Top Tips on Negotiating and Exiting Local Authority Contracts

Community care providers continue to face financial pressures due to stagnant local authority fee rates and increasing costs. Many are taking steps to exit or reduce their reliance on local authority contracts as they increasingly find them financially unviable.

This is a bold and difficult decision for a provider, particularly if their business has been heavily reliant on work from the local authority. Advice should be sought at the outset to ensure that the strategic, financial and legal considerations have been properly thought through. Below are our top tips for providers to consider.


Before deciding to exit the contract, provide the local authority with your actual care costs and try to negotiate a better rate.

Your ever increasing staffing costs are particularly relevant, but have they been properly understood and costed by the LA? Ensure you have evidenced the following:

  •  Above inflationary increase of 3% to the National Minimum Wage (NMW) in October 2015;
  • Recent case law confirming that sleep-in shifts and travel time are both ‘working time’ and subject to the NMW; and
  • New auto-enrolment pension costs.

From our experience of advising providers we have found that local authorities are routinely paying less than the NMW wage for sleep-in shifts. A UKHCA survey has also found that 98% of local authorities don’t pay for travel time. Providers should challenge this; the Statutory Guidance to the Care Act is clear that local authorities have a duty to ensure that fee rates enable providers to meet their NMW obligations.

Winning the argument may well come down to the strength of your market position. If you have a strong position, for example because of a shortage of other providers in the area or the specialist nature of the care you provide, it may be difficult for the local authority to find an alternative provider. Use this as leverage to negotiate your fees.

Terminating the contract

 If you do decide to terminate the local authority contract, ensure you do it lawfully.

Local authority contracts can be very one-sided. Check carefully that you have a contractual right to terminate and what the consequences of doing so are, particularly in terms of any provisions requiring staff to be transferred to a new provider.

Ensure you comply with the provisions of the contract and give notice at the correct point and in the required format otherwise the notice may be void.

If there is no contractual right to terminate consider whether you can terminate on other grounds, for example breach of contract by the local authority.

Staff retention

Where services transfer from one service provider to another, employees automatically transfer to the new provider on their existing terms of employment under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

Whether TUPE applies is often a tricky question. You should seek legal advice so that you don’t unnecessarily lose valuable staff when exiting a local authority contract. You will also need to understand whether you are required to comply with the information and consultation obligations under TUPE as the financial consequences for failing to comply are often high.

Consider your staffing arrangements at the outset, particularly where staff work for both local authority and privately funded clients. The way you structure your workforce is likely to determine who transfers to the new service provider and you may be able to reduce the risk of losing your best staff.

Retaining clients and protecting your business

If you terminate the local authority contract be proactive in protecting your client base. Reassure clients that they don’t have to transfer to the new provider and reassure them that they can contract with you directly and fund their care through Direct Payments.

We can help

 We are experienced in advising on local authority contracts and assisting providers with fee negotiations. We also provide specialist advice on business transfers and TUPE.

For a free initial consultation please contact James Sage, Head of Health and Social Care Team, QualitySolicitors Burroughs Day on 0117 930 7532 or