Local Democracy, Economic Development And Construction Bill [HL] - continued          House of Commons

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374.     There are three parts of the Bill where an impact assessment has been completed. They are Part 1, Chapter 1, the duties relating to promotion of democracy, Part 4, the duty on local authorities to undertake an economic assessment of their area and Part 8, the construction contracts provisions. All other areas of the bill have not completed an impact assessment as they do not incur a cost to the public sector of over £5 million and have no impact on business or the third sector.

375.     Part 1, Chapter 1, duties in relation to the promotion of democracy will have an annual net cost of £22.3 million. This is based on the assumption that the duties will require two employees working in this area and a publicity budget for each county and unitary authority. Each district authority will require 0.5 employees and a publicity budget. There are a number of non-monetised benefits including more effective local co-ordination and promotion of democratic and civic roles.

376.     Part 4, Local authority economic assessment duty, will have an estimated cost of £7.6 million per annum to local authorities which will be funded by central government. However, the legislation is expected to produce a net benefit of £22.8 million over the course of 9 years. We expect that the evidence that will be provided to local authorities through the implementation of the duty will enable them to more effectively deliver services in relation to economic development leading to estimated efficiency savings of 1% of investment in economic development.

377.     Part 8, Construction contracts, there will be no adverse effect on business as a result of the amendments. On the contrary, the Government believes that there will be significant savings and benefits as follows:

  • Improvements to the adjudication framework should save the construction industry an estimated £1 million per annum in aggregate or £600 on average per adjudication (3% of the total cost of the adjudication);

  • the deregulatory amendments to the “payment notice” requirements in the legislation should save the construction industry approximately £5.8 million in administration costs per annum, for example by removing the requirement that payment notices should be served where the contract already provides for notices from third parties i.e. payment certificates (see the references to “a specified person” at new sections 110A and 110B inserted into the Housing Grants, Construction and Regeneration Act 1996 by clause 137); and

  • improvements to the payment framework to ensure contracts create clear and timely entitlements to interim payment should save an estimated 1% - 1.5% on the average project - reflected across the construction sector in England and Wales, this represents £1 billion - 1.5 billion.

This impact assessment can be accessed on the website of the Department for Business, Enterprise and Regulatory Reform:

378.     All of the above impact assessments are available online at and hard copies are also available to Members in the Vote Office.


379.     Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). Hazel Blears, Secretary of State for Communities and Local Government has made the following statement:

    “In my view the provisions of the Local Democracy, Economic Development and Construction Bill [HL] are compatible with the Convention rights”.

380.     The Local Democracy, Economic Development and Construction Bill engages Article 1 of the First Protocol (“A1P1”) of the European Convention of Human Rights and Article 8 ECHR but does not breach them.

Audit of entities connected with local authorities

381.     Two provisions in Chapter 2 of Part 2 of the Bill confer powers for auditors of local authority entities to require the production of documents. Clause 40 applies statutory provisions from the Companies Act 2006 and the Friendly and Industrial and Provident Societies Act 1968 which enable auditors to require the production of documents necessary for the carrying out of the statutory audit of the entity’s accounts. Clause 43(1) confers a right of access to documents necessary for the purpose of the exercise of the function of making a report in the public interest. Clause 47 then enables the audit authority also to require the entity to produce to it any document which the auditor was able to access.

382.     Article 8 ECHR confers a right to respect for family life, the home and correspondence. Article 8(2) provides that there shall be no interference by a public authority with the exercise of that right except as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.

383.     It might be said that the exercise of an auditor’s right to require information and explanation could infringe this right - for example as regards the right to respect for the privacy of correspondence. The Government considers that the extent to which there is any such infringement is justifiable under Article 8(2) as being in accordance with the law, in pursuit of one of the legitimate aims specified in the Article - namely the economic well-being of the country - by ensuring that accounts are effectively audited. The provision is necessary in a democratic society to ensure the accuracy of company accounts and to protect shareholders who rely on the accuracy of auditors’ reports.

384.     Insofar as there is an enhanced right to obtain information from entities connected with local authorities or from individuals, in connection with the production of a report in the public interest, the Government considers that any interference remains proportionate. The aim of the proposals is to apply a level of audit in cases where public money is being administered to some degree by private entities, which is similar to that which applies to local authorities. It is a legitimate aim within the ambit of Article 8(2) to protect the economic well-being of the country, and this is advanced if there is greater certainty that public money is properly and lawfully expended. The enhanced power to obtain information contained in clause 43 applies only in cases where there is a need for that information for the purposes of investigating and reporting on a matter which is in the public interest to be brought to the attention of the public.

385.     The Audit Commission and Attorney General for Wales have the role of ensuring that persons appointed under these provisions maintain proper standards. Those bodies are permitted to access information from entities which have been audited. It would be unlawful for either of the public bodies to make use of any information obtained from any person for any purpose other than to secure the maintenance of proper standards by persons appointed as auditors.

Construction Contracts

386.     Various clauses in Part 8 of the Bill interfere with what the parties may have provided in their contracts regarding payments. For instance, subsection (2) of clause 136 renders ineffective terms in such contracts which make payments to a contractor dependent upon the payer having received a certificate (for example, from an architect) in a superior contract and clause 140 principally provides that the payer is required to pay the amount specified in a “payment notice” (notwithstanding that such amount might not otherwise be the amount that is payable).

387.     In a broad sense, such clauses could be said to engage A1P1 (the right to the peaceful enjoyment of one’s possessions). Any such interference is, in a sense, “neutral”, however — to the extent that one party to the contract is disadvantaged by paying more or receiving less money, the other benefits by receiving or withholding more. To the extent that A1P1 is engaged, it is considered that such interference has a legitimate aim — securing and facilitating “cash flow” in order to mitigate the very real financial hardship suffered by many, particularly smaller, sub-contractors. It is considered that such interference is also proportionate to that aim. For example, a “payment notice” can be met with a counter-notice and the sums in such notices are provisionally payable only — they do not affect what is properly and fundamentally payable as a matter of contract law pursuant to the parties' contract.


388.     Part 1, Chapters 1 and 2 will come into force in relation to England, on a day appointed by the Secretary of State, or in relation to Wales, on a day appointed by the Welsh Ministers.

389.     Part 1, Chapter 3 will come into force on a day appointed by the Secretary of State.

390.     Part 1, Chapter 4, relating to the establishment, assistance and consultation of bodies representing tenants will come into force on the day the Act is passed.

391.     Part 1, Chapters 5 and 6 come into force two months after the Act is passed.

392.     In Part 2, section 30 will come into force on a day appointed by the Secretary of State. Sections 31 and 32 come into force two months after the Act is passed. Chapter 2 will come into force on a day appointed by the Secretary of State, in relation to England, and the Welsh Ministers, in relation to Wales.

393.     In Part 3, clauses 59, 61, 65 and Schedule 3, which make transitional provisions about the establishment of an independent Boundary Committee under Part 3, will come into force the day the Act is passed. All other provisions in Part 3 will come into force on such day as appointed by the Secretary of State by order.

394.     Parts 4, 5 and 6 come into force on a day appointed by the Secretary of State.

395.     Part 7 comes into force two months after the Act is passed.

396.     Part 8 comes into force on a day appointed by the Welsh Minister, in relation to construction contracts which relate to the carrying out of construction operations in Wales and on a day appointed by the Secretary of State for other construction contracts. So far as Part 8 extends to Scotland, the Scottish Ministers will appoint the day of commencement for Part 8.

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Prepared: 1 May 2009