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APPENDIX 2
The Local Government (Contracts) Act 1997

INTRODUCTION

1.The Local Government (Contracts) Act 1997 was introduced in recognition of the growing uncertainty about local authority powers to contract with the private sector for the provision of assets and services, and of the likelihood that this would impede the development of public-private partnership schemes. Of particular concern for contractors and banks have been the financial consequences of being unable to enforce a contract which turns out to be unlawful.

2.These consequences would have been particularly serious for partnership schemes, in which the private sector typically invests large sums at the beginning of the contract in anticipation of a stream of revenue payments over a long period. The Local Government (Contracts) Act 1997 is a measure to encourage and enable local authorities to explore the scope for partnerships with the private sector and so achieve better value for money in the delivery of services to the community.

3.The Act addresses these issues by:

a) clarifying local authorities' powers to contract with the private sector;

b) enabling authorities to "certify" long-term service contracts, giving them "safe harbour" protection from legal challenge except by judicial or audit review;

c) ensuring that the contractor will be compensated if a contract is ever set aside in such a review; and

d) minimising the likelihood that a certified contract will be set aside by means of the simple but rigorous certification procedure, and by empowering the court to direct that a contract shall continue to have effect notwithstanding that it was entered into unlawfully.

4. The main provisions of the Act were brought into force on 30 December 1997. The Local Authorities (Contracts) Regulations 1997 [SI No. 2862], needed for the operation of certain provisions, also came into force on that date.

5. This guidance material may not be relied on as an authoritative interpretation of the law, and legal advice should always be sought where there is any doubt about the effect of any provision of the Act.