regulation under
subsection (4). On balance, we consider that a new burden is not
created but will consider carefully anything the Committee may
say about this and any other matters in its Report.
Q10 If the Minister does believe that it would
do so, please state how any such burdens are proportionate to
the benefits which are expected to result from their creation.
Please also explain why the Minister is of the opinion:
(a) that the provisions of the order, taken
as a whole, strike a fair balance between the public interest
and the interests of the persons affected by the burden being
created, and
(b) that the extent to which the order removes
or reduces one or more burdens, or has other beneficial effects
for persons affected by the burdens imposed by the existing law,
makes it desirable for the order to be made.
A10 Considering the burdens identified in the
answer to Q9, we consider the following benefits will apply as
a result of the changes being proposed.
Subsection (5)(a): the requirement that
the local housing authority should consent to a sub-delegation
under this paragraph. The benefit in respect of this requirement
is that it ensures that there are adequate controls over who is
appointed as a sub-delegated housing manager. This is something
that we regard as essential to protect the propriety and suitability
of such arrangements. In our view the burden is proportionate
to the benefits expected to result from it of protecting the value
for money and probity of any proposals.
Subsection (6): the requirement for the
Secretary of State's approval to the making of a sub-agreement
and to the variation of provision in a head or sub-agreement in
the specified circumstance. As with the above, we see the Secretary
of State's approval as being an essential control in respect of
ensuring such things as that tenants rights are protected, that
they are consulted on any changes, that a proposal is in respect
of Best Value, that it reflects the authority's housing strategy,
is sustainable etc. Again, the burden is considered proportionate
to the expected benefits in ensuring these principles are maintained.
Subsections (7) to (10): the limitations
on the moratorium period. As explained in the answer to Q9, these
subsections have the effect of requiring authorities and managers
to pay careful attention to the existence and duration of a moratorium
period. There is also an implied requirement to apply for an extension
of a period if they are not in a position to submit a sub-agreement
or variation for approval before the end of a current period.
The burdens again provide the Secretary of State with some degree
of control enabling him to have some influence on periods where
his approval has not been given. The benefits from this are that
while enabling managers greater flexibility in making alternative
arrangements there are still pressures on them to limit the amount
of time they take in appointing a new sub-delegated manager and
to ensure tenants' rights to consultation are complied with. We
believe that there should be some constraints in these circumstances
and therefore that the burden is proportionate to the expected
benefits.
Subsection (13): arguably this statement
of a local housing authority's statutory accountability for things
done or omitted in the exercise of functions is a "burden"
in the widest sense. The benefit of the burden is that the local
housing authority's responsibilities are defined and are clear
to all those involved. Defining the liabilities in this way ensures
that third party rights, especially those of tenants, are protected.
We likewise consider that any burden is proportionate to these
expected benefits.
(a) In considering the 'fair balance' of the
proposals, the public interest is in the improvements to local
authority services that will be possible if the draft order is
approved and made. Any such improvements would reduce the burden
on local taxpayers and Central Government funding and/or better
quality service provision. One of the major benefits would be
to local housing authorities in that the changes would enable
them to have greater flexibility in the kind of agreements they
can enter into and in the kind of potential managers. If the draft
order is approved and made, they would have the opportunity of
considering proposals which include sub-contracting and which
may offer better value for money than the limited types of arrangements
they can consider at present. In particular they would be able
to consider proposals which provide investment opportunities in
respect of the housing stock as well as improved housing management
services. Tenants would also benefit in respect of more effective
service delivery, better value for money for the rent they pay
and better quality services. There are likely to be wider benefits
where a contractor is providing additional services. These may
include schemes for refurbished and better maintained properties,
improved estate environment, reductions in crime, work and training
schemes for residents etc.
The burdens would affect local authorities and housing
managers in having to apply for consents and approvals etc. In
this respect we have tried to reduce the potential burdens by
taking into account responses to the consultation paper and making
amendments accordingly such as enabling the Secretary of State
to identify the circumstances in which he wishes to see further
requests for approvals about changes to agreements, rather than
making every change subject to further approval (see Chapter 12
paragraphs 12.13 to 12.15 of the Explanatory Document). In addition,
throughout devising the proposals we have sought to apply the
principles of the existing section 27 rather than impose arbitrary
or unnecessary constraints. Consequently those involved in the
housing management sector and who would be affected by the changes
and are familiar with the current requirements of section 27 would
not be unduly surprised at the burdens being proposed. Taking
all of the above into account, we therefore consider that the
provisions of the order, taken as a whole, would strike a fair
balance between the public interest and the interests of those
affected by the burdens being created.
(b) In respect of 'desirability', the proposal
seeks to remove the burden on local housing authorities and managers
deriving from the limitations on the power to sub-delegate housing
management functions. As things stand under current arrangements
they are limited as to who they can appoint since they can only
have an agreement with a person who is going to undertake the
work directly. They are precluded from entering into agreements
which may offer better value for money through sub-contracting
arrangements. This is particularly true in situations where the
housing management function may be a part of a larger proposal
encompassing things additional to housing management such estate
regeneration or property refurbishment. The immediate benefits
to local housing authorities would be to those authorities proposing
to enter into PFI contracts where they will be enabled to meet
their Decent Home and Best Value targets. Considering the extent
to which the order would remove that burden and the beneficial
effects identified here for authorities and managers that would
be possible from the proposed changes it is considered desirable
for the order, if approved as a draft, to be made.
Q11 Please list the consultees whose responses
were received after the closing date.
A11 See Annex C.
Q12 Please indicate why it was thought appropriate
to confine the thrust of the consultation exercise to those bodies
and organizations engaged in housing PFI projects, and not the
whole of the local authority housing sector.
A12 As will be seen by the list of consultees,
we were at pains to widen the consultation rather than limiting
it to just those involved in PFI. As a consequence we consulted
all those in the local authority housing sector as far as we were
able. We additionally used the Department's mailing lists for
housing issues and as a result we in fact consulted more widely
than is apparent from those identified in the consultation paper.
We consulted all local authorities and their
representative bodies, the Local Government Association and Welsh
Local Government Association. We consulted the National Housing
Federation and the Welsh Federation of Housing Associations who
represent all Registered Social Landlords (RSLs) and housing
associations as well as the 200 largest RSLs in the country, not
just those involved in PFI. We consulted tenants representative
organisations, the Tenants and Residents Organisation of England,
the Tenant Management Organisation Federation, the Association
of Tenant Involvement and Control as well as tenant advisors groups
and leaseholder groups regardless of whether they were currently
involved in PFI or not. We also included three leading tenant
federations, Plymouth Federation of Tenants and Residents' Associations,
Bradford Tenants' Associations and Bristol Tenants' Federation
- none of whom are involved in PFI - as well as Shelter and the
Housing Centre Trust. We also discussed the consultation with
the Tenant Participation Advisory Service who agreed to send out
copies of the consultation paper to their Consultative Forum and
who also advertised it on their website.
We are unaware of tenants' groups who have specifically
opposed the establishment of Arms' Length Management Organisations
and consequently did not target them specifically[61].
However, as identified above, we consulted tenant representative
organisations who represent any such groups. As will be seen from
Annex G of the Explanatory Document, the Minister Tony McNulty
MP responded to an article in the Big Issue on the Housing Management
consultation paper and invited responses to it across the board
including from Mark Weeks of Defend Council Housing.
We also included those organisations who were currently
involved in housing PFI projects as we felt that they may be in
a position to offer informed advice or suggestions for improvement
on what we were proposing.
Q13 Please explain why it was apparently not
felt necessary to seek full consultation with representatives
of all staff likely to be affected by the proposals.
A13 We included the Trades Union Congress in
our initial mailing. Upon further consideration and advice from
the TUC we then specifically consulted UNISON, the GMB, the Transport
and General Workers Union, Amicus and UCATT.
Q14 Please indicate what effects the Department
believes the proposals will have on local authority staff who
may be transferred to employment with PFI contractors.
A14 The position of local authority staff transferred
to employment with PFI contractors is protected by the Transfer
of Undertakings (Protection of Employment) Regulations 1981 ("TUPE").
Previous guidance on these issues was issued by Cabinet Office
under the title "Better Quality Services - A Handbook on
creating public/private partnerships through market testing contracting-out"
in 1998. Government has issued more recent guidance on staff transferring
in these circumstances in the publication 'Statement of Practice
on Staff Transfers in the Public Sector' issued by the Cabinet
Office on 7 January 2000. Staff transfer matters will also be
covered in the Department's Local Government Bill which was introduced
to Parliament on 25 November this year and will cover such things
as staff pensions.
Q15 Please supply to the Committee the Department's
views on the "pertinent points" made by Unison in its
response to consultation.
A15 The "pertinent points" in respect
of the UNISON response were the general reference to workforce
issues. In the current housing PFI projects we have concentrated
very much on ensuring that they have tenants' support, that tenants
are involved throughout the process as much as they want to be
in the drawing up of the contract requirements and specifications,
in evaluating bids etc. and that they will continue to be involved
once the contract is let. The response served to remind us of
the wider workforce issues.
Q16 Please indicate how the Department envisages
the operation in practice of the requirement for tenant consultation.
A16 Annex F to the Explanatory Document makes
clear how the Department expects tenants to be involved in and
consulted on these types of contract. As was stated at the presentation
to the Committee, we see consultation as part of a continuum where
there is a constant exchange between tenants and the authority
or the contractor (if this function has been delegated). As the
guidance suggests, consultation can be in a number of forms and
it is really up to those involved to find the format that works
best for them. Where there is a proposal to change a housing manager
we would expect the tenants to be informed at an early stage.
Where consultation was a delegated function the SPV would have
to consult tenants about to appointment of the new manager and
take their views into consideration. The SPV would then have to
forward its proposal together with details of the consultation
with tenants (how the tenants had been consulted, the information
given, questions asked etc., details of any comments from tenants)
to the authority, which would then have to apply for approval
from the Secretary of State. If the Secretary of State was content
he would give the approval and the authority would give its consent
in writing to the SPV (a contractual requirement).
Q17 Please clarify the relationship between
the statutory requirement for consultation under section 105 of
the 1985 Act and the envisaged discretionary requirements for
consultation to be made by the Secretary of State/National Assembly
for Wales under the proposal.
A17 Section 105 of the Housing Act 1985 contains
the statutory requirement to consult tenants on matters of housing
management. Housing management is defined in the section as relating
to the management, maintenance, improvement or demolition of properties,
or the provision of services and amenities in connection with
the properties but excluding rent and other charges. It further
defines housing management as being those things which in the
landlord's opinion represent new maintenance, improvement or demolition
programmes or changes in practice or policy of the authority likely
to affect tenants. The section requires the landlord to publish
details of the arrangements it makes and make them available for
inspection.
It is likely that the making of any new management
agreement will come under section 105. However, guidance issued
in respect of section 27, both in the past and currently, seeks
to involve tenants much more than as defined in section 105, and
also at a much earlier stage. It also provides more detail about
how this should be done. A copy of the current guidance is at
Annex F to the Explanatory Document. It makes clear that tenants
should be involved throughout any procurement process, not just
about making details available for inspection as section 105 requires.
The section 27 guidance is much more specific and detailed about
involving tenants and is not confined to consultation.
Q18 Please explain the grounds for the Department's
assessment that no risks are associated with the changes arising
from the proposal.
A18 The guidance 'Good Policy Making: A Guide
to Regulatory Impact Assessment' says that 'risk assessment involves
identifying the hazard or situation which ¼¼
leads to harm or detriment¼'
It is not apparent to us that there are any hazards or situations
leading to harm or detriment arising out of the proposals for
changes to section 27. There are of course risks in housing PFI
projects not being successful, but there are suitable contract
clauses in place which will offset this risk where for instance
the contractor terminates the contract or which will invoke financial
penalties for poor performance etc.
Where PFI and other investment arrangements are concerned
risk is an important factor because of the emphasis placed on
the accounting treatment of the project. In accordance with Treasury
guidelines, risks must be clearly identified and allocated to
the party best able to manage them. There are risks which the
private sector will take on and some risks which the authority
will retain but the emphasis is on managing them. However, our
concern was with considering the risks associated with the delegation
of housing management and not an assessment of the risks of PFI.
Q19 Please indicate whether the Department
believes that the proposed changes have wider applications, and
if so, what they might be.
A19 As we stated in the Explanatory Document
and the consultation paper, we believe that the proposed changes
may have a wider application in that they may enable authorities
to enter into new types of contract for management and other services
where sub-contracting is envisaged, where these may provide better
value for money for tenants and where they may enable the authority
to achieve its Best Value and other targets. Consequently the
proposals focus primarily on enabling the sub-delegation of the
housing management function. This will allow PFI schemes to proceed
but may also enable other types of contract for this work although
we do not have any specific arrangements in mind. In our view
it would be unfair to restrict authorities by making the proposals
increasing flexibility and lifting burdens etc.) apply only to
PFI arrangements and indeed there seems to be no reason to limit
them.
Q20 Please supply the Department's assessment
of the implications of the proposals for Arm's Length Management
Organisations (ALMOs), Tenant Management Organisations (TMOs),
Registered Tenants Associations (RTAs) and local authority housing
co-operatives.
A20 Our assessment of the implications of the
proposals for Arms Length Management Organisations (ALMOs) are
that the changes will be the same as for any other housing manager
in that they will also have more flexibility in sub-delegating
their housing management functions should they wish to and should
the authority consent to, and the Secretary of State approve,
the arrangement. However, at this point in time we do not envisage
circumstances in which an ALMO will wish, or be permitted by its
parent authority, to delegate further its responsibilities for
delivering the authority's housing management functions.
Our assessment of the implications of the proposals
for Tenant Management Organisations (TMOs) is that they will not
have an adverse impact on the development of new TMOs. In line
with the Secretary of State's commitment to ensure that tenants
rights are not affected in a PFI or similar arrangement, Council
tenants will continue to be able to exercise the right to manage
their homes whether their local authority landlord enters into
a PFI arrangement or not. This right is statutory and derives
from regulations made by the Secretary of State under section
27AB of the Housing Act 1985[62].
All "non TMO" management agreements under section 27
of that Act are required to contain sufficient flexibility to
enable the establishment of new TMOs and PFI management agreements
will be no exception to this. A copy of the guidance on these
matters is at Annex B.
The proposals will have benefits for TMOs in that
they will allow them to consider the benefits of sub-delegating
housing management functions themselves. However, we consider
that it is unlikely that many TMOs will choose to do so.
TMOs will be able to agree the nature of their relationship
with their Council landlord and the extent of their respective
liabilities as between themselves and set these out in a management
agreement. Some may wish to continue to act as "managing
agents" under the agreement, even if the provision in section
27(1) creating a statutory agency is omitted.
Our assessment of the position of existing TMOs is
that they also will not be adversely affected by these proposals.
Given that existing TMOs may be operating in areas covered by
PFI proposals (one of our current local authority housing projects
- Rochdale - includes such an arrangement) we consider that they
have a special need for consultation at an early stage. In these
circumstances, in evaluating requests to proceed with such projects
the Department sees it as essential that the authority demonstrates
the TMO support for the scheme at that time. The Department's
guidance 'Tenant Involvement in Housing Management: Supplementary
Guidance for Local Authorities entering into long term partnering
arrangements' (Annex F to the Explanatory Document) will be revised
to include a specific reference to the consultation needs of established
TMOs.
As regards to Registered Tenants Associations (RTAs)
we are not clear who the Committee mean by these. If the Committee
is referring to tenants associations generally then these groups
do not undertake delegated housing management functions and the
RRO will not have a direct impact on their operation or an impact
on the establishment of new tenant associations. Tenant associations
will, however, have a role in terms of the consultation and monitoring
arrangements set up for PFI schemes.
It is also unclear exactly who the Committee means
by "Local Authority Housing Co-operatives". If they
are referring to home ownership co-operatives where tenants have
taken on the ownership of their homes as well as the housing management
functions relating to their homes, then the RRO will not be relevant
because it relates purely to situations where the housing management
functions are being delegated. If they are referring to tenants'
groups that have set themselves up as "management co-operatives"
then they will be in the same position as Tenant Management Organisations
above.
Q21 Please indicate whether the Department
is satisfied that all necessary protections will be maintained
across the entirety of the housing sector presently governed by
section 27 of the 1985 Act if the changes are made.
A21 The Department works very closely with authorities
who propose to enter into new types of agreements with the private
sector. In respect of PFI proposals, the Department has worked
closely with those authorities undertaking these projects and
have required them to submit their proposals, contract documents,
intentions as regards tenants etc. for scrutiny at various stages
in the procurement process. Likewise the Department has worked
closely with those authorities proposing to set up ALMO arrangements.
The Department also looks closely (and will continue to do so)
at any requests for the Secretary of State's approval to ensure
that all the necessary protections are maintained. In addition,
District Auditors are familiar with the requirements for the Secretary
of State to give approval for any housing management delegations
and will look to ensure that the regulations have been complied
with when they audit an authority's accounts. The Department is
therefore satisfied that the necessary protections will be maintained.
Annex A
SECTION 27 PROPOSED REQUIREMENTS AND DISCRETIONARY
REQUIREMENTS
The proposals under the Order are identified in the
following table showing those which are existing and those which
are new elements:
Proposal |
Existing
|
New
|
An authority may agree that another person may exercise the authority's housing management functions through a management agreement.
|
Yes |
|
The person or 'manager' may agree to a further person undertaking the housing management functions through a sub-agreement, subject to the authority's consent.
|
|
Yes
|
The housing management functions may be delegated within the management body to a committee, officer or employee etc.
|
Yes |
|
The Secretary of State's approval will be required before any agreement or sub-agreement is signed.
|
Yes |
Yes, in respect of sub-agreements
|
His approval will also be required for any proposed variations to an agreement or sub-agreement which the Secretary of State identifies when giving his initial approval to an agreement.
|
|
Yes
|
In addition, he may also indicate circumstances where his approval to a sub-agreement is not required.
|
|
Yes
|
The Secretary of State may identify a moratorium period of not more than six months during which time his approval will not be required for an agreement.
|
|
Yes
|
After the moratorium period has elapsed his approval must be given for any agreement to be valid or he may extend the moratorium period.
|
|
Yes
|
The Secretary of State may give approval to an agreement or variation to an agreement either as a general blanket approval to all authorities, approval to a particular authority or approval to types of local authority.
|
Yes |
|
His approval may be in terms of a particular case or description of a case and may be with or without conditions.
|
Yes |
|
Anything done by the appointed manager may be treated as having been done by or not done by or in respect of the authority except where the actions are in respect of the management functions in the agreement and in cases of criminal proceedings brought against the manager.
|
|
Yes
|
The Secretary of State may make regulations to identify those functions which he considers are not housing management functions, otherwise they may include those functions which are the authority's statutory duty to provide.
|
Yes |
|
Any regulations made in this respect will be through statutory instruments and may be different for different cases or types of cases and for different geographical areas and may contain provisions which are incidental, supplementary or transitional.
|
Yes |
|
The discretionary elements will be those deriving
directly from the order and also those things that the Secretary
of State takes into account when considering applications for
approval and relate to the implementation of section 27. As a
result of the proposal he will have discretion in:
i. the giving of an approval;
ii. instances where he will wish to give approval
to variations to agreements;
iii. circumstances where his approval to a sub-agreement
is not required;
iv. circumstances where a moratorium period will
apply.
In considering an application, the Secretary of State
will use his discretion about what he wishes to be informed about
in order to reach a decision on giving approval. Since these are
discretionary they may be subject to change but nevertheless the
Secretary of State intends to issue guidance about what he wishes
to be informed about in these circumstances in respect of PFI
and any similar arrangements. These things are likely to be as
follows:
v. the identity of the person with whom
the management agreement is to be made;
vi. the identity of the person or persons who
will undertake the management functions if the intention is to
have sub-agreements;
vii. where sub-agreements are proposed, the interaction
of these with the management agreement (details of which should
be within the management agreement);
viii. details of the consultation undertaken
with tenants on the appointment of a housing manager and the management
agreements and the results of the consultation;
ix. the implications of any proposed variations
to a management agreement or sub-agreement as identified in the
Secretary of State's approval;
x. details of the consultation undertaken
with tenants on any proposed variations to a management agreement
or sub-agreement as identified in the Secretary of State's approval
and the results of the consultation;
xi. the procurement of the initial management
agreement, compliance with EC procurement rules where appropriate
and tenant involvement in the process;
xii. compliance with any Departmental or Government
guidance in respect of these arrangements.
Annex B
EXTRACT FROM 'STANDARDISATION GUIDANCE FOR LOCAL
AUTHORITY HOUSING PROJECTS'
11.3 Right to Manage
11.3.1 Background Legislation
(a) The tenants of an Authority have the right
conferred upon them[63]
to require that the Authority enter into a management agreement
with a tenant management organisation ("TMO"). The notice
exercising the right to manage may only be served by a TMO which
is a representative and accountable organisation serving a defined
geographical area with a membership of at least 20 percent of
both secure tenants and other tenants of the Authority in its
defined area[64].
(b) A right to manage notice must relate to not
less than 25 dwelling houses let under secure tenancies[65].
The management agreement requested by the TMO may include one
or more housing management functions of the Authority[66].
If the notice is valid and accepted by the Authority, an "initial
feasibility" study followed by a "full feasibility study"
is undertaken to determine whether or not a TMO will enter into
a management agreement with the Authority. During this time the
TMO undergoes an intense period of training and development. If
the "full feasibility study" determines that it is reasonable
to proceed with the management agreement then, following a positive
ballot of tenants the Authority is required to enter into a management
agreement[67].
The whole process can take in the region of two years to complete.
(c) Regulation 8 of the 1994 Regulations requires
the inclusion of a break clause in all housing management agreements
entered into by an Authority to enable tenants to exercise the
right to manage. The definition of management agreement[68]
is sufficiently broad to cover a PFI contract and such a break
clause should be inserted in the Contract. The effect of the break
clause will be to allow the TMO to take on the range of functions
identified in the management agreement with the Authority.
Where an existing TMO(s) provides services to accommodation
which is intended to be the subject of the Contract, the Authority
should give careful consideration to the relationship between
the management agreement and the Contract before determining the
boundaries of the accommodation to be included within the Contract.
11.3.2 Change Mechanism
(a) It is conceivable that the right to manage
may be exercised in relation to the whole or part of the units
of accommodation which are the subject of the Contract at any
time during the Contract period.
(b) However, the Contract should contain a change
mechanism to deal with adjustments to the Unitary Charge following
the exercise of the right to manage. As mentioned previously,
the right to manage can be exercised in relation to 25 or more
dwellings and in relation to which of the Authority's functions
as the notice exercising the right shall specify. As a consequence
therefore, theoretically the right can be exercised in relation
to as few or as many functions and units of accommodation as the
TMO specifies and the Authority (following the feasibility studies)
accepts.
(c) The consequences of the grant of a management
agreement by the Authority to a TMO should be to exclude the units
of accommodation from the Contract in relation to those parts
of the service covered by the management agreement.
(d) It is recommended that the General Guidance[69]
relating to Authority Changes should be applied in relation to
the right to manage. It is unlikely, although possible, for the
right to manage to be exercised before or during the construction
or development phase. In which case the recommendations in relation
to Authority Changes and Compensation Events as they apply to
the right to buy should equally apply to the right to manage.
(e) Where the right to manage is exercised during
the Service Period the recommendations in relation to Authority
Changes or the same as those applied to the right to buy[70].
(f) When the management agreement with the TMO
expires, the Authority may wish to include the services formerly
provided by the TMO with the Contract. The consequences of this
will again be an Authority Change.
(g) As with right to buy sales, the Authority
will continue to be in receipt of PFI credits notwithstanding
the occurrence of the exercise of the right to manage. However,
the Authority will, unlike with the right to buy, continue to
receive rental income to fund the housing revenue account and
in turn any part of the Unitary Charge not funded from PFI credits.
On the other hand, the Authority will also pay allowances to the
TMO to cover its management activities. Furthermore, as there
will be no disposal there will be no capital receipt for the Authority.
(h) The exclusion of the dwellings from the Contract
in relation to those parts of the Service covered by the management
agreement is the only feasible course of action open to the Authority
and the Contractor. The Contractor should not be expected to take
the risk of the performance of the TMO by way of the acceptance
of the TMO as an Operating Sub-Contractor. There will also be
an issue on the interface between the TMO and the Contractor in
relation to the respective parts of the Service provided by each.
In the circumstances, it is quite reasonable for the Authority
to accept the risk of interruption to the Service and/or loss
of damage caused by the TMO. These would be by way of a Compensation
Event during the construction and refurbishment phase and provisions
of similar effect during the Service Period. The risk and cost
of damage to the Assets should also fall to the Authority by way
of indemnity[71]
and responsibility for insurance excesses and deductibles and
increased premia[72].
The Contractor would also need to be exonerated from deductions
for inadequate performance.
11.3.3 Termination Threshold
As in the case of the voluntary withdrawal of units
of accommodation and the loss of units through right to buy sales,
the reduction of the number of units in the Contract, through
the exercise of the right to manage, may reduce the number of
units of accommodation to a threshold beyond which the Contract
is not sustainable either in financial or management terms. As
a consequence, the same solution will prevail[73],
namely voluntary termination with compensation payable accordingly.
Annex C
Details of late respondents
4Ps
Addleshaw Booth and Co
Anthony Collins Solicitors
Brighton & Hove Council Leaseholders Independent
Forum
Camden Leaseholders Forum
Greenwich Council
LB Camden
LB Islington, Housing PFI Project Team
Local Government Association
London Borough of Lewisham
London Borough of Southwark
Manchester Tenants
Medway Council
Neath Port Talbot County Borough Council
Principality Building Society
Royal Institution of Chartered Surveyors
Torfaen County Borough
Wrexham County Borough Council
60 "The clause
establishes an important principle in respect of contracting out.
It establishes, as the noble Lord, Lord Williams, correctly understands,
that the Minister, office-holder or local authority will be accountable
and legally liable for the acts and omissions of the contractor,
when they are employed to undertake one of their functions, just
as they are accountable and legally liable for acts and omissions
of their officials. Our policy is that the public interest in
general, and the interests of third parties in particular should
not be affected by virtue of a function being carried out by a
contractor. Lines of accountability and means of redress will
remain the same. Third parties will continue to have redress
in respect of the exercise of the function" (Lord Strathclyde,
HL Hansard, 21 July 1994, column 391).
Back
61
In respect of Milton Keynes, the authority have not as yet made
a formal proposal to set up an ALMO, so we assume any opposition
to doing so is speculative. Back
62
Currently the Housing (Right to Manage) Regulations 1994 (S.I.1994/627). Back
63
By Section 27AB Housing Act 1985 and The Housing (Right to Manage)
Regulations 1994, 1994 SI No 578 ("1998 Regulations") Back
64
See Regulation 1(4) and 2(5) of the 1994 Regulations Back
65
See Regulation 2(1) of the 1994 Regulations Back
66
Section 27 Housing Act 1985 Back
67
See Regulation 4 of the 1994 Regulations Back
68
Section 27 Housing Act 1985 Back
69
See Sections 5.2 and 12.3 of the General Guidance Back
70
See Section 12.3 of the General Guidance and Section B2 Back
71
See Section 23 of the General Guidance Back
72
See Section 24 of the General Guidance Back
73
See Section 11.1.1 Back
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