2.2 Learning in Local Government’s New Statutory Environment

Local government: results of the 2002-03 audits.

Local authorities have been dealing with large-scale change in their legislative framework as a result of a number of legislative amendments, in particular with the introduction in 2002 of the new Local Government Act and the Local Government (Rating) Act.

The Local Government Act 2002 (the 2002 Act) sets out a comprehensive planning and reporting regime. This regime builds on the provisions of the Local Government Act 1974 (the 1974 Act), introducing new elements that underscore:

  • provision of relevant and reliable information to support elected members and communities in decision-making; and
  • the need for elected members and officers to make judgements about how best to achieve the 2002 Act’s purposes for local government and local authorities.

Through our work to familiarise auditors with the 2002 Act, and in considering matters raised with us by local authorities since its introduction, we have dealt with a number of questions about local authorities’ obligations under the Act. These questions generally relate to two types of issue:

1. How to prepare and undertake public planning and accountability processes and documents; for example:

  • when and who to consult;
  • the extent of analysis of an issue to undertake, and determining the period in which any effects should be assessed;
  • the extent of information to disclose in public plans and reports prepared under the Act; and
  • how to identify and make a significant change to either a Statement of Proposal or the adopted long-term council community plan (LTCCP).

2. How to apply new provisions in the 2002 Act (for example, in respect of consultation and decision-making) to particular decisions under consideration; for example:

  • the sale or purchase of land;
  • the use of rates raised for a specific purpose that is no longer relevant; and
  • tendering decisions, such as not to tender a contract.

Local authorities have told us that the central issues they are concerned to appropriately address are:

  • The obligations regarding community views and consultation. Local authorities have frequently contacted us, asking if a particular decision requires them to consult.
  • Addressing the requirements with respect to assessing ‘significance’. This question has also been of considerable interest to us because, where a change is significant for the service levels or costs to a local authority projected in its LTCCP, an amendment is required on which an audit opinion must be issued (see pages 98-99).

We have generally found that such questions cannot be easily answered until a local authority has considered the issue or matter through the decision-making and consultation framework set out in the 2002 Act. While the Act introduces an approach based on what has commonly been called “the power of general competence”, this does not mean that there are no constraints on the decisions and activities of local authorities.

Under the 1974 Act, processes were set out for specific decisions, but little guidance was otherwise given for general decision-making. The 2002 Act also sets out processes for specific decisions, such as adoption or amendment of the LTCCP, adoption of the annual plan, and changing the mode for delivery of a service. However, in addition to these specific requirements, Part 6 of the 2002 Act sets out general requirements for planning, decision-making, and accountability.

The over-riding requirement for a local authority in making any decision is to satisfy itself that the proposal will meet the anticipated needs of the community at a reasonable cost, in a manner that accords with the purpose of local government as set out in section 10 of the 2002 Act:

The purpose of local government is –

(a) to enable democratic local decision-making and action by, and on behalf of, communities; and

(b) to promote the social, economic, environmental, and cultural well-being of communities, in the present and for the future.

Underlying this purpose, there are a number of principles or considerations that local authorities must consider and address as relevant in making decisions.8 As well as considering relevant principles and requirements, local authorities must also consider:

  • the significance of the decision or matter – assessing the significance helps local authorities to decide the extent of analysis, disclosure, and consultation to undertake (see pages 42-51);
  • the sections of the 2002 Act outlining the purpose of particular requirements which guide local authorities in analysing decisions and consulting for the statutory planning and reporting processes9; and
  • the prescriptions that may apply to specific decisions, which in Part 6 of the 2002 Act relate primarily to inconsistent decisions or prohibited decisions.10

The principles or considerations specified by the 2002 Act are general. Therefore, in order to apply a principle, a local authority needs to identify and consider authoritative sources of good practice relevant to the specific situation.

For example, one question raised with us was whether a local authority would be acting in accordance with the 2002 Act if it entered into a contract that it had not tendered. Other local authorities in the region had jointly tendered the contract and the local authority approaching us wished to consider also becoming a party to the contract.

In the first instance, the local authority needed to satisfy itself that the contract would promote the social, economic, environmental, and cultural well-being of the district, in the present and the future. The following parts of the Principles relating to local authorities in section 14 of the 2002 Act appeared particularly relevant to us:

(e) a local authority should collaborate and co-operate with other local authorities and bodies as it considers appropriate to promote or achieve its priorities and desired outcomes, and make efficient use of resources;

(f) a local authority should undertake any commercial transactions in accordance with sound business practices;

(g) a local authority should ensure prudent stewardship and the efficient and effective use of its resources in the interests of its district or region.

However, the 2002 Act gives no further guidance on how to apply these considerations to a contracting decision. We therefore sought to point the local authority to good practice, as we were aware of it, in deciding whether there were indications that the service should be tendered. This might have seen the local authority considering matters such as:

  • the background of the proposed contractor – the availability, capacity and performance of the proposed contractor to meet the local authority district’s needs;
  • whether the cost of a tendering process would be justified, including the cost to the local authority of running its own separate tender, and whether the proposed contract costs would be comparable to similar works or services tendered by the local authority;
  • the competitive environment, including the robustness of the tender process that the other local authorities had run, and whether there might be contractors in the district that could perform the work but who had not had the opportunity to be considered during the other local authorities’ tendering process; and
  • the scope of services, and whether the contract could be easily altered or whether the nature of the service would need to be long-term.

The local authority, having satisfied itself on these matters, would consider next the various decision-making and consultation requirements in sections 76-90 of the 2002 Act and the financial management requirements of section 101.

This example illustrates a key difference between the 2002 Act and the 1974 Act. Under the 1974 Act, a local authority was required to tender contracts over a financial value that it determined. However, it could resolve not to tender a contract over this amount, recording its reasons for not tendering.

Under the 2002 Act, there is no specific requirement for a local authority to tender works or services – but it is required to make commercial transactions in accordance with sound business practice. A local authority must decide not only when to tender but when and how to use any other approach that is consistent with sound business practice as it applies to that decision.

In making decisions under the 2002 Act, local authorities are to select an approach based on their considerations of the principles and considerations of the Act and the effect of the decision. This means that how a local authority determines its general approach to an issue is as important as its compliance with any specific procedural requirements.

As well as affecting local authorities, this changed approach of the 2002 Act affects our role as statutory auditor of local authorities. It requires us to consider the information a local authority relied on to support a decision, and the regard a local authority had to the relevant principles and considerations of the Act. We will need to do so in forming an opinion on any matter relevant to:

  • the opinions we are required to issue on local authority annual reports and summaries (once an LTCCP has been adopted) and, from 2006, on their LTCCPs and any amendments thereto; and
  • our other audit duties under the Public Audit Act 2001 as they relate to local authorities, including performance audits and inquiries.

The planning, decision-making, and accountability requirements of the 2002 Act therefore represent a change in approach that we are working to respond to, with our auditors and through advice to the sector.

Footnote 8: For example, sections 14, 39, 77, 78, 82 and 101.

Footnote 9: For example, sections 10, 11, 91(2), 93(6), 95(5) and 98(2).

Footnote 10: For example, sections 80 and 97, and Part 7.

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