Academy Trust Contracts

A question of authority.

What can an academy trust do:

• where a delegated power to authorise contracts has been exceeded; and
• to get out of a contract made in excess of any delegated authority

For schools converting to academy status and becoming a part of an academy trust there is a fundamental change to the way in which contracts are finalised.  It is the academy trust, and not the school, that has legal personality, and it is the academy trust and not the school which should be party to any contract.

The trustees of an academy trust have ultimate responsibility and accountability for authorising contracts on behalf of the academy trust and to the outside world it is the trustees that have the power to sign contracts and to commit the academy trust to the obligations arising under that contract.  It doesn’t matter what type of contract it is, the power and authority rests with the trustees, acting in the name of the academy trust.

Yet that power and authority can and in most cases will be delegated by the trustees to senior figures within the academy trust, from the Chief Executive, Chief Financial Officer, Chief Operating Officer through to the Headteacher and School Business Manager (“SBM”) and beyond.  It is important that anyone authorising contracts in relation to their school, or for the academy trust, understands the limitations that will be set under any scheme of delegation.

In this note, reference will be made to SBMs, but the principles set out apply equally to anyone with delegated authority

So, what can an academy trust do:

• where a delegated power to authorise contracts has been exceeded; and
• to get out of a contract made in excess of any delegated authority.

Going Beyond Delegated Authority to Enter Contracts

Most if not all academy trusts will delegate authority to headteachers/SBMs to authorise contracts. Often that delegated authority is limited to certain areas of the academy trust’s operations and the confines of certain monetary thresholds. If there is actual authority, and a SBM has acted within that authority, the subsequent contract made on behalf of the academy trust will be valid and will therefore bind the academy trust.

However, circumstances can be made complicated, where a contract has been made through apparent authority.

Apparent authority Internal governance structures of Academy Trusts are often misinterpreted by third-parties, such as suppliers.  These third parties are often accustomed to making contracts with SBMs on behalf of maintained schools, not recognising the extended governance structures involved within academy trusts. Due to this lack of knowledge, authority to enter contracts can often be implied or assumed by the suppliers.

In addition, SBM’s may themselves have been accustomed to agreeing contracts as part of their role within maintained schools.  They may themselves be unfamiliar with the extended governance structure within their academy trust and unclear on any limit on their delegated power.  In such circumstances they imply to, or assume in their dealing with, suppliers that they have authority; they hold themselves out as having authority and, in some respects, it is reasonable for suppliers to take that holding out at face value.

A contract made in excess of authority, can potentially remain binding. A supplier can often rely on apparent authority to enforce a contract, but only where that supplier does not have knowledge of a lack of or a restriction of authority.

Can an Academy Trust get out of a contract made in excess of authority?

If certain circumstances are satisfied, an academy trust can detach itself from a contract made beyond the limits of delegated authority. However, the options available to the academy trust will depend on whether the supplier knew or ought to reasonably have known that a SBM was acting beyond their delegated authority.

Scenario 1

The SBM has acted outside their actual authority and the supplier knew or ought to have known they were acting in excess of authority.

The academy trust has the option and can choose to:

(a)    rescind the contract with the supplier, i.e. end it, with both the academy trust and the supplier being entitled to be put back into the position they were at the start (meaning a return of sums paid and goods delivered) save for reasonable payment for any goods or services actually used.  The academy trust must act quickly and avoid any suggestion that it has in any way accepted the contract as binding; or

(b)   ratify (or approve) that contract. This will have the effect that the academy trust separately agrees to be bound by the contract, usually after the event, as if they had initially authorised the contract. 

There are certain formalities to ratification, and it is important that the academy trust takes advice.

Scenario 2

The SBM has acted outside their actual authority but within the scope of its apparent authority.

Where a contract has been made on apparent authority, where a supplier is not aware of the limitations of the SBM’s authority to contract, the contract will be valid, and the academy trust will be bound by it.

Scenario 3

The SBM has acted outside their actual and apparent authority.

Where the SBM has exceeded both the actual authority delegated to them by the academy trust and apparent authority, there is nothing to hold the academy trust to the contract, and they are, therefore, not bound by it.

Key Steps

Circumstances do differ on a case-by-case basis. Most academy trusts delegate authority to enter certain contracts to other individuals within the academy trust, such as headteachers and SBMs.

To mitigate the risk of being bound by a contract which has not been property authorised it is important that the academy trust ensures that all of its staff are made aware of the scheme of delegation, and that this is reinforced.  Publishing the scheme of delegation on the academy trust’s website helps with the process of ensuring that anyone wanting to contract with the academy trust has notice of the limits on delegated authority.  More can be done to ensure the outside world has knowledge, such as centralised purchasing (e.g. the requirements for purchase orders) or footers on emails.

Whilst the academy trust may have some ability, albeit limited, to avoid being bound by unauthorised contracts with suppliers the academy trust may have separate recourse against the person acting outside their delegated powers.  This falls under the remit of the academy trusts’ disciplinary procedures and the contract of employment.