Impact of de-amalgamation on contracts - How will it work?

Subscribe
19 September 2013

The new local governments of Douglas, Livingstone, Noosa and Mareeba (and their respective “new local government areas”) will come into existence on 1 January 2014.

De-amalgamation will affect a number of contracts currently in place for the supply of services across the current local government area.  Waste collection and the maintenance of parks and recreational facilities are just a few examples.

What happens to these contracts when a local government area is de-amalgamated?

The Local Government (De-amalgamation Implementation) Regulation 2013 sets out processes and provisions for dealing with existing contracts affected by a de-amalgamation.

In general, if a contract relates to a new local government area, a reference to the continuing local government may, if “the context permits”, be taken to mean:

  1. the new local government; or
  2. both the continuing local government and the new local government (in this case, the contract continues in force for both local governments). 

For each contract in question, Local Governments should first consider which part of the local government area the contract relates to. 

For example, in a construction contract for a new building which is entirely within the new local government area, references to the continuing local government will be deemed to be a reference to its related new local government.

On the other hand, if the contract relates to the delivery of waste collection services across the entire local government area (prior to de-amalgamation occurring), references in the contract to the continuing local government are deemed to be a reference to both the new local government and its related continuing local government.

New “major contracts” not yet entered into

“Major contracts” that continuing local governments have not yet entered into, but would bind a new local government after 1 January 2014 (if entered into) require the written approval of the transfer manager. 

A major contract is a contract with a total value of more than the greater of:

  1. $200,000; or
  2. 1% of the continuing local government's net rate and utility charges.[1]

From the changeover day of 1 January 2014, the new local government can (subject to compliance with any arrangements relating to the de-amalgamation) enter into its own contracts independently of the continuing local government.

As between the local governments, who is liable?

For contracts that will apply to both the continuing local government and its related new local government, the transfer committee determines liability as between those local governments.  In making decisions to apportion liability, the transfer committee is bound by the Transfer Methodology.

This alleviates the need to renegotiate existing contracts with relevant service providers. 

For example, the transfer committee may determine that a WH&S claim by a contractor arising from an event which occurred within the new local government area is the responsibility of the new local government, and not its related continuing local government.

From the contractor's perspective, the terms of the contract remain unchanged, with the exception that (on and from 1 January 2014) the terms of the contract will apply to both local governments.

What should affected local governments do now?

The continuing local governments of Cairns, Rockhampton, Sunshine Coast and Tablelands should review existing contracts to determine how they might be affected by de-amalgamation.

This will involve the relevant local governments and transfer committee analysing:

  1. how the contract applies across the current local government area; and
  2. what arrangements should be put in place to determine responsibilities and liability between the continuing local government and the new local government following the changeover day. 

Depending on the nature of the contract, this process could be complex.

In relation to proposed contracts which have not yet been entered into by the continuing local governments, the local governments should also consider including specific provisions dealing with de‑amalgamation.


This is the second of a five part series on matters relevant to Queensland’s de-amalgamated councils and the new local governments that will emerge from the process. The next part will refer to the management of the transition of people to the new local governments.


  [1] As stated in the continuing local government’s audited financial statements included in its most recently adopted annual report.


The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


Related Content

Contacts

Helen Clarke

Partner. Brisbane
+61 7 3228 9818

Profile

Michael Leong

Partner. Brisbane
+61 7 3228 9474

Profile

Henry Prokuda

Consultant. Brisbane
+61 7 3228 9791

Profile