Whether you are a civil servant outsourcing a public service or a supplier bidding for Government work, you need to be aware of the doctrine of vires and what you need to do in order to avoid having your contract declared to be ultra vires. The term 'ultra vires' translates as 'beyond the powers' and is used to describe circumstances where a public body performs an act outside of its powers.
Where a public body is found to have acted outside of its powers in awarding a contract, that contract could potentially be declared by the courts to be void – meaning that its terms are no longer enforceable, whether past or present. For suppliers, this could mean that you have no contractual right to be paid for services provided to date, nor a right to supply the services going forward. For the contracting authority it can mean reputational damage and set-backs to projects or policy implementation.
In this latest insight in our Public Sector Outsourcing Survival Guide series, our public law specialists look at the particular questions to consider on a central Government outsourcing project.
What do you need to know about the basics?
A public body can only act within the powers given to it by statute. However, unlike public authorities which have been created by statute, a Government Minister does not need express statutory authority to enter into contracts. This is namely because:
- a Minister acts on behalf of the Crown; and
- although there is some debate in the case law around the constitutional theory and its parameters, at common law, the Crown is a corporation sole with all the powers of a natural person and therefore does not need express statutory authorisation for any action it wishes to take.
However, the Minister will be constrained by any statutory provisions which place limitations on his/her capacity to act in any particular case (and any decision must be made in accordance with public law principles and HM Treasury's rules on managing public money). For example, statutory provisions may limit the purposes for which a power may be exercised or specify the manner in which a power is to be exercised.
In terms of the outsourcing of governmental functions, section 69 of the Deregulation and Contracting Out Act 1994 provides an explicit power for a Minister to make an order allowing his or her functions under any enactment or rule of law to be exercised by a third party supplier. There are, however, certain general exclusions to this power set out in section 71, which include any exercise of judicial power, interference with liberty or right of entry to, or seizure of, property.
What do you need to do?
Given the above, it is important to check whether there are any statutory provisions precluding the Minister from taking a particular action in a particular way in entering into a particular contract. A good example is the inability to enter into certain contracts without meeting the procurement rules, or the specific preclusions on outsourcing mentioned above. However, looking for any preclusions can sometimes be tricky as it is a case of trying to prove a negative.
Under the Carltona principle, a decision made on a Minister's behalf by one of his/her officials is taken to be that of the Minister without the need for any formal delegation of authority. This is subject to the following restrictions:
- There is no statutory provision (unlikely in relation to service contracts) stating that:
- the Carltona principle is excluded and a decision must be taken by the Minister (or another named official) personally (e.g. some immigration decisions),
- express delegation of authority by the Minister is required.
- The official exercising the power is of an appropriate level of seniority, adequately qualified and not otherwise unsuitable for the task. So, for big contracts a more senior civil servant should sign.
As such, a supplier should check who will be signing a contract on behalf of the Minister.
What are the key issues to look out for?
In line with internal advice given by the Office of Government Commerce in 2002, the Government will not usually provide opinion (comfort) letters in relation to its power to contract and civil servants' authority to bind the Crown. This is because it considers that, on the basis set out above, suppliers' lawyers can do their own due diligence to satisfy themselves that the Secretary of State has the power to contract and a civil servant can sign on his/her behalf.