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Education e-briefing: Academies Briefing Spring 2018

  • United Kingdom
  • Education - Briefings

23-04-2018

In this issue:

• Senior pay – further scrutiny ahead

• Forthcoming changes to the automatic charity trustee disqualification rules

• Changes to the tax treatment of termination payments from 6 April 2018

• Are you making the most of your Estate?

• Outsourcing – think pensions!

Senior pay – further scrutiny ahead

Introduction

The issue of senior pay has been a topical one in the education sector for most of the last 12 months. Up until now most of the media interest has been focussed on higher education and, in particular, the issue of Vice-Chancellor pay. However, recently the attention had turned to the issue of senior pay in academies, following a series of letters on the topic from the Education and Skills Funding Agency (ESFA).

The ESFA’s letter of 4 December 2017

On 4 December 2017, Eileen Milner, the Chief Executive of the ESFA wrote to the Chairs of Trustees of single academy trusts whose 2015/16 accounts showed that they were paying an executive salary above £150,000. The letter referred to the new requirement at paragraph 2.3.5 of the Academies Financial Handbook 2017 stating that “the board of trustees must ensure that their decisions about levels of executive pay follow a robust evidence-based process and are reflective of the individual’s role and responsibilities”. The letter stated that this paragraph had been added to the Financial Handbook to ensure that due consideration is given to salary setting and a robust process is followed. The Chairs were asked to provide, by 15 December 2017, further information on the rationale for the level of pay that had been set and the due process followed. It was suggested that in compiling the response, they may wish to include details of the role and responsibilities of the individual receiving the payment and the level of challenge in relation to educational, financial, and geographical considerations.

On 29 January 2018 Ms Milner gave evidence to the House of Commons Public Accounts Committee investigation into academy schools finances that, in December 2017, she had written to 29 single academy trusts and, although she had received a response from all 29, only a third had provided her with responses that she found reasonable and reassured her. In relation to the other two thirds, she said she would be inviting the Chairs of Governors in to see her to explain why they felt that these salaries were appropriate.

The ESFA’s letter of 23 February 2018

On 23 February 2018, Ms Milner then wrote to the Chairs of Trustees of Multi-Academy Trusts whose 2016/17 submitted accounts showed that they were paying a salary above £150,000. Whilst this letter was similar to the earlier letter of 4 December 2017 to single academy trusts, referring again to paragraph 2.3.5 and asking for further information on the rationale for the level of pay and the due process followed, on this occasion the suggested information to be provided in the response (by 9 March 2018) was much more extensive, namely:

• The role and responsibilities of each individual paid more than £150,000;

• Other benefits paid in addition to the base salary;

• The length of the notice provision;

• The level of challenge of the role: educational, financial, and geographical challenges locally; and

Information on the MAT’s pay policy (including principles and processes) for example:

o How pay decisions are made and documented;

o How value for money is achieved;

o Whether performance considerations are taken into account;

o How discrimination is avoided;

o How appeals are handled;

o How often pay reviews are considered;

o How the MAT ensures the workforce understands the trust's approach to pay;

o Whether the policy is made available to all members of staff and trustees; and

o If pay to any member of staff earning in excess of £150k per annum had increased at a faster rate than teachers’ pay.

The letter went on to state that the ESFA would expect the remuneration committee to minute its rationale for awarding any salaries exceeding £150,000 per annum as well as being able to show that it had scrutinised and approved all other emoluments such as eligibility to participate in the Teachers’ Pension Scheme, travel, accommodation, bonuses, notice periods and holiday entitlement. It also stated that, as a rule, the ESFA would expect pay rises for non-teaching staff to mirror, not exceed, those awarded to teaching staff. According to Schools Week the letter of 23 February 2018 was sent to 87 MATs.

The ESFA’s letter of 10 April 2018

On 10 April 2018, Ms Milner sent a third letter on the subject on senior pay. This one was to the Chairs of Trustees of trusts whose 2015/16 accounts showed that they were paying a salary within the range of £100,000 to £150,000 to two or more employees of the trust. The letter states that fewer than 3% of all trusts fall into this category. Chairs are reminded that they should have a clear process and rationale for the salaries set, including for all of the non-teaching staff posts.

The information requested in relation to all staff paid between £100,000 to £150,000 is:

• Information on the academy’s/trust’s pay policy

• The level of educational challenge for the academy/trust

• The level of financial challenge for the academy/trust

• The level of geographical challenge for the academy/trust

In relation to teaching staff (defined as those spending over 25% of their time teaching) paid within the £100,000 - £150,000 range information is requested as to:

• The role of the individuals

• Their responsibilities

• The percentage of their teaching time – 25-50%, 50-75% or more than 75%

In respect of non-teaching staff (those spending less than 25% of their time teaching) paid within the £100,000 - £150,000 range information is requested as to:

• The role of the individuals

• Their responsibilities

• The percentage of their teaching time – nil or less than 25%

• The process followed when setting their salary

• Their contractual notice period - if this is in excess of 3 months a rationale for this is required

• The length of their probationary period - if this is less than 12 months a rationale should be provided

• Their holiday entitlement

• The number of working hours - if this is less than 37.5 hours per week the letter requests an explanation as to why the salary is not being pro-rated to reflect the part-time nature of the role

• If relevant, the decision to allow participation in the Teachers’ Pension Scheme

The letter concludes (similarly to that of 23 February 2018) that it would expect the remuneration committee to minute its rationale for awarding any salaries within £100,000-£150,000 per annum, distinguishing between teaching and non-teaching staff. It should also show that it had scrutinised and approved all other emoluments, such as eligibility to participate in the Teachers’ Pension Scheme, travel, accommodation, bonuses, notice periods and holiday entitlement.

A response has been requested by 27 April 2018.

Public Accounts Committee report

On 30 March 2018 the Public Accounts Committee published its report into academy schools’ finances. This included a section on salaries paid to senior members of staff. Whilst this acknowledged that the overwhelming majority of academy trusts (96%) do not pay anyone over £150,000, there were nonetheless 102 instances in 2015–16 of trusts paying salaries which were in excess of £150,000.

The Committee concluded that “some academy trusts appear to be using public money to pay excessive salaries” and recommended that the Department for Education should extend its work to challenge all academy trusts that are paying excessive salaries and take action where these cannot be justified. In addition, it asked that the DfE write to the Committee and update it on the results of this work.

Conclusion

Given the focus by regulators and the press on senior pay in the sector, MATs need to ensure that their pay polices are robust and fit for purposes. It will also be important that the policies are implemented in way that would stand up to scrutiny. Having worked with a number of MATs on these issues we are able to assist.

For further information please contact:

Ben Wood, Partner

benwood@eversheds-sutherland.com

07876 780 298

Forthcoming changes to the automatic charity trustee disqualification rules

Introduction

From 1 August 2018 there will be changes made to the current rules on the automatic disqualification of charity trustees. These will be relevant for academy trustees (who will generally be the directors in a multi-academy trust and the governors and head teacher in a single academy) as well as senior employees of the MAT or academy. the changes introduce further restrictions on who can be a trustee of a charity and, importantly, have a knock on effect on the ability of disqualified trustees to work in a senior management position at the academy.

Section 178 of the Charities Act 2011 sets out circumstances in which a person is automatically disqualified from acting as a charity trustee. These are mainly related to bankruptcy and also include unspent convictions for crimes involving dishonesty or deception. Currently, an individual is also automatically disqualified if they are not allowed to act as a company director. It is usually an offence for a person to act as a charity trustee whilst they are disqualified.

On 15 January 2018, the Charities (Protection and Social Investment) Act 2016 (Commencement No. 2 and Transitional Provision) Regulations (SI 2018/47) were made, and these regulations come into force on 1 August 2018.

The new trustee disqualification rules

The two key changes that will be introduced on 1 August 2018 are:

• there will be an increase in the number of legal reasons that disqualify someone from acting as a charity trustee; and

• those who are disqualified from acting as a trustee will also be disqualified from holding certain senior management positions in charities (this is a significant extension and may require academies taking action now).

It is worth noting that under the new rules there will be no change to the rule that acting whilst disqualified is a criminal offence or to the right of disqualified persons from being able to apply to the Charity Commission for a waiver.

The new reasons for automatic disqualification as a charity trustee

The full list of wider offences and circumstances that will trigger automatic disqualification with effect from 1 August 2018 are as follows:

• unspent conviction for specified terrorism, money laundering or bribery offences;

• unspent conviction for contravening a Charity Commission Order or Direction;

• unspent conviction for misconduct in public office, perjury or perverting the course of justice;

• unspent conviction for attempting, aiding or abetting any of the above offences;

• disobeying a Charity Commission Order;

• being on the sex offenders register;

• unspent sanction for contempt of Court; or

• being a designated persons under specific anti-terrorist legislation.

These will be added to the existing disqualification reasons of unspent conviction for an offence involving dishonesty or deception; being a person who has been removed from a relevant office; Director disqualification and insolvency.

Senior management positions in the academy

The new rules also state that while a person is disqualified from being a charity trustee, that person is also disqualified from holding an office or employment in the charity with senior management functions.

A senior management function is defined as one:

• relating to the management of the charity, and the individual is not responsible to another officer or employee (other than a trustee of the charity); or

• involving control over money and the only officer or employee (other than a trustee of the charity) to whom the individual is responsible for it is a person with senior management functions other than ones involving control over money.

This means that the relevant senior manager positions in a multi-academy trust will be that of Chief Executive Officer and Finance Director (or equivalent positions), while in a single academy it will be head teacher and the most senior person with responsibility for the academy’s finances.

What should academies do to prepare for the new rules?

An academy should already have in place a system that allows it, before appointing a trustee, to make sure that the person is not disqualified. This system should be updated to fit the new rules.

Prospective trustees and relevant senior managers should, prior to appointment, be asked to confirm that they are not disqualified under the current and new automatic disqualification rules.

For existing trustees and relevant senior managers the academy should, prior to 1 August 2018, request confirmation that they are not disqualified under the current or new automatic disqualification rules. It would also be prudent to ask them to sign fresh declarations at regular intervals.

If the academy has a trustee or senior manager who will becomes disqualified under the new rules they will have to cease to act in that position before 1 August 2018 unless a waiver can be obtained (see below). Legal advice will need to be sought about the employment law position.

The academy should also be able to check whether current trustees or senior managers are disqualified, under the current rules or the new rules, with the Charity Commission.

In addition, the academy should check any relevant official registers which record the names of people who are disqualified from acting as charity trustees, such as the Individual Insolvency Register, the register of disqualified directors maintained by Companies House, and the register of all persons who have been removed as a charity trustee.

Finally, academies may also wish to consider amending the Articles at 68 to 80 (which deal with the disqualification of trustees) to include a provision that states that a person shall be disqualified from holding or continuing to hold office as a trustee if they are disqualified from acting as a charity trustee by virtue of the Charities Act 2011.

Waivers

Those who will become disqualified by the automatic disqualification rule changes, which will take effect on 1 August 2018, can, before the rules change, apply for a waiver of their disqualification allowing them to be a trustee and/or hold a senior manager position.

A waiver can bring an end to an individual’s disqualification for either:

• a named charity or charities;

• a class of charities which share a characteristic, such as charitable purpose; or

• all charities.

An individual who is disqualified from acting as a trustee or senior manager may apply to the Charity Commission for one or more of these types of waiver. The Charity Commission will then make a formal decision on the application, considering the case on its merits, taking into account what is in the best interests of the charity and whether the waiver would damage public trust and confidence in a charity or charities. Any waivers already in place under the current rules will continue when the new rules take effect.

However, the Charity Commission will not be able to grant a waiver where the rules of the charity that the individual wants to work with disqualify them from being a trustee or from holding a senior management position.

For more information on the changes or advice on amending your articles please contact:

Helen Cairns, Principal Associate

helencairns@eversheds-sutherland.com

0161 831 8291

Changes to the tax treatment of termination payments from 6 April 2018

Introduction

Significant changes to the tax treatment of termination payments were implemented on 6 April 2018. Broadly speaking, these changes remove the differing tax treatment that currently applies to contractual and non-contractual payments in lieu of notice (PILONs).

Whilst payroll practices and software will need to be adapted to take into account the new calculations of tax liability on termination, one significant impact of which both employers and employees need to be aware is that the previous practice of paying notice pay of under £30,000 as a tax free damages payment (in lieu of requiring the employee to work their notice in accordance with their contract) is no longer possible. Under the new provisions, the tax treatment of payments on termination of employment no longer depends on whether there is a contractual PILON in the contract.

Aside from a potentially increased tax liability, in the short term academies should also be prepared to manage the expectations of departing employees who might have expected a greater tax free lump sum on leaving.

Summarised below, through a series of questions and answers, are key aspects of the new regime.

Q: What are the main differences between the old and new taxation provisions from April?

A: The principal differences between the old and new regimes are:

•the differing tax treatments of contractual and non-contractual PILONs are effectively removed;

•the legislation re-characterises any termination payment received by an employee as fully taxable to the extent they have not worked their full notice period.

NB contractual PILONS remain fully taxable and are unaffected by these changes.

Q: When did the changes take effect?

A: The changes to the tax treatment of termination payments apply where the termination date is on or after 6 April 2018. HMRC has stated that where the contract of employment ended before 6 April 2018, the old rules for termination payments apply, even where a payment is made on or after 6 April 2018.

(NB Looking ahead, termination payments which benefit from the £30,000 exemption in principle but are in excess of £30,000 will also attract employer NICs from 2019).

Q: How is the tax/NI liability for unworked notice calculated?

A: As referred to above, where there is no contractual PILON and there is a period of unworked notice an element of the termination payment will be re-characterised and subjected to income tax and class 1 NICs. How much of the termination payment will be re-characterised in this way is determined by calculating what is referred to as “post-employment notice pay” or “PENP” ie pay for any unworked days of notice and then comparing this figure against the termination payment which the employee receives which is not otherwise taxable.

The essential aim of calculating PENP is to identify a daily rate of pay for the unworked period of notice, which can then be accounted for for tax purposes. Having done this, the new approach provides that, if the termination payment is less than PENP then the whole of the termination payment will be re-characterised and will be fully taxable and subject to NICs. Conversely, if the termination payment is greater than PENP then the amount of the termination payment equal to PENP will be re-characterised and will be fully taxable and subject to NICs. The balance of the termination payment will be taxed as follows:

•the first £30,000 may be paid tax free;

•any excess will be subject to income tax (and from 6 April 2019 employer’s NICs).

Q: How do we work out PENP?

A: PENP is calculated by reference to the following formula:

(Basic Pay x Number of calendar days in the unworked notice period) ÷ (Number of calendar days in the last pay period) - Taxable elements of the termination payment

This is best illustrated by a worked example:

e.g. if the facts are as follows:

•there is no contractual PILON;

•the employee is entitled to 3 months’ notice;

•the employee does not work any of the notice period;

•the employee is paid monthly;

•the employee’s basic pay prior to the termination date was £5,000 per month;

•the employee is paid £55,000 as a termination payment.

PENP will be £15,000 ((£5,000 x 90/30) – 0) and the termination payment will be taxed as follows:

•£15,000 – subject to income tax and NICs;

•£30,000 – paid tax free; and

•£10,000 – subject to income tax only.

For ease of calculation we have assumed 3 months of 30 days each though in reality over a 3 month period the figure will be between 89 and 92 days.

Q: What is “Basic Pay” for the purposes of calculating the PENP?

A: Basic pay has a statutory definition and includes all employment income other than overtime, bonus, commission, gratuities and allowances and amounts treated as earnings including amounts under the benefits code and relating to securities. Basic pay will also include any amount which the employee has surrendered pursuant to a salary sacrifice arrangement e.g. in return for pension contributions, childcare vouchers, etc. Any such deducted sums will need to be added back to basic pay in order to calculate the correct PENP figure.

It is the employee’s basic pay in the last pay period prior to termination or the service of notice that is required for the purposes of calculating PENP. If the employee is paid monthly this will therefore be the employee’s basic pay in the relevant month ending prior to the service of notice or the termination date.

Q: When calculating PENP what parts of the employee’s termination package can be deducted?

A: For the purposes of calculating PENP, the taxable termination pay elements that need to be deducted will not include pay in respect of pre-termination holiday entitlement or any ex-gratia payment on termination of employment. The former will be fully taxable in its own right and therefore falls outside the calculations for current purposes; the latter will be included in the amount tested against PENP but not in the calculation of PENP. Any contractual payment in lieu of notice (which will be fully taxable by its nature) will be included in the amount to be deducted and therefore reduce the amount of PENP (in accordance with the formula above).

Q: What elements of the termination package are not tested against PENP?

Certain categories of payment are expressly excluded from re-characterisation and therefore will always qualify for the £30,000 tax exemption. These are:

•statutory redundancy payments;

•an “approved payment” under s157 ERA (in so far as it is equal to or less than a statutory equivalent).

Q: Are there any changes academies should consider making to their contracts?

A: Since the tax advantages of not including a PILON clause are almost entirely removed by the new provisions, academies may well wish to reconsider adding such clauses to protect any contractual terms intended to survive termination.

Academies should also check that any existing PILON clause wording refers to basic pay only. If it does not, the additional amount received by the employee under the PILON clause in lieu of the contractual payments and benefits the employee receives each month, will be fully taxable under general tax principles and not due to it being re-characterised. As such no amount of such payment will benefit from the £30,000 exemption. In contrast, the equivalent overall termination package provided in the absence of a PILON clause may then be more tax efficient, since the amount re-characterised in that scenario is only by reference to basic pay (i.e. PENP is calculated by reference to basic pay) with the remainder (including any amount in lieu of benefits) potentially benefiting from the £30,000 exemption.

Comment

Conceptually at least, the background to the new provisions was to simply the tax treatment of termination pay and remove some of the uncertainty over access to the £30,000 exemption for non-contractual payments. Whilst a move towards standardising the taxation of contractual and non-contractual payments might have achieved that, even before their implementation, the new provisions have been criticised as overly complex. In the short term, therefore, many employers and employees could well be less certain of tax liability, not more so, until they become more proficient at undertaking the calculation we have outlined above. In the longer term, we expect increased incidence of contractual PILONS and fully taxed notice pay.

For more information please contact:

Ben Wood, Partner

benwood@eversheds-sutherland.com

07876 780 298

Are you making the most of your Estate?

Introduction

When setting up a Trust or taking on a new school, the Trust will either be granted a 125 year lease or accept a freehold transfer of the school’s property from the Council. Often, given the nature of the site acquired, there is very little estates management needed from the Trust in respect of their estate. However, in some cases, savvy trusts are optimising potential opportunities on their estate to create revenue. The process of conversion triggers an opportunity for the Trust to consider the users of the property they are acquiring, however it is never too late to review the use and documentation governing your properties.

Shared Use

When undertaking due diligence on a school and reviewing documentation in place generally, it is important to consider and query any shared use or community use agreements which are in place. Often these are left to lapse and it is a good opportunity to update all documents upon conversion. Although in many cases, the Trust is unlikely to make a profit from these agreements, it is important to ensure the following are considered in the documentation:

• Do the agreements make clear what responsibilities the occupier has for the upkeep of the premises including the cost of any damage caused during occupation?

• Are the terms of the occupation - and the circumstances in which it can be brought to an end – clear?

• Are all costs of allowing the group to use the school covered, such as cleaning and heating costs and the costs for the caretaker to open/close the school as required?

• Is there a possibility to charge a nominal fee to create revenue for the school?

• Has the user been provided with and agreed to comply with the Trust’s safeguarding policies?

• Is the user covered by an adequate level of public liability insurance?

It is also worth considering whether the school premises can be advertised and let out to increase revenue to new third parties. We would always recommend that a formal agreement is put in place with the occupier to regulate the relationship. Depending upon the agreement, this can be done by way of a hire agreement and commercial terms and conditions between the parties or a lease or licence to use the property. In all cases, it is imperative that the Trust considers the educational needs of the Trust as a priority and ensures that all safeguarding procedures are covered.

Increasing Revenue

Trusts may also consider renting out property on a longer term basis where this is not needed for the educational purposes of the school. Although Secretary of State consent would be required to the grant of a formal lease and, depending upon the terms of the lease, Local Authority consent may also be required, this would be of benefit to the Trusts who have surplus buildings and would like to increase revenue either short or long term. Such examples we have seen include use of portable classrooms as a Parish Council library, use of part of the property as a petting zoo and use of a building for a third party to run an internet server business which included providing internet facilities to the Trust.

In some cases we have seen Trusts let out their caretakers accommodation on the site for short term holiday lets outside of term time when the accommodation is not in use. This creates a revenue for the Trust which can be fed back into the school or for maintenance. It is worthwhile considering upon conversion whether lettings agreements of this type may be an option as we would seek to inform the DfE lead of this intention to keep the DfE informed, however it is not envisaged formal DfE consent would be needed. We would also ensure that the user clause within the lease covers this use of the property to avoid the need to approach the Local Authority for consent to this use in the future.

It is never too late to think about the above points post conversion and we recommend that Trusts undertake a periodic review of the user agreements in place at schools to ensure these are documented and managed appropriately. Property users can obtain implied rights and protected leases where documentation expires in certain circumstances which may limit the rights of the Trust to terminate such agreements, therefore it is important to ensure all documentation is reviewed and kept up to date.

We also see many cases whereby part of a school is let to a nursery group on a full time or part time basis. This raises a number of issues in respect of the ongoing nature of the occupation as the nursery group may have obtained security of tenure entitling them to a new lease on the same terms upon expiry of the current lease except in certain prescribed circumstances. Consequently, Academies with an existing third party operated nursery should ensure they renew leases upon termination and do not allow the tenant to remain in occupation undocumented.

Documentation hygiene through the frequent reviewing of agreements in place in respect of use of a school’s estate will certainly reduce headaches in the future and will ensure that both the Trust and user are aware of their obligations and responsibilities. A Trust which uses its estate and buildings effectively will also maximise its community involvement with the potential to create small revenue streams to assist in managing and maintaining their property.

For more information please contact:

Charlotte Tanikal, Principal Associate

0113 200 4024

charlottetanikal@eversheds-sutherland.com

Laura O’Brien, Associate

0113 200 4011

lauraobrien@eversheds-sutherland.com

Outsourcing – think pensions!

Introduction

The following article sets out the pensions considerations for academies when they outsource services, such as cleaning or catering functions to a private sector contractor. The collapse of certain outsourcing companies highlights the need for academies to be even more alive to the risk of becoming responsible for picking up the LGPS liabilities in the event of private sector contractor default (such as in the event of insolvency/administration).

How does “TUPE” work?

As a result of outsourcings, non-teaching employees of the academy who are currently carrying out the services in-house are likely to become employees of the contractor, in line with the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). However, the position may be different depending on the actual scenario and we would recommend that advice is sought as to whether TUPE would apply in each circumstance.

New Fair Deal – application to academies

At the tender stage academies should consider the requirements of HM Treasury’s new Fair Deal policy 2013 (“New Fair Deal”). In New Fair Deal, HM Treasury made it very clear, for the first time, that the Fair Deal terms will apply to staff who are TUPE transferring from academies.

For academies, the New Fair Deal policy (broadly) provides that:

• staff who are members of the LGPS and who are compulsorily transferred from the academy to a private sector contractor, and who remain continuously employed on the delivery of the outsourced service or function, will remain eligible to be members of the LGPS while they continue to be employed on the transferred service or function

• this protection does not apply in relation to other staff of the independent contractor, including any staff employed to deliver the outsourcing service or function who were not compulsorily transferred from the academy

• it is the responsibility of the academy to ensure that the terms of the outsourcing contract require the contractor to provide protected staff with continued access to the LGPS in their new employment

• academies should also ensure that staff protected by the New Fair Deal are provided with continued access to the LGPS on any subsequent compulsory transfer while they continue to be employed on the contracted-out service or function, including any transfer to a sub-contractor or on a sale by the contractor of part of its business

Is New Fair Deal mandatory?

New Fair Deal does not have the force of law, however the Department for Education – and public sector unions – will expect academies to comply with it as a matter of practice.

In order to comply with New Fair Deal the academy will need to include contractual provisions in the terms of the outsourcing contract (between the academy and the contractor). A failure to include appropriate provisions in the outsourcing contract will result in the staff having no protection (and can often lead to the contractor appointed by the academy looking to use their own standard contract terms and conditions instead, which may well look to push all or most pension costs and liabilities back to the academy).

Admission agreements

Continued access to the LGPS for staff post-transfer is provided by the parties entering into an admission agreement. This is an agreement between the LGPS pension fund, academy trust company and the private sector contractor.

Academies will therefore need to liaise with their relevant LGPS Pension Fund before commencing the procurement process in order to obtain the necessary precedent form admission agreement and other documentation and to enable the required actuarial work to be undertaken so that the necessary ‘pensions pack’ can be provided to bidders as part of the procurement process.

We recommend that academies carefully reviews the terms of the draft admission agreement when presented with it, as the admission agreement will include obligations on the academy, including that the academy acting as guarantor of last resort for the private sector contractor’s LGPS liabilities and sometimes an indemnity in respect of this. This effectively means that in the event of contractor default, the academy would become responsible for the LGPS liabilities.

In light of the above, the academy should consider whether it will require the private sector contractor to obtain a bond, indemnity or guarantee from another body so that the LGPS fund calls upon this security before the academy. LGPS funds take different approaches as to how much involvement they will have in relation to whether security is required or not.

Other issues

Private sector contractors may try and negotiate with academies to include contractual protection in the outsourcing agreement in respect of LGPS risks, including in respect of exit debts which will be payable at the end of the outsourcing agreement. Academies therefore need to consider such issues before commencing the procurement process so that the academy can put forward the risk profile it wants to achieve and therefore be on the front foot, rather than being on the back foot if the first time the issues come to light is when they are raised by bidders or the appointed private sector contractor.

Update – consultation

In 2016 the Government issued a consultation on changes to the LGPS Regulations which are intended to give effect to the principles as set out in New Fair Deal without the need for contractual provisions in respect of this. We are awaiting the Government’s response to the consultation but it is likely that the draft regulations will be redrafted before they are finalised.

For more information please contact:

Sarah Franklin, Partner

Tel: 0121 232 1196

sarahfranklin@eversheds-sutherland.com

Cat Ellis, Senior Associate

Tel: 0113 200 4943

catherineellis@eversheds-sutherland.com