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Laying the foundations for a successful Joint Venture

The Localism Act 2011 introduced the general power of competence, which enables local authorities to carry out a commercial activity, provided this is undertaken through a company. Local authorities have participated in joint ventures for some time, often relying on section 111 of the Local Government Act 1972 as well as specific powers under a variety of other laws (including the Housing Act 1996).

In this article, we outline the basic requirements for establishing a joint venture. We also look at opportunities for transforming service delivery and efficiently utilising existing estate to secure frontline services. 

A joint venture checklist document can be found at the bottom of the page.

What is a joint venture?

A joint venture (JV) is a partnership between two or more parties with the aim of achieving a common objective. JVs can be agreed through contracts (Contractual JV) or by creating a new entity (Corporate JV).  

JVs between the public and private sectors are not new. They have been used to deliver a wide range of activities, including back office services (eg South West One with IBM), major capital projects (eg BSF and NHS LIFT projects) and major regeneration schemes (eg using local asset backed vehicles).

Increasingly, JVs are being used as a way of enhancing partnerships across the public sector as well as a means of rationalising estates to generate revenue and reflect ongoing service delivery needs. A recent example of this approach is the Penda Property Partnership between Staffordshire County Council, Staffordshire Police and Crime Commissioner (PCC) and Kier. 

The key differences between Contractual JVs and Corporate JVs

There are a number of matters to be considered by a local authority before committing to a particular JV model:

  • How attractive is the proposed model to the market?
  • Will the local authority financially benefit and is one type of JV more beneficial than the other?
  • What are the core strategic objectives and which model will best deliver these?
  • What is the position of any local authority staff in relation to the proposed form of JV?
  • How complex will the arrangement be (scale and scope) and what is the delivery timeframe?

Contractual JVs are established by way of a formal agreement that can be simple, such as managing peak workloads, or complex such as major commercial outsourcings. No new entity is formed as the contract aims to regulate how services are provided (eg service levels, KPIs, payment provisions, default triggers and consequences arising from a termination).  

A contractual JV can be designed to last for the longer term to enable a partner to contribute at a strategic level. In this case, it is likely that a joint committee or partnering board would be required to assist in identifying opportunities and taking strategic decisions.

Corporate JVs can take a number of different forms. For example, they could involve a number of local authorities and/or registered providers. Corporate JVs can also include the private sector. Crucially, it is important to ascertain from the outset whether the proposed corporate JV is:

  • For profit - typically companies limited by shares, community interest companies (CIC) limited by shares, and limited liability partnerships; or
  • Not for profit - typically companies limited by guarantee, CICs limited by guarantee or industrial and provident societies.

The current government is keen to encourage collaboration and cooperation across the wider public sector as a means of identifying efficiencies, and potentially, unlocking economies of scale.  

The Penda Property Partnership is one such example of cooperation by the public sector. Another is the One Public Estate programme, delivered in partnership by the Local Government Association and the Cabinet Office. This aims to bring all public sector partners in a local area together to pool data on real estate assets and develop plans for sharing facilities and releasing land for housing and regeneration. A key objective of this model is the generation of capital receipts through the release of land and property.

A possible JV delivery model that could be used to realise both capital and revenue receipts could be the following:

JV delivery model

SPV – Special Purpose Vehicle

The essential parts of any estate rationalisation strategy are therefore: 

  • identifying those core services that must be provided; 
  • those services that can be provided, and identifying whether public sector will continue to provide or seek to commission from a third party; and
  • those that are no longer needed or cannot otherwise be provided.  

It is possible, that the Corporate JV in the diagram above could be deployed by the wider public sector to assist with a wider strategic review of service delivery and estate requirements.

A JV could, therefore, help the public sector unlock opportunities across its estate to generate capital and revenue receipts. By pooling resources together, the wider public sector could obtain the necessary scale to present an attractive proposal to the private sector.  

In turn, the private sector partner could be required to bring in certain skills and experience to deliver key objectives for the Corporate JV. These could include equity contributions and the capability to access the financial markets if necessary. Given the potential value of assets to be contributed by the wider public sector, it is essential that it establishes the true value of the private sector partner’s offering. 

Read the full series of articles on Income generation for local authorities.

How we can help

TLT advises local authorities, registered providers and PCCs, as well as the private sector on a range of contractual and corporate JV initiatives. For more information contact Patrick Sweeney on +44 (0)333 006 0587 or patrick.sweeney@TLTsolicitors.com.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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