3.5 It is vital that a public sector body planning the formation of a JV entity should first consider whether it has the necessary powers, and in particular:
● that it has the legal powers to participate in a JV entity;
● that it is not using its powers for an improper purpose or unlawfully delegating its powers;
● that it has the powers necessary to cover the business activities of the JV;
● that it understands which, if any, limitations on its powers will apply to the JV -e.g., if the public sector body is unable to borrow money, will such limitations affect the JV?
● that it has monies to spend on the JV which have been properly voted (if applicable) and powers related to expenditure on it; and
● that it is acting in a way that is compatible with other policy or legal requirements.
3.6 All decisions or actions by a public sector body must be within the powers (intra vires) of that body. Depending on the type of public sector body, the powers will be set out in a variety of places such as statute, statutory instruments, trading fund orders18, company memorandum and articles of association, trust deeds etc., and may also exist in common law. If a public sector body acts outside the scope of its powers (ultra vires) then that decision or action is invalid and is unauthorised by law.19
3.7 The rules governing public sector powers are highly complex and constantly evolving through case law. Legal advice should be taken to ensure that any public sector body has the power to do each proposed activity under the JV proposals. In-house lawyers within the public sector body will be the first source of guidance as they will be familiar with the source of an authority's powers and their application.
3.8 Example 6 below provides an example of statutory powers, in this case as applied to the DCSF building schools for the future programme.
3.9 Where a public sector body does not have the necessary powers, it should not take the development of the JV further without first consulting its sponsor department and key external stakeholders to assess whether obtaining the necessary powers is desirable or feasible within a reasonable period.
3.10 The public sector should not expect potential private sector participants to commit any significant money to the venture until it is certain that it can proceed. If, however, it is considered necessary to begin partner selection before then, the public sector body must ensure that it complies with any existing limits on its legal powers and spending authority.20
| Example 6: DCSF Investment through Building Schools for the Future DCSF is able to invest in investment vehicles as part of the Building Schools for the Future programme in accordance with the Education Act 2002. This Act authorises the Secretary of State, "if he considers it expedient to do so for purposes connected with any function of his relating to education" to form or participate in forming companies to carry on activities he considers likely to secure or facilitate the achievement of those purposes, or invest in any company which is to carry on such activities. Pursuant to the Act DCSF would therefore be able to invest in a JV (such as a CLS or CLG company). Under the Act investment may take any form, including grants, loans, guarantees and the incurring of expenditure for the benefit of the person assisted. Source: Partnerships UK plc |
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18 Guide to the establishment and operation of Trading Funds HM Treasury Central Accountancy Team, January 2001. Available from the HM Treasury website: www.hm-treasury.gov.uk/d/Guide_to_the_Establishment_and_Operation_of_Trading_Funds.pdf .
19 An example of this happening is the case of Credit Suisse vs Allerdale Borough council. For details, see Rob Hann, Local Authority Companies and Partnerships - Tottels (updated bi-annually).
20 Public sector bodies must comply with all relevant HM Treasury budgetary and accounting framework policy and guidance.