‘Externalisation’ is the name given to a process whereby any business or government organisation ceases to provide a particular thing directly and acts so as to enable, encourage, or require another person to do it instead. It is fraught with legal complexity when the body doing the externalising is a public body, instead of any old company which can do whatever it likes. This is because public authorities can only discharge their functions in a way which is covered by statute. If an authority has been given a function by Parliament, it cannot lawfully give it away, not at least, without clear statutory provisions saying so. But that does not mean to say that it cannot lawfully use the private sector to provide a better service. It just has to make sure that its arrangements with the private sector fall short of giving the whole function away.
Domiciliary Care/Day Care
Over 50% of domiciliary and day care provided to clients of the local authority is now provided by the private and voluntary sector. This is because it can turn out cheaper, and sometimes better, in terms of flexibility and choice for the client, than having the services provided directly by the local authority’s in-house provider unit.
However, there are degrees in the level of business autonomy of these providers:
a) The services might be provided by the private sector directly to the client (as occurs when someone advertises for a cleaner or a live-in companion) without any intervention by the state whatsoever.
This is a wholly private arrangement even if the provider is on an ‘approved providers’ list held by the authority. The parties are the provider and the individual concerned.
b) The services might be provided directly to the client, but the provider might be 100% grant funded by the authority to provide a service at no cost, or low cost, or restricted to people who have been assessed as needing domiciliary care.
In this situation the provider is still providing the services directly to the client and the client cannot be charged by the authority for those services, because the only service the client has had from the authority is, at the most, an assessment. In legal terms, the client may well have needs, but they do not necessitate the intervention of the authority through service arrangements or provision, because the needs can be met by the independent provider.
In this situation, the grant funding arrangements are a matter between the provider and the authority alone. For it to be a valid lawful grant of public monies, there must not be a formal contract in place between the authority and the provider for the provision of the services on behalf of the authority by the provider to the citizen. If this is the model of care which the authority opts for, the grant could, however, lawfully be provided on terms that the provider only charges £x for the service, and only takes persons signposted to the provider by the authority.
c) The services may be provided by the provider under contract to the local authority in respect of a particular area, a particular client group, or specific individuals.
In all such cases, it is an inescapable legal truth that the service is still being provided, in law, by the authority: s30 National Assistance Act deems the contractor to be the agent of the authority. Thus this is not true contracting out, in the sense of withdrawing from that statutory function, but rather, in effect, contracting in the help of the private sector.
The difference between these models of care is important in legal terms because of issues such as who can charge, who takes the risk of charges not being paid, who is liable for negligence in the course of service provision, and who is liable to whom for breaks in service? In our view it is also crucially important for the application of TUPE to a transfer of a body of staff. We do not think that TUPE applies when an authority chooses to grant fund one organisation and then changes to another one – there is no contract in place for the provision of services.
Residential care homes
The other form of externalisation which is taking place all over the country at present is the sale, gifting or transfer of residential care homes out of local authority control. Here the issues are even more complex, because of the possibilities for Private Finance Initiative and Public Private Partnerships arrangements which get the property off the balance sheet of the local authority, as well as the maintenance responsibility for the foreseeable future.
It is lawful for authorities to dispose of their property so long as it is not at an undervalue, and some homes require such a lot of work to be done to them in relation to Care Standards and repairs to the fabric of the building that it can also be lawful to give them away for very little. If an established provider comes along with a vision for the potential of a Care Home, and is prepared to invest in the necessary works, the authority might be very tempted to transfer the home to that provider. A variation on the option is to contract for the management of that home, whilst it remains in the ownership of the authority. Another one is to lease the home to a provider who will own it to all intents and purposes, whilst the freehold remains with the local authority.
All these routes to sharing responsibility have different outcomes for capital finance regulation purposes and the status of the residents.
a) Local authority owns the home: Resident is owed statutory duties and receives accommodation and incidental services under s21 NAA and must pay a statutory charge
b) Local authority owns the home and another provider manages it: the authority is no longer providing the home under s21 NAA, even though it owns it, and the manager is regarded as an independent contractor who receives a fee from the authority for its services. The client is still charged by the authority, however.
c) Local authority owns the freehold and leases the premises on a long lease as a going concern to the provider: the client is owed duties under s26 NAA and is still a client of the local authority, but the provider is providing the home as an independent contractor and is paid a fee by the authority; the provider can be made responsible for the maintenance of the building; and will be the registered proprietor, because what is being provided is accommodation, care and board all together in one package. The LA has the legal means to impose obligations on the leaseholder through the medium of the lease and can provide for forfeiture of the lease on certain eventualities. The provider gets the means to run a business on its own account and perhaps, depending on the terms of the lease, freedom to negotiate prices with the client, who might be the authority, or other privately contracting clients.
d) Local authority sells or gives (ie transfers) the freehold to an outside provider as a going concern: same as above, but the local authority gets no ground rent and has no ongoing relationship with the provider. The only leverage with regard to the price for the transfer may have been the advantageous terms on which the new potential provider was willing to contract with the authority for the next few years, for placements.
e) Local authority sells the home for its land value and from then on purchases all the care it needs to provide to clients, owed a statutory duty, from independent providers in the market.
In situation b) the ‘manager’ is not simply a managing agent on behalf of the authority. The manager has to be registered under the 1984 Registered Homes Act in order to make the provision of services in a home managed by someone other than the authority into a lawful arrangement – see s26 NAA.
In the situations b), c), d), and e) the provider is an independent contractor, in law, and is not able to be sued as a public authority directly by a client asserting a breach of their human rights. See Servite Houses and Leonard Cheshire cases for discussion.