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Guidance on New De Minimis Rules for Bus Subsidy Contracts

The Service Subsidy Agreements (Tendering) (England) (Amendment) Regulations 2004 (S.I. 2004 No.609) - A Guidance Note.

Introduction

These notes provide guidance on the changes introduced by the Service Subsidy Agreements (Tendering) (England) (Amendment) Regulations 2004 which came into force on 1 April 2004. The provisions in these regulations are commonly referred to as the 'De Minimis' rules/exceptions, under which local transport authorities are in some cases excepted from the requirement to let bus subsidy contracts through competitive tender.

Background

  • The 1985 Transport Act (as amended by the 2000 Transport Act) introduced the provisions which govern the duties of local passenger transport authorities to secure local bus services where these would not otherwise be met. In the majority of cases these services have to be secured through competitive tender.
  • The Service Subsidy Agreements (Tendering) Regulations provided local authorities with the scope to let any individual bus subsidy contract in any one year up to a certain maximum value without the need to competitively tender (the de minimis limits). There was also a maximum value that de minimis contracts could be let with any one operator in any one year.
  • The above de minimis limits currently stand at £24,999 expenditure in any one year for an individual contract and the limit for the total value of de minimis contracts with an individual operator is £150,000 expenditure in any one year.
  • What are the changes

  • The Service Subsidy Agreements (Tendering) (England) (Amendment) Regulations 2004 came into force on 1 April 2004. These have introduced the following general changes to the de minimis rules for different categories of authority:
    • A new percentage based approach

      Local authorities or Passenger Transport Authorities/Executives with forecast expenditure (see below) on bus service subsidies in any one year of £600,000 or more will be able to spend up to 25% of this on de minimis contracts; within this 25% there is no limit on the expenditure in any one year that may be incurred on an individual de minimis contract or the amount of de minimis contract expenditure in any year with any single operator;
      Authorities must ensure that with any agreements of 12 months or less, at the time of entering into that agreement, the value of subsidies paid under that agreement and of any other agreements being entered into in that year does not exceed 25% of the forecast expenditure. For any service subsidy agreements that remain in force for more than 12 months, the amount of subsidies payable in any one year under the agreement in future years cannot exceed 25% of the forecast expenditure, current at the time the agreement was made.
    • The existing financial limits with further relaxation
      Those local authorities with forecast expenditure on bus service subsidies of less than £600,000 in any one year will retain the existing financial limits basis for de minimis contracts, but the previous limit of less than £25,000 (up to £24,999) expenditure per contract in any year is raised to less than £30,000 (up to £29,999); the existing £150,000 expenditure limit on de minimis contracts in any year with a single operator is removed;
    • Maximum contract lengths
      The regulations also now require the maximum length of any de minimis contract to be 5 years [whether under a) or b) above]. This brings de minimis contracts into line with all other tendered bus subsidy contracts on the question of maximum contract length.
  • Interpretation of the changes

  • The following guidance is intended to assist local authorities and PTA/Es in applying the amended regulations. (A separate 'decision tree' is also attached to assist in this regard.)
  • Is it compulsory to use De Minimis Provisions?

    6.1 As was the case with the previous versions of the Service Subsidy Regulations, there is no obligation on authorities to make use of the de minimis provisions; the limits set are not to be exceeded but it is a matter for individual authorites to decide to what extent they are used, or even if they are used at all. Currently some local authorities make extensive use of the de minimis provisions and others make very little use of them or do not use them at all. Following the changes now being made, some authorities will no doubt wish to consider whether these changes offer the opportunity to make greater use of de minimis provisions in the future.

    Impact of changes on larger authorities.

    Interpretation of 'Forecast Expenditure'

    6.2 For local authorities who will be subject to the percentage based option described at 5 (a) above (those with expenditure of £600k or more), the regulation provides a definition of forecast expenditure - 'the amount that an authority expects to spend on service subsidies in a financial year'. In determining what their forecast expenditure is for the coming year, local authorities will need to consider the amount they expect to spend on bus subsidy contracts rather than the source of these funds. A bus subsidy contract is a contract for a public passenger transport service as defined in section 63 (10) of the 1985 Transport Act.

    Sources of Funds

    6.3 Other than the Revenue Support Grant resources regularly used to fund bus subsidy contracts, the source of funds being used for the forecast expenditure could include, for example, the Department's Rural Bus Subsidy Grant, grants received from other Government Departments or statutory bodies, partnership funding arrangements or EU funding streams. The important issue is that the forecast expenditure is dictated by what the funds are being spent on rather than where they have come from.

    Other Issues

    6.4 Local authorities will want to ensure that any particularly large or lengthy individual de minimis contracts do not exhaust their scope for letting further de minimis contracts in current or future years.

    Impact of changes on smaller authorities

    Forecast Expenditure

    6.5 Local authorities who will continue to be subject to the previous/existing rules (i.e. authorities expecting to spend less than £600,000 in a year) will also need to take account of the points above about interpretation of forecast expenditure.

    Change in de minimis limits

    6.6 Smaller authorities should also note that the limit to the value of individual de minimis contracts has been raised. It will now be possible to let any number of individual de minimis contracts up to a value of £29,999 expenditure each in any one year (the previous limit was £24,999). However, subject to the individual contract limit, there will no longer be any limit on the total value of de minimis contracts that may be let with an individual operator in any year.

    Verifying Forecast Expenditure

  • Local authorities may find they are the subject of enquiries from, for example, bus operators, regarding their forecast expenditure. To ensure the forecast expenditure is verifiable by an appropriate person, it may be considered appropriate for an authority to provide formal approval of their forecast expenditure in the form of a certificate from their Chief Financial Officer. This would then provide robust evidence from a suitably qualified individual that the forecast expenditure is reliable. The certificate could also then be provided to bus operators to reassure them they are not a party to an unlawful contract.
  • Implications of EU law

  • Local authorities should note that the changes introduced by these regulations do not alter the position where current EU rules may apply as they affect bus subsidy contracting. It should, for example, be noted that where the value of contracts already dictates that they are required to be advertised in the Official Journal, this will still be the case and the changes to the de minimis rules in England do not alter that position.
  • Local authorities should also continue to take account of the EC regulations regarding public service obligations (Council Regulation (EEC)1191/69 as amended by (Council Regulation (EEC)1893/91) when considering entering into agreements with operators for local bus service operations.
  • Further guidance on the implications of European rules will be included in more comprehensive good practice guide on local authority tendered bus services which will be published by the Department in the Spring.

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