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Baroness Hayman: Amendment No. 15 deals with the same area as the government amendment which the

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Committee recently accepted. In discussing Amendment No. 14, I explained that it clarifies the circumstances under which no discharge terms have effect. That may be because none had been agreed by the parties to the contract and, indeed, as the noble and learned Lord, Lord Donaldson, said, it may well be that in many circumstances parties to the contract decide that that is the most sensible course to take. But in other circumstances discharge terms that come within the safe-harbour provisions will be written into the contract. It is important therefore that we envisage the circumstances in the potential clash at which the noble Lord, Lord Bowness, was looking when those discharge terms may be examined in public law proceedings and viewed not to have any effect.

Amendment No. 15 deals with the latter possibility. It seeks to specify the circumstances in which a court may set aside agreed discharge terms. It is when we come to being specific that the difficulties arise. The noble Lord, Lord Bowness, accepted that "grossly unreasonable" may not be the best formulation and that "outrageous" did not seem to meet the Bill. The noble and learned Lord, Lord Donaldson, used the word "obnoxious" in those terms. It is when we start trying to specify that the difficulty arises.

It is only in the most extreme cases that a court would even need to consider a matter of this kind. As I explained, Clause 6 (4) establishes that discharge terms are themselves protected by a safe harbour. Only in exceptional circumstances would a court decide to set aside the discharge terms. Those circumstances include those described in Amendment No. 15, but there may be others.

The Government do not feel that it is right or appropriate to prescribe or limit the circumstances under which a court could conclude that Clause 6(4) did not apply. The circumstances would be so individual and specific that it is a matter of law and discretion best left to the courts. It is important to ensure that contractors and banks entering into certified contracts should have the certainty of knowing what would happen in the highly unlikely event that both their contract and agreed discharge terms were set aside in public law proceedings.

The government amendment to Clause 7 ensures that where, despite Clause 6(4), agreed discharge terms are not to have effect, the ultimate fall-back entitlement to repudiatory damages will come into play. All that Clause 7(3)(b) seeks to do is to ensure that all contingencies are covered. I hope that that provides some reassurance to the noble Lord, Lord Bowness, that the issues with which he was concerned in the specific circumstances are covered by the legislation as it now stands.

4.15 p.m.

Lord Harmar-Nicholls: Perhaps I may interrupt the noble Baroness and ask whether she is able to say that she will take the amendment back so that it can be looked at again. The Government are satisfied that the worries expressed by my noble friend and by the noble and learned Lord, Lord Donaldson, will be covered: that it is a rare and unusual situation.

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However, a case has been made that there is uncertainty about this. When my noble friend expressed objection to a certain phrase there was general acceptance in various parts of the Chamber, indicated by Members of the Committee nodding their heads. When a case has been sufficiently made for the Minister to accept that there is a case--it may be the noble Baroness will go on to say that she will look at the matter again and I may be being presumptuous--if the Minister then sits down and does not say that the Government will look at it again in the light of the examination by both the Opposition and the Cross-Benchers, we should not be carrying out our duty correctly.

Lord Donaldson of Lymington: Perhaps the Committee will forgive me for speaking twice. I clearly did not express myself properly. I was merely intrigued about the possibility of the courts setting aside discharge terms without setting aside the contract as a whole. But being intrigued is one thing; having problems with it is quite another.

For my part, I have no doubt whatever that the right thing to do is to leave the courts to deal with these matters on a case-by-case basis. That is what they are being asked and required to do by the statutory nature of the contract as a whole. Why should there be anything different about the discharge terms? I hope that nothing I have said will be taken to cast any doubt upon my support for the Bill as drafted, subject to the Government's amendment. I am convinced that there is no need for any further amendment or further need to examine the matter.

Baroness Hayman: I am extremely grateful to the noble and learned Lord, Lord Donaldson, for that intervention. The noble Lord, Lord Bowness, may be reassured. Were it the case that the Government were proposing the narrower definition and there was concern that circumstances raised by the Committee were not covered, I would be happy to take the matter away and look at it again. In fact we are in the opposite situation where the Government are giving a broader definition in order to allow the courts to have exactly the sort of discretion that the noble and learned Lord described.

If we were to accept the amendment before us, we would be narrowing down the circumstances in such a way that we may not have envisaged a case in which the court properly ought to be able to set aside the discharge terms. For that reason perhaps the noble Lord, Lord Bowness, will withdraw the amendment. The circumstances are covered and it is better to have the wider power for the court than to restrict it as Amendment No. 15 would do.

Lord Bowness: At one stage I thought I was going to be reassured. I am sure that the noble and learned Lord, Lord Donaldson, did not intend to shatter my reassurance. However, when he tells the Committee that he does not know whether or not courts can set aside discharge terms from a reading of this Bill and when I hear that we ought to leave things on a case-by-case basis, I remain somewhat concerned.

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Local government litigation and the parties to it have shown themselves over the years to be extraordinarily inventive. It seems to me that to pass a Bill which on the record will show that we do not know whether or not the courts can do that would be a mistake. Nevertheless, I shall again read what the noble Baroness said, consider it and decide whether or not we wish to return to this matter at a later stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7, as amended, agreed to.

Clause 8 agreed to.

Baroness Hayman moved Amendment No. 16:

After Clause 8, insert the following new clause--

Contracting out of functions in connection with certified contracts

(".--(1) An authorisation given by virtue of an order under section 70 of the Deregulation and Contracting Out Act 1994 (authorisation by local authority of exercise by another person of functions of authority for period not exceeding ten years) may specify that it is to be for a period exceeding ten years if it is given in connection with a certified contract.
(2) But an authorisation given in connection with a certified contract may not by virtue of subsection (1) specify that it is to be for a period exceeding the shorter of--
(a) the period for which the contract is to operate, and
(b) forty years.
(3) For the purposes of this section an authorisation is given in connection with a certified contract if--
(a) the authority by which it is given is a local authority for the purposes of this Act,
(b) the authority and the authorised person are parties to the contract, and
(c) the authorisation is given to enable the authorised person to perform or better perform his obligations under the contract.").

The noble Baroness said: In moving Amendment No. 16 I shall speak also to Amendments Nos. 18, 19 and 20. It is a basic principle of public law that a public authority cannot delegate to someone else the exercise of a function conferred on it by Parliament. However, under Part II of the Deregulation and Contracting Out Act 1994 a Minister is empowered to make an order which allows local authorities to contract out the exercise of their functions; that is, of functions specified in the order. It is anticipated that many contracts certified under this Bill will be contracts for public-private partnership projects and that in some cases functions may need to be delegated to ensure the success of these projects. One area of local authority business where an order is to be made is in relation to highways functions, and it is important to ensure that an authority wishing to rely on the order will be able to contract out relevant functions for the whole period of the contract. I shall explain why these amendments are needed to achieve this.

The 1994 Act provides that a local authority may not authorise a contractor to exercise any function which it is allowed to contract out for a period of more than 10 years. This restriction is likely to hinder public-private partnership projects which rely on the authority delegating a function, because, for commercial

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reasons, these will generally need to be for a period exceeding 10 years. As I have indicated, at present the projects most likely to come up against this obstacle are projects for the construction and maintenance of highways. But the same difficulty may arise in other cases where the success of the partnership depends on the contractor being authorised to exercise a function without obtaining continual instructions from the authority.

It is likely that many public-private partnership contracts will run for 20 years or more. It is important that we look at any obstacle to the success of partnership schemes. The effect of the amendment is that where a local authority is to enter into a certified contract it may authorise the contractor to exercise any function which it is permitted to contract out by an order under the 1994 Act for the period for which the contract is to operate. But a contractor cannot be authorised to exercise any function for a period of more than 40 years.

It is important to recognise that the extended period for contracting out will only apply where a function is delegated so that a contractor can perform or better perform his obligations under a certified contract. It is also important to understand that a local authority which delegates a function to a contractor retains full responsibility for the exercise of the function concerned. So, for example, if a member of the public is adversely affected by a decision made by a contractor in the exercise of a local authority function, he will complain to the local authority--and be able to take any proceedings against it--as if the authority itself had made the decision.

Amendments Nos. 18 and 19 are consequential amendments. The effect of these is that the new clause will be treated in the same way as Clauses 2 to 8. It will come into force at the same time as those clauses--on a day to be appointed by the Secretary of State--and it will apply to any contract entered into after 12th June 1997.

Amendment No. 20, which slightly modifies the Title of the Bill, is required to reflect the subject matter of the new clause. I beg to move.

On Question, amendment agreed to.

Clause 9 [Power to treat expenditure as not being capital expenditure]:

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