Contracts: Dodging the banana skin

Councils often use long-term contracts for the provision of important services. But circumstances change, sometimes dramatically, so how can local authorities prepare themselves to ensure they don't end up a hostage to fortune? Tiffany Cloynes of law firm Geldards takes a look.

The result of the UK's referendum on leaving the European Union has reminded us all how one event can have a huge impact on a range of issues. For local authorities involved in long-term contracts, the ability to respond to changes in circumstances and to secure the best position for the local authority and those it represents is crucial. When local authorities start long-term projects, they need to have a strategy that not only identifies how they will deal with a range of important issues but, as far as possible, builds-in sufficient "flex" to accommodate change during the life of a project.

Change control

A long-term contract for the provision of services will include mechanisms for change control. These allow the parties to identify in advance how they will address the implications of changes of circumstances that will affect the contract.

In some cases, parties to a contract may be able to anticipate particular events that could affect a project. While the outcome of the EU referendum was unexpected to many people, its occurrence was known in advance and could have been considered when parties were agreeing the terms of contracts that were entered into in the period leading up to the vote. Before the start of the 21st century, there was concern about the potential impact that the millennium bug might have on computers and many contracts for information technology services included provision that recognised the need to address problems caused by the millennium bug.

Tiffany Cloynes, Geldards.Contracts should also include more general provisions for change. Not every change in law that may affect a long-term contract can be anticipated but they could have a significant effect. For example, the Local Government Association recently warned that local authorities would have to make a considerable investment in IT systems and staff to implement the Government's Pay to Stay policy being introduced through the Housing & Planning Act 2016. That could have significant implications for projects involving IT services or housing provision that were agreed before that legislation was passed. Contracts need to include a process allowing the parties to address the implications of changes.

Exit routes

Although projects are embarked upon expecting they will last for a long time and be effective, local authorities need to be able to exit the contract if necessary, with as little cost, administration and long-term implications as possible. A contract needs to contain robust provisions that allow for the flexibility to terminate the contract when necessary, without making termination so easy that this threatens the long-term viability of the project.

Pricing

Pricing terms should be agreed, including review arrangements for a contract, that allow the local authority to receive services from a contractor for the best value for money. Both the local authority and the contractor will need to consider their options if circumstances change so that the contract is no longer economically beneficial for the authority or profitable for the contractor. It will be important to consider whether the local authority could improve its position by varying the contract.  If not, the local authority may need to consider whether termination could and should be achieved.

Government programmes

Some contracts involving local authorities are part of programmes supported by the Government.  They may attract Government funding and may require the parties to use model contract terms and conditions published by the Government. If a contract is affected by changes, the parties concerned will need to identify the implications for Government funding and the terms and conditions expected by the Government.

If such issues have been addressed at the planning stage then there should be sufficient flexibility within the contract to allow the local authority to respond to changes in circumstances. The importance of this to the ability of a local authority to manage its contracts effectively cannot be overestimated. It is also important that when those circumstances arise, the contract is reviewed as soon as possible to see what options are available and what action needs to be taken to make use of them. 

With careful planning, a local authority can ensure that long-term contracts are effective and ready to withstand the effect of sudden and far-reaching events.

Tiffany Cloynes, is a partner and head of public services (England) at Geldards.