Vol 10 No 3

December 1990

Legal Studies
Government contracts and public law
Sue Arrowsmith
Lecturer in Law, University College of Wales, Aberystwyth

Introduction
In carrying out their functions government bodies frequently enter into
contractual arrangements, both with private persons and with other
public authorities. Like private individuals, for example, they make
leases, employment contracts, and contracts of procurement to obtain
the goods and services they require. Frequently they make contracts
with the public in the course ofproviding public services and amenities -
for example, in running public transport services, or in providing facil-
ities such as recreation centres or museums to the public on payment ofa
fee. In addition, the government uses contract as a method of controlling
behaviour as an alternative to enacting regulations. It may, for instance,
control the behaviour of those granted licences to trade or carry on other
activities through contractually stipulated conditions.' It also uses
procurement and similar powers to regulate by refusing to deal with
those who do not adhere to its policies.2 Clearly, contracting is an
important government activity in many different contexts, and action
taken in connection with the exercise of contractual powers may
potentially affect a wide variety of public and individual interests.
As far as the the law is concerned, even when one party to a contract is
the government there is in Commonwealthjurisdictions a strong percep-
tion of contract as a purely 'private' matter. The actual treatment of
contract as a matter for the private law can be seen at two different levels.

1. Local authorities may regulate market and street trading in this manner. Another
example has been the use of contractual provisions to regulate the holders of franchises for
the independent television networks: see Lewis, 'IBA Programme Contract Awards'
(1975) Public Law 317.
2. See, eg Turpin, Government Procurement and Contracts (1989) pp 73-79; Pur, Australian
Government Contracts (1978) Ch 9; Arrowsmith, Government Procurement andJudicial Review
(1988) pp 81-101 (Canada); and, eg Nashjr, and CibinicJr, FederalProcurementLaw, vol 1
(1977) Ch 8 (United States).

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In the first place, one can point to the fact that the government's
contractual liability is determined by the ordinary courts according to
the ordinary law. This contrasts with the position in France, where a
conceptually distinct body of rules, administered by separate adminis-
trative courts, applies to public contracts,3 and in recent years there has
been some discussion as to the respective merits of our own approach to
such questions and that adopted in France. 4 There is also, though,
another area in which one can see a 'private' aspect to government
contracting in our own law. This is in the reluctance of our law to apply
to the contract function certain general rules of constitutional and
administrative law which apply to other government activities. This
feature of our law of government contracting has been less frequently
remarked upon, but is of some importance.
It is the aim of this article to highlight this second aspect of the
'private' nature of contract by examining a few important areas in which
it can be seen to operate. It will be argued that in the cases examined it is
not, in principle, appropriate to exclude contract from the operation of
the general public law rules. It is thus hoped to demonstrate that the
existence of a general perception of contract as a private function is to a
degree misleading and dangerous. Although it is generally right that
ordinary liability rules should apply to the contracts of government, it is
important, it is submitted, to emphasise the 'public' nature of this
activity for the purpose of applying general rules of public law.

1. CONTRACT AND CONSTITUTIONAL PRINCIPLES

It is proposed to begin by considering two ways in which contract is
excluded from 'public law' at a basic constitutional level. The first arises
in the application of the principle of Parliamentary control; the second in
relation to the constitutional division of powers in some of the federal
Commonwealth states.

(a) Application of the Parliamentary process

Under the Westminster system a fundamental distinction exists between
contractual powers and most other powers ofgovernment in the applica-
tion of the Parliamentary process to government activities. It is a basic
principle of our constitution that any extraordinary powers which the
government wishes to exercise must generally be conferred by Parlia-
ment;5 but the Executive enjoys a general power to contract under the

3. See Brown & Garner, French Administrative Law (3rd edn, 1983) Oh 8 and pp 125-130.
4. See, eg Hogg, Liability of the Crown (2nd edn, 1989) at pp 1-3; Harlow, "'Public" and
"Private" Law: Definition without Distinction' (1980) 43 Modem Law Review 241;
Samuel, 'Public and Private Law: A Private Lawyer's Response' (1983) Modern Law
Review 558; Mitchell, 'Causes and Effects of the Absence of a System of Public Law in the
United Kingdom' (1964) Public Law 95.
5. Case of Proclamations (1611) 77 ER 1352. There is of course the exception of those
extraordinary powers which the Crown has by virtue of the prerogative, but these are
limited to fairly specific subject matter.

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common law, 6 and hence does not need any Parliamentary sanction for
policies implemented purely through contract. Historically this has
arisen from the fact that the Crown, in the sense of the government was
(and possibly still is)7 in legal theory indistinguishable from the person of
the Monarch. Because the Crown is a natural person, the courts have
reasoned, it must possess the same legal powers as any other natural
person, including the power to enter into contracts:

'The general capacity to enter into a contract should be regarded from

the same point ofview as the capacity of the King would be by the courts
of common law. No doubt the King had special powers, privileges,
immunities and prerogatives. But he never seems to have been regarded
as less powerful to enter into contracts than one of his subjects.'8

The 'traditional' method of government policy making is through

unilateral regulations backed by sanctions, for which Parliamentary
legislation is generally required. However, as was indicated, the
government sometimes instead employs contract as a regulatory
method. The use of contract and other ordinary powers in this way has
become increasingly significant in the implementation and
enforcement of policy; indeed Daintith has argued that the traditional
method is in fact 'no longer dominant' in Britain.9 Because of the general
capacity to contract possessed by the Crown, very limited control is
required by Parliament over such regulatory activity. Parliamentary
approval is, of course, required if the contractual scheme of regulation is
backed by some kind of monopoly - for example, where the common law
freedom to engage in a particular trade or activity is curtailed by
introducing a requirement that a licence be obtained. The usual require-
ment of a Parliamentary appropriation when the expenditure of funds is
involved is also generally applicable to contract,'0 so that from the point
of view of financial control contract is treated no differently to any other

6. Banker's Case (1700) 90 ER 270. The continued validity of this proposition is almost
universally accepted by writers: see, eg Turpin, above, n 2, at p 83; Pur, above, n 2, at
p 45; Hogg, above, n 4, at p 163; Aronson and Whitmore, Public Torts and Contracts (1982)
at pp 187-188.
7. For the controversy on this point and the Commonwealth authority see Arrowsmith,
above, n 2, at pp 113-118.
8. New South Wales vBardolph (1934) 52 CLR455 at 474-475per EvattJ (decision affirmed
at 493 (HC)). This was the reasoning also of Coke CJ in the BankersCase, above, n 6, at 271.
9. 'The Executive Power Today: Bargaining and Economic Control' injowell and Oliver,
eds, The Changing Constitution (2nd edn, 1989) at 193. See also Daintith, 'Legal Analysis of
Economic Policy' (1982) 9 Journal of Law and Society 191; Page, 'Public Law and
Economic Policy: The United Kingdom Experience' (1982) 9Journal of Law and Society
225. It is true though that in the last few years the use ofprocurement has declined a little,
with more emphasis on value for money: see Turpin, above, n 2.
10. The position is generally thought to be as stated in New South Wales v Bardolph, above,
n 8. For discussion of the other authority see Street, GovernmentalLiability (1953) at pp 84-
98. In many Commonwealthjurisdictions both the need for an appropriation and the effect
of the absence ofan appropriation on a contract have been dealt with expressly by statute:
see Hogg, above n 4, at pp 164-166.

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activity." However, in other respects policies implemented through

contract need not be subject to parliamentary debate or approval in the
same way as they would be if formulated in an Act of Parliament or
delegated legislation; nor do they receive the same degree of publicity.
These factors may be significant from two perspectives. In the first
place, they may affect the protection given to individuals on whose
interests the government's action has a direct impact. 2 In considering
the need for Parliamentary scrutiny to safeguard private interests it is
surely not relevant that individuals generally share with the government
the power to affect such interests through the exercise of contractual
powers. Quite apart from the government's greater ability in practice to
affect others in this way because of the huge amount of resources at its
disposal, the difference between the public and private spheres lies in the
government's political obligation to consider private interests and in the
suitability of the institution of Parliament for making this consideration.
The significance of Parliamentary involvement today is reduced to some
extent by the control exercised over Parliament by the Executive but it
certainly may be important in some cases. Daintith has argued, 3 for
example, that the way in which the government's 'wage restraint' policy
was enforced between 1975 and 1978 through the use of procurement
powers would never have been approved by Parliament had it been put
before it, because of the wide rule-making power which was given to
ministers, and because the criteria which contractors were required to
meet were both unpublished and subject to fluctuation. These features of
the regulatory scheme, he suggests, would have been unacceptable to
Parliament. Secondly, alongside its role in protecting private interests,
Parliamentary debate over the merits of particular policies and the
best way of effecting them may be valuable from the perspective of the
more general public interest. In practice, parliament does play an
important role in scrutinising the exercise of the government's
procurement powers from both these perspectives, particularly through
the activities of various select committees, 4 and also as a result of
questions put by MPs. As regards Parliament's role, there is surely no
ground for a distinction to be made in law according to the particular
method of policy implementation used by the government.
It is submitted, that as a matter of principle it is hard to justify the
fairly clear line which is drawn between the ordinary and extraordinary
powers of government for the purpose of the requirement of Parlia-
mentary authorisation; and the existing arrangement can be seen to a
large extent as the accidental product of the historical development of
the Commonwealth constitutional system. Given the enormous growth
in state activity, however, a reappraisal of the position without other

11. Whether there is a legal requirement of a separate appropriation for the cost of a
'secondary' policy implemented through contract (as, for example, where additional costs
are incurred by virtue of a decision to place a contract in a depressed region) is unclear: see
Arrowsmith, above, n 2,at pp 225-226. This isnot a problem which is peculiar to contract.
12. This is not always the case as Daintith, above, n 9, shows.
13. Above, n 9, at pp 216-217.
14. See Turpin, above, n 2, at p 262.

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major reforms to the Parliamentary system may not be realistic, since it

might increase the burden on Parliamentary time and resources to an
unacceptable level. Given this, along with the reality of Executive con-
trol of Parliament and the widespread existence of Executive legislative
activity in other spheres, and also the controls which are exercised in
practice, the present position may be seen as a reasonably acceptable, if
not entirely logical, compromise between the ideal of detailed Parlia-
mentary scrutiny and the practicalities of government, which ensures at
least that the most extreme forms of interference with individuals - oflife
and liberty, rather than economic interests - are generally subject to
Parliamentary approval. The point which it is desired to stress here,
however, is that the 'ordinary' activities of government, including that of
contracting, are not of such an inherently different nature from its other
activities so as to justify a fundamental difference in the method of
political scrutiny.
Given the present position of Parliamentary control of contracting, it
is particularly important to give attention to other methods of control
over this kind of Executive activity. Unfortunately, however, the posi-
tion with some of the important administrative law doctrines concerned
with the control ofgovernment is far from satisfactory where contractual
activity is concerned. This is a point which will be returned to later.' 5

(b) Division of powers under federal constitutions

Before turning to administrative law, though, it is first interesting to
consider a distinction between contract and the extraordinary powers of
government which has been made in another context at a constitutional
level. This is in relation to the constitutional division of powers in some
federal states. In a federal state the powers of government are divided
between the federal and the provincial, or state, governments. Gen-
erally, and this is the case in both Canada and Australia, this is done by
allocating certain subject matter to each level of government. For
example, in Canada the federal government is by the constitution given
power over matters such as defence 6 and currency, 17 whilst the prov-
incial government has power over, for example, hospitals' 8 and
education.' 9
The federal governments have taken the view that this division of
powers applies only when a government acts through its uniquely
governmental powers and not when it uses its 'ordinary' powers, such as
contracting or spending, to achieve its objectives.2" Thus, for example, it
is accepted that the Canadian federal government cannot intervene in

15. See the discussion ofJudicial Review and of the Ombudsmen below.
16. British North America Act 1867 30 and 31.
17. Ibi, s 91(6).
18. Ibid, s 92(7).
19. lbid, s 93.
20. This view can first be seen clearly in Canada in the 'Green Book' proposals put to the
1945 Dominion-Provincial Conference on Reconstruction. Before this it had generally
been accepted that the constitutional division applied both to extraordiiary and ordinary
powers - the 'co-ordinate' view of federalism.

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the areas of health and education, given by the constitution to the

provinces, by enacting regulations on these matters backed by sanctions.
However, it is argued that it may seek to implement its own policies in
these areas by other means - for example, by making grants to the
provincial governments subject to their complying with the desired
policies, or by making agreements to the same effect directly with
individuals or institutions. Since the Second World War the Canadian
federal government has become steadily more involved through such 2
methods in those matters allocated by the constitution to the provinces. 1
This view of federalism has generally found support in the academic
writing in Canada22 despite the fact that such a restriction on the scope of
the constitutional division of powers is nowhere clearly stated in the
constitution.23 The justification for this approach has frequently been
stated to lie simply in the 'non-governmental', or, alternatively, the
'voluntary' nature of such powers.24 In relation specifically to the power
to contract the point has been put most emphatically by Hogg:
'A contract creates rights and obligations by virtue of the voluntary
agreement of the parties. It does not unilaterally impose rights and
obligations as a statute does. There is no reason to confine the power to
contract within the limits of the power to legislate.. .21
It is submitted, however, that this kind of reasoning is purely formalis-
tic, and is misleading. To determine what is the appropriate way to
approach the constitutional division of powers it is necessary to examine
carefully the purpose of the division, and the values intended to be
implemented through the federal system.26 When this is done it becomes
clear that the distinction between governmental and non-governmental
powers as it has been drawn by most writers, and also the emphasis given
to the voluntary or consensual nature of contract, are largely irrelevant.

21. For a summary of statistics illustrating this growth see A. Petter, 'Federalism and the
Myth of the Federal Spending Power' (1989) 68 Canadian Bar Review 34 at 36.
22. See P. W. Hogg, Constitutional Law of Canada (2nd edn, 1985) at pp 119-127, and the
authorities cited there. The same is true in Australia: see, eg Campbell, 'Commonwealth
Contracts' (1970) 44 Australian Law Journal 14; Aronson & Whitmore, Public Torts and
Contracts (1982) pp 188-189.
23. Some have suggested the power comes from the Royal Prerogative, but the objection
to this is that the division of prerogative powers follows the division of legislative powers
and also that any spending done in the exercise of prerogative powers requires a Parlia-
mentary appropriation. On the difficulties over the attempts to locate a general spending
power in other constitutional provisions see Petter, above, n 21. (And none of these other
suggestions can anyway explain the existence of a general power to regulate by contract as
opposed simply to spending money.)
24. And see Scott, 'The Constitutional Background of Taxation Agreements' (1955) 2
McGill Law Journal 1 at 6 and Driedger 'The Spending Power' (1981) Queens Law
Journal 124 where the view is expressed that government's must automatically have the
powers possessed by private individuals.
25. Liability ofthe Crown (2nd edn, 1989) at p 166. For a similar statement see Constitutional
Law of Canada (2nd edn, 1985) at p 126.
26. It would generally be accepted by those who believe that the constitution as originally
drafted did not intend to provide for this kind of 'administrative federalism' that a loose
interpretation to uphold such a position might be acceptable if otherwise justified, accord-
ing to the usual loose principles of constitutional interpretation.

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 Government contracts and public law 237

In relation to the Canadian constitution this has recently been clearly

demonstrated in an excellent article by Andrew Petter.2 In the first
place, he points out that money spent in implementing federal policies
through 'ordinary' powers may derive from taxation, as most of it
currently does in Canada. To allow the federal government a power to
spend for any purpose withour regard to the source of the revenue used28
is effectively to give the federal government a power to tax for any
purpose, and taxation involves, of course, the exercise of extraordinary
powers. Hence, even if the distinction between governmental and non-
governmental powers is generally valid, it cannot be used to justify the
current activities of the Canadian federal government. Secondly, Petter
points out that the current interpretation of the constitution undermines
the principle on which the constitution is clearly based - that certain
questions are better decided at a local level - chiefly because this allows
those affected to have a greater degree of influence on such decisions.
Although it is true that provincial governments and those directly
involved may choose whether to submit to federal policies, this is to some
degree a choice only in a narrow sense of whether to submit or to do
nothing, not a choice between the federal policy or some alternative
which the province might have preferred - whether this be a different
policy, or simply reducing the level of revenue raised in the province
which is to be spent on the question. This is because the federal
government is likely to continue raising revenue in the province to
contribute to the project in the provinces, so reducing the 'room' for
provincial action. Finally, there is the argument that the current
arrangements whereby responsibility for a particular area is effectively
divided between two levels of government substantially undermines the
accountability of the government to the electorate. Since neither has full
responsibility for an area, but relies to some degree on the acquiescence
of the other level for the effective implementation of its own policies,
neither can be held fully accountable for the consequences of
government intervention, or non-intervention.
The main argument ofsubstance which has been made in favour of the
current practice offederal governments is that it allows for 'equalisation'
of expenditure per capita on services in the different provinces or states: it
permits the federal government to take from the rich and give to the poor,
ensuring that the inhabitants of the poorer regions enjoy public services
at a reasonable standard. However, as Petter points out, this argument
does not justify present practice whereby payments are made on the
condition ofcompliance with federal policies: it only extends tojustifying
unconditional payments.

27. Above, n 21.

28. And the arguments made by commentators and the federal government in favour of a
general spending power are of this.kind.
29. This particular problem was dealt with to a very limited degree in Clause 7 Meech
Lake Accord, proposing that the federal government shall provide reasonable compensa-
tion to a province which chooses not to participate in a shared-cost programme, but only if
the province carries on its own programme, and if this programme is compatible with
federal objectives.

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Thus, as with the principle of Parliamentary control, contractual

activities have been excluded from the ambit of an important constitu-
tional rule. In both cases, this exclusion has been based on a distinction
between ordinary and extraordinary powers; but in both cases, it has
been suggested, the rationale of the principle in question does not
warrant the drawing of such a general distinction. In the case of the
federal-provincial division of powers, the emphasis on the 'non-
governmental' nature of contract, and also its characterisation as a
voluntary or consensual matter, which have been expressly relied on by
writers as justifying its different treatment, may have had the unfor-
tunate result ofobscuring the concrete arguments relating to the purpose
of the division and the nature of federalism at the very time when the
constitutional rules were taking shape.
It has already been suggested that modern realities make any
reconsideration of the principle that the government enjoys unlimited
contractual power without Parliamentary approval impractical and
unlikely. It is interesting also that Petter takes the same attitude towards
the 'federal' question, arguing that it would not now be appropriate,
given the realities of the present position in Canada, for the law to reject
the anomalous distinction which has developed between ordinary and
extraordinary powers under the constitution.3" He suggests, instead,
that the practice of co-ordinate federalism, in which each level of
government has exclusive jurisdiction over certain subject matter,
should be restored gradually through negotiation between the federal
government and the provinces. This is a sensible proposal. However, it
will be unfortunate if the legal recognition of the current position contri-
butes to perpetuating the false notion that the contractual activity of
government is somehow inherently different from the exercise of its
unilateral powers in this respect and not generally a matter for public
law.

2. CONTRACT AND ADMINISTRATIVE LAW

The question of the treatment of contractual activities in public law also
arises at the level of administrative law - that is, in the application of
principles and remedies relating to the exercise of administrative
discretion. The placement of contract outside the realm ofpublic law can
be seen in two important areas of administrative law: the application of
judicial review, and the jurisdiction of the Ombudsmen.

(a) The substantive principles of administrative law

The exclusion of contract from public law can be seen to a degree in the
operation of the substantive principles of judicial review: despite the
massive expansion ofjudicial review in the last three decades the courts

30. Above, n 21, at 49-50. There has in the past been remarkably little consideration of
the question in the courts but in Brown v YMHA Jewish Community Centrefor Winnipeg Inc
[1989] 1 SCR 1532 the Supreme Court of Canada briefly expressed its approval of the
existence of an unlimited 'federal spending power'.

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 Government contracts and public law 239

in the Commonwealth have been slow to apply these principles to the

exercise of contractual powers by the government. I have examined the
case law in this area elsewhere 31 and it is not proposed to consider it in
detail in this article. Suffice it to note that our courts have not yet clearly
accepted that such powers are reviewable in principle in the same
manner as most other powers of government. In some cases the contrac-
tual nature of a power has not been seen as a problem; 32 but in many
others both in England and in other Commonwealth jurisdictions the
courts have started from the premise that a 'mere' contractual power is
unreviewable, and that review may be allowed only when there is some
additional element of public law, or some specific statutory provision
governing the decision. 33 1 have argued that the contractual nature of a
power should in itself generally be irrelevant to the scope of review. The
fact that contract is a power shared by private individuals is not, it is
submitted, important, even when the contractual power is no way
buttressed by a statutory monopoly or sanctions. There are many
reasons to impose higher standards on government in its dealings with
others than on private persons - for example, the argument that the
government has a political obligation to. consider the interests of those
with whom it deals, and the importance of maintaining public confi-
dence in government, can both justify the application of natural justice
and the reasonableness principle in relation to, say, procurement. In
addition, such doctrines may .be needed to protect the public interests
involved in such cases. Arguments based on the voluntary and consen-
sual nature of contract which it was seen have been put forward by
writers as a reason for excluding contract from the division of powers
under4 the Canadian constitution, have also been raised in some of the
cases3 on judicial review. They do not, it is suggested, provide strong
grounds for removing the protection normally given to citizens by public
law; and again fail to take any account of the public interests involved.
Other concerns mayjustify limited review in some contractual cases - for
example, where it is thought that the government should be able to
compete with private enterprise on the same terms. Such concerns do
not, however, arise directly from the contractual nature of the power but
are quite distinct from it. It is important that the true grounds for limited
review in such cases should be expressly articulated, and not concealed
behind misleading references to the contract factor.
The courts' failure to acknowledge the irrelevancy of the contractual
nature of a power has often led to their adopting artificial reasoning in
order to reach the instinctive conclusion that review should be allowed.
An example is the decision of TaylorJ in R v Wear Valley DC, exp Binks 35

31. 'Judicial Review of the Contractual Powers of Public Authorities' (1990) 106 Law
Quarterly Review 277.
32. A recent example is R v Enfield London Borough Council, exp Unwin (1989) Times, 16
February.
33. See the article cited above, n 31.
34. See also R v Basildon DC, ex p Brown (1981) 79 LGR 655 at 674, CA per Dunn LJ:
AustralianNational University v Burns (1982) 43 ALR 25 at 38 (FC - Full Ct) per SheppardJ.
35. [1985] 2 All ER 699.

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in which the applicant challenged the termination of an informal con-

tractual arrangement allowing him to sell takeaway food on Council
property, alleging a breach of natural justice. The judge found the
special element of 'public law' in the fact that the public had access to the
property; yet it is clear that the courts' real concern in this type of case is
to protect the applicant because of the nature ofhis interest and that the
factor mentioned by the judge is irrelevant. More seriously, in other
cases this kind of approach to the review of contract may lead the courts
to refuse review in cases where it really ought to be allowed.
This, then, is another area in which the application to contract of
public law principles has not been fully accepted, even though the
rationale for such principles suggests that they should apply. Some of the
factors which have led the courts to label contract as a 'private' matter in
this context, such as the 'voluntary' and 'non-governmental' nature of
contract have already been mentioned. It is very likely that the strong,
though perhaps subconscious, hold of general Diceyan perceptions of
contract as a question of 'private law' have also influenced the courts in
this area. This is somewhat ironic in view of the fact that Dicey's concern
was to increase the protection afforded to the citizen against the State.
The exclusion is doubly unfortunate in relation to the Crown: as
explained, policies implemented through the use of contractual powers
are not required to be subject to the Parliamentary process, and other
methods of scrutiny are therefore needed all the more to safeguard
against abuse.

(b) The jursidiction of the Ombudsmen

Finally, it may be observed that in England the special status of contract
is also important when it comes to the extra-judicial resolution of griev-
ances against the administration: our public law institution of the
Ombudsman has most contractual matters excluded from his jurisdic-
tion. As regards the Parliamentary Commissioner, he may not generally
investigate 'action taken in matters relating to contractual or other
commercial transactions'.3 6 The precise scope of the exclusion is
uncertain. It refers to contractual or other commercial matters, which
perhaps suggests that contractual matters of a non-commercial nature
are included; and the Commissioners have investigated some matters
which involve a contract between the government and citizen, such as
the services of the Public Trustee and the function of land registration."
However, it is clear that the provision does cover many important 38
government activities, such as the procurement of goods and services
and the award of industrial assistance taking a contractual form.3 9 The

36. Parliamentary Commissioner Act 1967, s 5(3), Sch 3, para 9. There is an exception
for contracts relating to the compulsory acquisition of land (ibid). This applies also to land
which could have been acquired compulsorily.
37. See Williams, Maladministration:Remediesfor Injustice (1976) at p 65.
38. See, eg Select Committee on The Parliamentary Commissioner for Administration,
Fourth Report, Minutes of Evidence Session 1979-80, HC 444, para 74.
39. lAid, paras 74-75.

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 Government contracts and public law 241

Commissioners for Local Administration are also forbidden to investi-

gate 'action taken in matters relating to contractual or other commercial
transactions'.' Here the scope of the exclusion is more precisely defined.
Expressly stated to be outside the Commissioners' jurisdiction are the
operation of public passenger transport, the carrying on of a dock or
harbour undertaking, the provision of entertainment and the provision
and operation of industrial establishment and markets;4 whilst within it
are stated to be transactions relating to the acquisition and disposal of
land,42 and transactions made 43
under any public general Act, with the
exception of procurement.
It is significant that these exclusions have been widely criticised. They
were questioned even before their introduction' and during the debate
on the Parliamentary Commissioner Bill;45 and since then there have
been repeated recommendations for their removal coming from all
quarters - from the Commissioners themselves;' from the Select Com-
mittee on the Parliamentary Commissioner,47 and from the many other
committees and Commissions which have reported on thejurisdiction of
the Commissioners.' The government has put forward a number of
reasons for maintaining these exclusions,49 but none is convincing and all
have been repeatedly rejected by critics.
One argument made is that it would not be appropriate for the
Commissioners to interfere with commercial judgements." However, it
is clear that removal of the contractual/commercial exclusions would not
allow them to do this, since the Commissioners' jurisdiction is limited
to investigating complaints of maladministration. 5 If the limitations
were removed it would not be expected that the Commissioners would
question an authority's judgement on matters such as the financial or

40. Local Government Act 1974, s 26(8), Sch 5, para 3.

41. Para 3(2).
42. Para 3(3). The exception is not limited as with the Parliamentary Commissioner to
land which could have been acquired compulsorily.
43. Ibid.
44. See, eg Inns of Court Conservative and Unionist Society, Let Right be Done (1966).
45. See, eg Parliamentary Debates, HC vol 734, cols 135-136 (David Weitzmann),
col 157 (SirJohn Hobson) Cols 148-149 (Fletcher-Cooke).
46. See, eg Parliamentary Commissioner for Administration, Annual Report 1983,
HC 322 Session 1981/2, para 9; Justice, 'The Local Ombudsman: A Review of the First
Five Years' (1980) para 37.
47. See Fourth Report, Session 1977-78, HC 615, paras 23-24; Fourth Report, Session
1979-80, HC 593, paras 3-8.
48. See, eg Royal Commission on Standards ofConduct in Public Life; Cmnd 6524(1976)
paras 82-83; Justice, 'Our Fettered Ombudsman' (1977) para 35; Justice, 'The Local
Ombudsman: A Review of the First Five Years' (1980) paras 35-37; Report of the
Committee of Inquiry into the Conduct of Local Authority Business, Cmnd 9797 (1986)
paras 9-73.
49. The government has repeatedly rejected suggestions that these exclusions should be
removed: see, eg its response to the Select Committee reports in n 47, above, in Cmnd 7449
(1979) paras 13-14, and Cmnd 8274 (1981) para 3; and to the report on the Conduct of
Local Authority Business above, n 48.
50. See, eg Parliamentary Debates HC vol 734, col 171 (Niall MacDermott).
51. Parliamentary Commissioner Act 1967, s 5(3), s 12(3); Local Government Act 1974,
s 26(l), s 34(3).

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technical responsibility of contract bidders or which bid represents best

value to the government; 2 but it would allow them to investigate, for
example, allegations that misleading advice has been given to bidders or
that contract awards have been based on nepotism or political
patronage.53 It has been suggested that it would be too difficult to draw
the line between commercial issues and others,54 but this is obviously un-
convincing: the distinction is often clear, as in the examples given above,
and in other cases the question of what constitutes maladministration is
no more difficult to determine than it is in relation to other activities.
Another argument made for exclusion is that a citizen will have a
contractual remedy for his grievance and this is a more suitable method
of redress. 5 This argument again is palpably incapable ofjustifying the
blanket exclusion which exists. In the first place many complaints -as in
the examples just given - relate to the award of contracts, not their
performance. Secondly, a citizen may arguably allege maladminis-
tration in performance which does not actually constitute a breach of
contract. It could be alleged, for example, that the government took
advantage of a 'technical' 6 breach in order to terminate a contract
because of the contractor's political persuasion, action which would
surely constitute maladministration but which in the absence of any
doctrine of good faith in contract performance, would not be a breach of
contract. As with judicial review, the weak private law doctrine of
freedom of contract hardlyjustifies the exclusion of public law remedies;
and there is anyway again often a general public interest involved which
makes this argument inapplicable. Finally, in those cases where a con-
tractual remedy is available and appropriate, investigation may be
precluded by the provisions requiring a complainant to use any remedy
he has at law when the Commissioner considers it reasonable to do so."
More generally, the government has tried to justify this exclusion by
reference to a distinction between governmental and non-governmental
activities:
'The government believe that the Parliamentary Commissioner system
should operate in the field of the relations between the executive and
those whom it governs. They do not believe that it would be in the
general interest to extend it to transactions where the relationship is of an

52. This is clearly recognised, for example, by the Select Committee on the Parliamentary
Commissioner for Administration in its Fourth Report for 1977-78, HC 615, para 23.
53. Interestingly the possibility that investigations should be allowed on matters of this
kind was recognised by Niall MacDermott in his speech, above, n 50, and he said that the
government would look into this; but in the end the blanket exclusion was not altered.
54. See, eg the statements of Sir Ian Bancroft, Head of the Home Civil Service, to the
Select Committee on the Parliamentary Commissioner in Session 1977-78, HC 444; and of
Nigel Lawson to the same Committee in Session 1979-80, HC 593, para 84.
55. See, eg Lord Trenchard, Minister of State for Department of Industry in evidence to
the Parliamentary Commissioner, Session 1979-80, HC 593, para 80.
56. Meaning a breach which was not a motivating factor in the termination of the
contract.
57. Parliamentary Commissioner Act 1967, s 5(2); Local Government Act 1974, s 26(6).
Under these sections it is for the Commissioner to decide whether or not it is reasonable for
the complainant to pursue a legal remedy.

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 Government contracts and public law 243

essentially commercially nature, such as in the buying of goods and

services, or that the commercial activities ofdepartments should be open
to examination by the Commissioner while other contracting parties are
free from such investigation.' 8
This argument is again surely not relevant where government activity
carried on through contract has the backing of a statutory monopoly or
sanctions; and it is interesting that some activities of this kind are subject
to investigation. 9 Obviously, however, many of the government's con-
tractual activities are not backed up by any extraordinary powers.
Should the Ombudsmen be able to investigate in these cases? It is
submitted that, as withjudicial review, the nature of the body taking the
action may justify the imposition of a control of a 'public law' nature to
activities which have a parallel in the private sector. The special political
obligation on the government to treat citizens in a fair and equitable
manner, the involvement of specific questions of public interest, and the
wider public interest in maintaining public confidence in the admin-
istration - something seen as an important aspect of the work of the
Ombudsmen - are all considerations which may distinguish the
government's contractual activities from those of private individuals.
The anomaly of the contractual exclusion in relation to the central
government is highlighted in the point made by some MPs 60 that if a
matter can properly be raised in a Parliamentary question, it should be
suitable for investigation by the Parliamentary Commissioner: his role is
to assist Parliament in the supervision of the administration, and all
matters relating to it with which Parliament and individual MPs may
otherwise be concerned should therefore be included within his jurisdic-
tion. Again, the need for this kind of scrutiny is particularly important in
relation to the Crown, because, although Parliament may choose to
consider contractual matters, there is as explained no legal requirementfor
policies implemented through contract to be subjected to Parliamentary
scrutiny.

Conclusion
This article has looked at several areas of public law from which the
government's contracting activity has to a greater or lesser degree been
excluded, and it has been suggested that in all these cases this is
inappropriate as a matter of principle. The general effect of this exclu-
sion has been to diminish the protection given to important public and
private interests which are affected by the exercise of the government's
contract powers. At the very least, as in some of the decisions in the area
ofjudicial review where courts have tried to get round the exclusion, it
has produced confusion and uncertainty in the law. The present position

58. Cmnd 7449 (1979) para 13. Similar arguments have been put forward by government
spokesmen in the House of Commons on many occasions.
59. For example, as already explained, transactions in relation to the compulsory acqui-
sition of land, and the provision of driving licences. However not all activities which have
been investigated (eg the services of the Public Trustee) are of that type.
60. See, eg Parliamentary Debate, HC vol 734, col 144 (John Lee).

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is the product of a variety of factors, historical, philosophical and prag-

matic. But whatever the influences in individual cases, together they
have contributed to the general tendency to perceive contract as a purely
private matter; and to a degree the various manifestations of contract as
a 'private law' matter in our law perhaps tend to reinforce and perpe-
tuate each other. This can be seen in the way in which references to the
'private', 'voluntary' or 'non-governmental' nature of contract have
often been used to argue for the exclusion of contract from public law.
Often these points are not really relevant and, as has been illustrated,
such arguments have sometimes tended to obscure and conceal the real
issues.
There is no doubt that the principle of subjection to the ordinary
private law is an important and valuable one in considering what should
be the contractual liability of government. However, the application of
public law doctrines to contract need not be inconsistent with this basic
principle. It is not, for example, necessary to treat contracts made in
breach of legal rules of public law as unenforceable by both parties - the
mere existence of substantive rules can have an effect on behaviour, and
they can be enforced to the extent, for example, of allowing a remedy to
prevent a contract being made. Thus it need not follow from the fact that
the private law should apply to contract that only the private law should
apply, and that this function should not be subject also to public law
regulation. Whilst the paramountcy of the private law as a principle
should be retained for liability purposes it is important that it should not
be allowed to conceal the 'public' aspect of government contracting: the
law should seek to achieve a degree of legal regulation which takes
appropriate account of the special interests involved in this activity, and
should not assume too readily that it is an activity which is properly
beyond the scope of 'public law'.

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