Joint Committee on Statutory Instruments Eleventh Report


Memorandum by the Welsh Office


  1. This memorandum is submitted to the Joint Committee on Statutory Instruments in response to the letter of 30 July in which they ask for an explanation of the following points arising in connection with the above Statutory Instrument:

    "The `specified proportion' of the functional work regulated by the `legal services regulations' (which is subject to the restriction in section 6 of the 1988 Act) is defined in the substituted definition in regulation 5 of these Regulations as an amount equal to the amount produced by the formula set out in that definition.

    Explain -

    (a)   whether the formula is capable in any circumstances of producing a negative amount;

    (b)   if it is, what is the effect of a negative amount on the application of section 6."

  In the Joint Committee's 16th Report of Session 1996-97 the corresponding Scottish Instrument, S.I. 1997/197, was drawn to the special attention of the House.

  2. The Department can confirm that, as in the case of the Scottish Instrument, the "T" formula calculation will usually produce a positive monetary figure for the specified proportion of the functional work. However it is possible that it could produce a negative (or nil) figure for the specified proportion. Unlike the Scottish Instrument the definition in regulation 5 of these Regulations does not provide for the specified proportion to be nil in a case where the calculation would otherwise produce a negative figure. It was considered that in reality a negative figure must have the same effect as if the figure were nil.

  3. The Department is aware of the Committee's views on the Scottish Instrument that this may be an ultra vires exercise of the powers under section 6 of the 1988 Act as, in effect, the power was being used to disapply or exempt from the prohibition on carrying out prescribed work without putting it out to competition. Additionally, the power to describe work by reference to a specified proportion cannot properly include the power to prescribe a proportion which is zero. A proportion cannot be a nil quantity.

  4. The Department hopes that the following clarification as to how the "T" formula and the specified proportion work will reassure the Committee that in fact the powers have been exercised intra vires. The Committee may wish to note that the "T" formula and the calculation of the specified proportion has been in operation for several years. Thus for legal services it can be traced back to the Local Government Act 1988 (Competition) (Legal Services) (England) Regulations 1994 (S.I. 1994/3164). Because of local government reorganisation in Wales the introduction of compulsory competitive tendering for legal services here has been delayed. While some of the detail of the formula has subsequently been "fine tuned", the possibility of the "T" formula calculation producing a nil (or negative) amount for the specified proportion has existed from the outset.

  5. Section 6 of the 1988 Act applies in the case of legal services (and also in the case of other "white collar" services) to a specified proportion of the work falling within that defined activity. This is calculated by means of a formula, known as the "T" formula, in which authorities calculate the total cost of that work "T". That is the starting figure for consideration of the value of legal services an authority is required to have subjected to the competitive tendering requirements of Part I of the 1988 Act before it is able to perform those services by its own Direct Service Organisation. From that total cost of "T" an authority is allowed to offset certain amounts (known as credits in the formula) in respect of work which has already been exposed to either direct or indirect competition. The precise credits vary depending on which defined activity is involved. In the case of legal services for Wales, the credits are "A", "B", "C", "E", "F" and "G". Credits "B", "E" and "F" are in relation to legal services which have been subjected to direct competition while credits "A" and "G" relate to legal services which have been subjected to indirect competition, that is, they have been included with other services of the authority which have been subjected to competitive tendering.

  6. The other credit "C", is a purely financial credit. It has two possible values. The first value is a percentage of the "T" figure. In the case of Legal Services that is set at 55% of "T". The second possible value is a fixed figure which in the case of legal services is set at £300,000. Whichever is the higher of these two values will be the amount of credit "C" for which the authority has an allowance. The £300,000 figure represents the minimum figure at which the authority is required to subject its legal services to competitive tendering. This figure is designed to enable an authority, if it so wishes, to protect what it regards as essential core legal services. It also reflects an approximation of the level at which the cost involved in conducting a tendering exercise may exceed the benefits to be gained from such an exercise.

  7. Authorities perform the "T" formula calculation for each year beginning with the element "T" and eventually arrive at the specified proportion of work which must be exposed to competition in accordance with the provisions of the Act.

  8. By letting contracts for or including legal services which meet the competitive tendering requirements an authority will increase the amount of such work which falls into one or more of the credits "A", "B", "E", "F" and "G" and so simultaneously reduce the specified proportion calculation. In some cases it may reduce the specified proportion to nil or even, nominally, to a negative amount. It should be borne in mind that the specified proportion imposes a minimum legal requirement and authorities may expose a greater amount of work to competition in accordance with section 6 of the Act if they wish.

  9. It is quite feasible therefore that authorities taking a prudent approach to satisfaction of their legal obligations may award sufficient work in accordance with section 6 of the Act to give themselves, at any particular point in time, a specified proportion of nil or less. In our view this does not render section 6 inapplicable; it merely means that an authority has exposed sufficient work to competition to meet its current obligations under the Act.

  10. Assuming that "T" remains constant from year to year, once an authority has exposed sufficient work to meet or exceed its specified proportion under CCT contracts, it may have a nil or negative specified proportion until such time as the relevant contracts expire. In reality, however, the value of "T" will fluctuate according to changes in circumstances each year. This means that the value of the specified proportion may fluctuate too and authorities will constantly need to re-evaluate whether further work needs to be exposed to competition in accordance with section 6 to supplement that already so exposed.

  11. In summary therefore:

    -    it is quite common for authorities to achieve a nil or negative value for the specified proportion but also to expose work to competition in accordance with section 6;

    -    a nil or negative specified proportion relates to the year in which the calculation is carried out. The fluctuation of local authority work will mean that the volume of work which needs to be exposed to competition in accordance with section 6 will vary from year to year and the allowable credits which it claims will often include work which has already been exposed to competition in accordance with the Act.

  12. With regard to an authority whose "T" figure does not at any time during a year exceed £300,000 then for that authority the specified proportion will be nil or, nominally, a negative amount. The Department has noted the report of the Committee on the Scottish Instrument on this point but, with respect, would argue that it does not inevitably follow that nil cannot be a proportion. In our view it can in an appropriate case be so. We would respectfully submit that when one considers section 6(3) of the Act, in the context of the purposes of Part I of that Act it does not necessarily follow that Regulations under section 6(3) cannot have the effect that for some authorities at least the specified proportion may be nil. As indicated above we would contend that in reality any negative calculation must be equated with a nil figure.

11th August 1997

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