1.1.1.1 To examine interfaces and communications channels with a view to recommending ways of overcoming impasses in negotiations, paying particular attention to:

· Clarification regarding Westridge development capital funding;

· The extent to which development costs are structured in accordance with Section 19 of Local Government (Miscellaneous Provisions) Act 1976;

· To ascertain that there is common understanding of the business plan submitted on behalf of Wight Leisure Limited (WLL);

· To resolve any remaining questions about the basis of proposed performance indicators in WLL business plan;

· To resolve client/contractor relationships.

1.1.2 Layout of Report

1.1.2.1 Section 2 deals in detail with both the terms of reference and approach to the review and includes a brief history of the Externalisation Project.

1.1.2.2 Section 3 considers the nature of the project and proposes a process and protocol that is known to have worked for other local authorities in the conduct of similar projects.

1.1.2.3 Section 4 provides an account of the findings of the review.

1.1.2.4 Section 5 details 16 conclusions that arise from the review.

1.2 Recommendations

1.2.1 Externalisation Project

1.2.1.1 The project should cease with immediate effect for the following reasons:

· The process has become flawed and a number of irregularities seriously impair its successful conclusion.

· An evaluation of the WLL initial proposal would in normal prudent procurement conventions disqualify WLL on two key financial criteria:

· No satisfactory evidence of fund raising capacity and funding (see paragraph 4.3.7.7));

· Financial robustness and financial management capacity as a new undertaking without apparent access to reserves in the short-term (see paragraph 4.3.7.8.).

· If the Council is minded to re-start the project it must establish a prudent project plan and related protocols. An outline model is given under Section 3 of the report. It is the view of the author that the project should not re-start before the corporate issues recommendations that follow have been implemented.

1.2.2 Corporate Issues

1.2.2.1 The Council should initiate an enquiry into the ~~legal~~ irregularities that have arisen during the course of the Externalisation Project.

1.2.2.2 A further review is essential to establish exactly why and how the organisational deficiencies that have come to light during this review happened and to determine how to prevent them in the future.

1.3 Summary of Conclusions

1.3.1 The Externalisation Project is seriously flawed and compromised due to lack of effective process and protocol.

1.3.2 Recent corporate engagement in the project has been dysfunctional due to the lack of a Project Board to direct the project.

1.3.3 The dissemination and exchange of information within the Council is poor, and a review of strategies and processes should be undertaken as quickly as possible.

1.3.4 There are indications that expenditure ~~has~~ may have been ~~been~~ incurred for purposes which the Council has no powers to incur expenditure.

1.3.5 There has been no substantive commitment from Isle of Wight Economic Partnerships to allocate SRB funding to the Westridge project in its current form.

2 CONTEXT AND BACKGROUND

2.1 Terms of Reference for the Review

2.1.1 Objectives

2.1.1.1 To be an “intermediary” to assist in overcoming an apparent impasse in “negotiations” that had arisen between the Client and Wight Leisure.

2.1.1.2 To assist the Council to come to a judgement that the current proposals by Wight Leisure provide a sound basis for externalisation by particularly addressing the following issues:

1. Clarifying the significance, structure and source of capital funding for the Westridge development;

2. Ensuring that the development costs are structured to comply with Section 19 Local Government (Miscellaneous Provisions) Act 1976;

3. To ensure that a common understanding underlies financial analysis by PMP (the Council’s Client Advisors) and the business plan prepared by Wight Leisure and Leisure Partners (Wight Leisure’s Advisors);

4. Resolving some remaining questions about the basis of proposed performance indicators in the business plan;

5. Resolving some of the client/contractor relationship issues that have arisen as a result of this process and brokering a future effective working relationship.

2.1.2 Approach to the Review

2.1.2.1 A “diagnostic” survey was undertaken by undertaking a series of interviews with key staff, independent advisors and representatives of IOW Economic Partnerships (Appendix C) and extensive background reading (Appendix B) in order to verify the current status of the project, paying particular attention to the following elements:

1. The level of common understanding of key elements and objectives of the externalisation project;

2. The level of consistent corporate engagement in the prudent delivery of the project in a reasonable timescale;

3. An assessment and broad overview of the risks involved in delivery of the project, in the light of the Council having no obvious alternative strategy for achieving its ambitions for Leisure Services;

4. An understanding of the protocols and processes employed by the Council in addressing the project.

2.1.2.2 The review has not given equal weighting to the objectives of the terms of reference, nor has it been constrained by those terms of reference when it has become apparent to the author that other issues required consideration in order to come to objective conclusions and make pertinent recommendations.

2.1.2.3 The scope of the review has largely been restricted to actions and decisions taken in 2002 to date, although where earlier decisions and actions remain pertinent or appear to significantly influence the current situation references are made to them.

2.1.2.4 The fact that the Council has commissioned the review indicates that it acknowledges that all is not well with the project. With this in mind, Section 3 of the report considers a model that has successfully delivered externalisation and partnership arrangements in other local authorities.

2.2 Short History of the Externalisation Project

2.2.1 General

2.2.1.1 The prospect of externalisation of Leisure Services has apparently been a “live” issue since the formation of the Direct Service Organisation (DSO) in the Council in 1997, in compliance with the then legislation for Compulsory Competitive Tendering.

2.2.1.2 The Council was moving towards externalisation in 2001. but was advised by the District Auditor that it should undertake a Best Value Review of the Service prior to any externalisation taking place.

2.2.1.3 The Best Value Review was undertaken in October 2001 and reported to Executive in May 2002.

2.2.1.4 The Council then agreed to receive proposals from the staff and management of Wight Leisure for the creation of a Not for Profit Organisation (NFPO) to undertake the management of the Leisure Services.

2.2.2 Decisions of Executive taken during 2002

2.2.2.1 26^th February 2002 - Capital Programme 2002/03

1. Westridge allocated £90,000

based on information in the accompanying report that “The proposed Tone Zone at Westridge has a total cost of £250,000 and has received matching contributions from both Single Regeneration budgets and the Sports Lottery”

2.2.2.2 7^th May 2002 - Report on outcome of Best Value Review.

Resolved

1. THAT the findings and recommendations of the review be accepted.

2. THAT the externalisation of the delivery of the services to a Not for Profit Distributing Organisation be approved.

3. THAT a further report be brought back setting out the timetable for the externalisation process.

2.2.2.3 21^st May 2002

Resolved

1. THAT THE Services be transferred to a Not for Profit Distributing Organisation with effect from 1^st October 2002.

2. THAT the timetable as set out in Annex 1 to the report be agreed.

3. THAT the Economic Development, Planning, Tourism and Leisure Services Select Committee oversee negotiations in respect of all matters relating to the transfer and that the final details of the agreements with the Not for Profit Distributing Organisation be submitted to the Executive at its meeting on 27^th August 2002.

2.2.2.4 5^th September 2002

Resolved:

1. THAT it be accepted that the transfer would not take place on 1^st October 2002.

2. THAT a further report to be brought back to the Executive by the end of October 2002 and that negotiations with Wight Leisure Limited continue with a view to completion of the transfer by 31^st December 2002.

3 PLAN, PROCESS AND PROTOCOL FOR DELIVERING PARTNERSHIPS

3.1 Project Aims

3.1.1 Drivers for Externalisation

3.1.1.1 The financial drivers that have been identified by the Council as potential benefits of externalising Wight Leisure to a NFPO, given the constraint that there is to be no extra cost to the Council, are as follows:

· Additional funding deriving from NNDR Charitable Relief and VAT savings. The two are currently estimated as being worth £150k, and it is the expressed Council wish that this additional funding should be re-invested in the service.

· Greater scope for raising external funding, since a NFFPO is not subject to the borrowing restrictions that apply to local authorities.

3.1.1.2 Operational drivers for the proposed arrangement are:

· Continuity of management and staffing arrangements, based on a high level of satisfaction with the performance of the current management and staff.

· The need and likelihood of achieving a continuous improvement plan based upon the Best Value Review of Leisure Services.

3.1.2 The Proposed Arrangement

3.1.2.1 There needs to be clarity about the arrangement the Council is seeking to negotiate. It appears that what is sought is a transfer of the service to an independent entity (Wight Leisure Limited), and the expectation that Wight Leisure Limited (WLL) will make application to the Council for an annual grant, which in practical terms will initially, at least, be critical to the financial stability of WLL. What is not proposed is a facilities management contract with WLL.

3.1.2.2 The arrangement is expressed as a proposed partnership, and there are a number of existing partnership arrangements between public authorities and private companies.

3.1.2.3 The Council has previously undertaken an Options Appraisal and determined that the currently proposed arrangement is the only one it wishes to consider, and that it intends to negotiate only with WLL. It, nevertheless, must undertake a structured “procurement/evaluation” process in order to be in a position to make a final decision in line with good governance practices.

3.1.3 Principles of Partnership

3.1.3.1 A partnership is intended to be a business arrangement whereby each partner undertakes and accepts responsibility for those parts of the undertaking that it best equipped to manage.

3.1.3.2 This implies that a full analysis of all risks is undertaken and that the assessment of those risks is shared between the prospective partners. Risks will embrace financial, commercial and operational risks, and these will ultimately determine the areas for negotiation.

3.1.3.3 Since it is the Council that is seeking the partnership arrangement, it would be expected that the Council would initiate the process. This is contrary to the expressed understanding within the Council and that uncertainty in roles has contributed to the lack of protocol.

3.1.4 Model Process for Achieving a Partnership Arrangement

3.1.4.1 The Council, having made the decision to seek a proposal from one party only, can to some extent shortcut or modify normal procurement processes, but does need to employ the same evaluation processes and criteria that it would use in a competitive process.

3.1.4.2 It is essential that there should be a Project Board^[1] and Project Manager^[2] appointed at the outset to lead as client, and the initial task would be to develop a prospectus for the proposed externalisation, agreeing protocols for the project (including identifying those officers and elected members who may be compromised and issuing guidance) and obtaining Council sign-up to the project by means of workshops and agreement of the prospectus by the Executive.

3.1.4.3 The prospectus would include, as a minimum, details of existing services, Council’s requirements (including service outputs sought), risk analysis and affordability (an indication of the proposed medium term grant commitment). The prospectus is necessary, since it is not reasonable to assume that the Directors of WLL will have a complete knowledge and understanding of the project and the Council’s aims.

3.1.4.4 The prospectus should also give WLL a clear indication of the Council’s proposed timetable for externalisation together with information on how any submissions by WLL will ultimately be evaluated by the Council. Evaluation processes and ranking methodologies are well established and based upon the publication “Quality In The Balance – Local Government Management Board 1995”. The aim is to assess whether the proposal meets the Council’s output requirements, is affordable and offers value for money.

3.1.4.5 WLL should be required to complete a Pre-Qualification Questionnaire (PQQ) to assist the Council in determining whether or not there is a basis for pursuing a partnership proposal. The PQQ would be abbreviated from the normal, since the Council is aware that WLL is a new business entity, and would be evaluated on a Pass/Fail basis. It is likely to include the following enquiries:

· Details of Company including Company Rules;

· Details of Directors and their “bona fides”;

· Details of financial advisors and their relevant financial advisory and funding experience;

· Previous experience in operating Leisure Services;

· Finance raising capacity of the Company;

· Details of bankers and other financial arrangements;

· Details of any envisaged debt finance and how it would be secured;

· Ethos of Company.

3.1.4.6 On successful qualification under the above WLL would be invited to make an initial proposal, on receipt of which a series of minuted clarification meetings would take place.

3.1.4.7 A typical timetable/outline project plan is given below:

Project task	Timescale for Task Completion
Approval of Prospectus by Executive	Week 1
Issue Prospectus and PQQ to WLL	Week 2
Receive response to PQQ and evaluate. Invite initial proposal from WLL	Week 4
Receive initial proposal from WLL	Week 8
First clarification meeting (operational proposals)	Week 10
Second clarification meeting (commercial proposals)	Week 11
Third clarification meeting (financial proposals)	Week 12
Fourth clarification meeting (legal proposals)	Week 13
Fifth clarification meeting (operational proposals)	Week 14
Sixth clarification meeting (commercial proposals)	Week 15
Seventh clarification meeting (financial proposals)	Week 16
Eighth clarification meeting (outstanding issues)	Week 17
Report to Executive to obtain consent to continue project	Week 19
Invite final proposal from WLL	Week 19
Commence negotiation of legal terms and grant application	Week 20
Receive final proposal from WLL	Week 28
Initial agreement of terms of proposal. Report to Executive and final proposal to transfer and grant application.	Week 36
Finalise legal documentation and commence implementation	Week 40
Project close	Week 48

NB It should be noted that other elements related to the project, e.g., the transfer of staff to WLL, would be progressing in tandem with the above.

3.1.4.8 There are some examples of such projects being successfully completed within 26 weeks, but these usually start with a high level of common understanding and up to twelve months is more common.

4 DIAGNOSTIC REVIEW

4.1 Current Status of Project

4.1.1 Authority for the Project

4.1.1.1 Paragraph 2.2.2.3 above indicates what is apparently a categorical decision by Executive that the services be transferred to a NPFO. The status of that decision must be an instruction to undertake the process that would enable the Council to ultimately make an informed, reasonable and prudent decision on a potential transfer.

4.1.1.2 Paragraph 2.2.2.4 refers to the continuation of negotiations with Wight Leisure Limited. There have, in fact, been no negotiations with Wight Leisure Limited as such.

4.2 Benchmark for the Diagnostic Review

4.2.1 The outline model, as described under paragraph 3.1.4, has been used as the benchmark against which the review has been undertaken.

4.3 Parties to and roles in Externalisation Project

4.3.1 Client (Council)

4.3.1.1 Since the project has run for a number of years the client role has significantly changed from being a project group at the outset to now being led by John Metcalfe, Head of Community, Development and Tourism.

4.3.1.2 Independent advisors have been appointed to support the client role:

· PMP to provide financial and critical review of service proposals submitted in the proposed business plan, and

· Leonie Cowen and Associates to provide Legal Advice.

4.3.1.3 A client/contractor split has been established between the client and “contractor” (Wight Leisure?) in acknowledgement of the need to ensure that the degree to which the “contractor” unduly influences the Council’s decision is limited. Such a split is a well-established practice to ensure transparency and probity in managing “in-house” bids under the former CCT regulations.

4.3.1.4 For part of the process, John Metcalfe has had line management responsibility for Annie Horne, the Managing Director of Wight Leisure. This situation would not have been appropriate under the CCT regime, but since the project is an externalisation project then it is appropriate and accords with the model role of the Project Manager, see paragraph 3.1.4.2.

4.3.2 Wight Leisure (The Council Department)

4.3.2.1 Wight Leisure is a business unit that currently delivers Leisure Services for the Council, and remains a department of the Council and subject to the Council’s standing orders, financial regulations and its staff are subject to all of the disciplines and protocols required of all Council employees.

4.3.2.2 The Department was previously a DSO, and at that time was effectively an internal trading organisation.

4.3.2.3 Contractor/client splits were adopted under the Compulsory Competitive Tendering (CCT) regime at the time that services were being tendered, and most local authorities had well-established procedures for managing this “split” to ensure that DSO’s were not “detached” from the corporate Council.

4.3.2.4 It is apparent that such procedures have not been in place to support Wight Leisure during the current prolonged externalisation process. This is reflected in the apparent failure to inform on legal advice available to the Council, and Wight Leisure continuing to act on previous advice, an issue that is referred to later in the report in addressing s19 Local Government (Miscellaneous Provisions) Act 1976.

4.3.2.5 The Wight Leisure management team have been required to make proposals to the client, in the form of a business plan, for the externalisation of Leisure Services. Such a proposal is in principal a de facto proposal on behalf of Wight Leisure Limited, and the value of this approach is considered below.

4.3.2.6 Independent advice has been provided by Leisure Partners Limited, who have a long association with the Council, previously in assisting with the development of the future strategy for Leisure Services, and currently as specialist advisors to assist with the transition to NFPO receiving grant support from the Council.

4.3.3 Wight Leisure Limited (WLL)

4.3.3.1 Wight Leisure Limited is an entirely separate entity from the Council formed for the purpose of delivering Leisure Services that have hitherto been provided directly by the Council.

4.3.3.2 Wight Leisure Limited is an Industrial Provident Society (IPS) and was incorporated as a company on 13^th June 2001. The Inland Revenue have confirmed that WLL is a charity for tax purposes.

4.3.3.3 The founder members of the company remain as the effective directors, and the original Company Secretary remains in that capacity as an officer of the Company. All are either directors or employees of Leisure Partners Limited, the advisors of Wight Leisure. This introduces potential conflicts of interest.

4.3.3.4 The set-up costs for WLL have been funded by Leisure Partners Limited in the knowledge that the funding will be lost if the proposed externalisation of Wight Leisure does not take place.

4.3.3.5 WLL has remained dormant since its incorporation, i.e., it has not engaged in any activity.

4.3.3.6 The timing of the incorporation of WLL was to ensure that there was an NFPO in place, so that there would be no hindrance to delivery of decisions made by Executive on 3^rd May 2001 to commence the process of transfer of leisure services to a NFPO.

4.3.3.7 By Executive decision on 21^st August 2001 the externalisation project was suspended to allow a Best Value Review of the services to be undertaken. In consequence, no action was taken by WLL to recruit independent or non-executive directors to the board of directors.

4.3.3.8 It is not unusual for professional advisors to undertake the incorporation of a company in the way that Leisure Partners did, and it would have been expected that on the appointment of the independent directors the founder members would have resigned. The prolonged process of the externalisation makes the current situation look odd, and represents a barrier to the swift finalisation of the current phase of the project.

4.3.4 Client/Contractor Split

4.3.4.1 As long ago as November 2000, it is recorded that the District Auditor had advised the Council as follows: “Once a final decision has been taken to set-up a trust there will be a need for a clear separation between the Council’s client function and prospective Trust Members and staff. The Trust will need to appoint staff to provide the necessary support and will assimilate the necessary finance to implement the set-up process. The trust will need to be independent of the Council and a distinct separation of duties is essential in order to overcome conflicts of interest.”

4.3.4.2 The Council has interpreted this advice by creating a “hard” split between the client and Wight Leisure, the in-house service provider, effectively detaching the service from the Council and excluding it from normal information exchange and access to information. It has also limited the client access to operational information that would have been essential to the production of the Externalisation Prospectus.

4.3.4.3 Effectively, the Council has acknowledged the potential conflict of interest of particularly the management of Wight Leisure and its staff but failed to acknowledge that all remained employees of the Council, with a role in the development of the prospectus and providing clarification information to the client. The staff of Wight Leisure cannot directly undertake duties for WLL, and any contact should be via the Council’s Project Manager.

4.3.4.4 Since the management and staff of Wight Leisure are directly affected by the outcome of the proposed externalisation of the service, it would be expected that the Council would have a communication strategy to keep staff informed of progress at key milestones of the project. In similar circumstances, other local authorities have produced newsletters that are sent to all Council staff.

4.3.4.5 As noted above, WLL was incorporated in June 2001 and by the very structure of the Board of Directors, Leisure Partners ceased to be advisors to the Council, including Wight Leisure, and became advisors to WLL compromising their ability to support Wight Leisure.

4.3.4.6 By remaining dormant, WLL has not appointed staff and the founder members remain the only personnel who can conduct transactions on behalf of WLL.

4.3.4.7 The result of this has been that staff have been appointed by Wight Leisure in anticipation of the transfer, and have effectively worked for and collaborated directly with WLL. This has, in fact, created a situation where potential conflicts of interest are greater than would have been had strict protocols been maintained, and has produced a situation whereby the Council may have incurred expenditure that it has no powers to expend.

4.3.4.8 It is evident that the client/contractor split adopted, without a clear strategy for managing the split has resulted in critical breakdowns in communications and trust, a lack of understanding of the roles of those involved in the project, and has failed to adequately address the conflict of interests issue. It has also seriously prejudiced the timely conclusion of the project, and because of the now extended duration of the initiative and ongoing structural changes in the Council has had a serious impact upon corporate governance.

4.3.5 Section 19 Local Government (Miscellaneous Provisions) Act 1976

4.3.5.1 The significance of Section 19 of the above Act to the review is that the Council’s powers to provide most of the services that are subject to the externalisation project are derived from the Act.

4.3.5.2 The Council’s legal advisers, Leonie Cowen and Associates have advised as follows: “The Audit Commission’s advice received from Charles George QC and as reflected in the Legal Issue Group Bulletin which it issued to Auditors in June 1998 states that neither Sections 19(3) or 19(1) give power for a local authority to set-up the trust structure. The 1998 advice states that the power in Section 19(3) to contribute towards the expenses to be incurred by a voluntary organisation can cover start-up costs once the organisation has come into existence but not pre-formation costs.”

4.3.5.3 This is consistent with the advice received from the District Auditor in November 2002 (see paragraph 4.3.4.1 above).

4.3.5.4 The extent to which this advice was shared with the management of Wight Leisure is unclear. What is clear is that Wight Leisure was acting under previous advice referring to Section 2 of the Local Government Act 2000.

4.3.5.5 It is confirmed that the costs of formation of WLL have not been paid by the Council, but by Leisure Partners Limited. The Managing Director of Leisure Partners Limited has confirmed that there is no commitment to reimburse these costs in the event of the proposed transfer not taking place.

4.3.5.6 However, there is evidence that the Council has incurred costs on behalf of WLL in the form of payments to WLL auditors, insurance consultancy and commitments for legal advice. There have also been purchases of accounting systems, IT etc.

4.3.5.7 In acknowledgement of Section 19(3), what should have happened is that WLL should have applied to the Council for a grant to support pre-transfer costs and the above items been paid for by WLL.

4.3.6 Westridge Development

4.3.6.1 The prospect of development of Westridge as an Inclusive Fitness Centre has clearly had considerable influence upon the Council as reflected in a number of reports to Executive, and is noted in the Audit Commission Report on the Best Value Review of Wight Leisure as follows:

“The Council has proved successful at attracting funding for areas of deprivation, such as funding of a new fitness centre at Westridge Centre. The Council’s capital programme, Single Regeneration Budget money and a loan from Leisure Partners will fund this £650,000 project.”

4.3.6.2 Two applications have been made to the Isle of Wight Economic Partnership (IOWEP) for Single Regeneration Budget (SRB) funding in support of the Westridge development proposals. The first in March 2002 was for a scheme of approximate capital cost of £250,000, and was the subject of approval of capital programme allocation of £90,000 by the Council (paragraph 2.2.2.1). During appraisal of the project by IOWECP, there were questions raised about the issue of grant funding being used to deliver activities that came within the remit of statutory delivery by the Council.

4.3.6.3 Grant monies cannot be used to substitute for activities previously delivered as part of the statutory services provided by the public sector. There can, however, be enhancements over and above statutory requirements where socially excluded sectors are given increased provision. The matching monies from the other funding body were not secured and the application did not complete the appraisal process.

4.3.6.4 A further application was made by the Council on 7^th June 2002, with clear indication of potential transfer of the project to the stewardship of WLL. The application indicated that the proposed scheme would cost £650,000 and that SRB funding of £125,000 was sought to make up the funding shortfall. The following funding had apparently been obtained:

· IOW Council £ 90,000

· WLL £ 85,000

· Leisure Partners Limited £350,000.

4.3.6.5 The application was taken to the IOWEPC sub-group and was approved in principle, on condition that there was an increase in services to the ‘excluded’ sectors, and clear mechanisms to enable greater access to these services. There was also a discussion as to the ownership of the equipment, and whether or not there was the potential for the private sector partner to make a decision that there was insufficient return on their investment and would take possession of the equipment and move it off the Island.

4.3.6.6 The business plan submitted did not contain sufficient detail for the above risk to be assessed, and these issues were being taken up with Wight Leisure, but access to the information proved to be difficult. If the situation was that the equipment was removed under the circumstances described, the terms of the grant funding would have been breached, and there would have been ‘clawback’. However, it would have been possible for the contract to have been made an integral part of the agreement with the private sector funder, so preventing removal of the equipment.

4.3.6.7 IOWECP’s appraisal team were unable to pursue the application both for the above reasons and the uncertainty of the Externalisation process. If the proposal was to be taken forward in the future there would need to be much greater clarity concerning the future sustainability of WLL, the exact relationship with the private sector partner, and the measures to be put in place to ensure greater access was being given to groups categorised as socially excluded.

4.3.6.8 The role of Leisure Partners Limited, when acting as independent advisors, in offering direct finance to the Westridge project must be questioned, since it places the advisor in a position where advice ceases to be independent. It would have been expected that an advisor would have undertaken a “soft” market test to establish the potential and appetite for funding of the project. Such action would have given reassurance to WLL and ultimately the Council of the viability of the project.

4.3.6.9 As it is the status of the funded scheme must be regarded as only speculative.

4.3.7 Externalisation Project Progress since May 2002

4.3.7.1 The approach to the project has been somewhat reactive in that the client has invited the submission of a Business Plan, and had its independent advisors undertake critical reviews and analysis of the plan submitted. No clear evaluation criteria have been shared with WLL and the timescales for the delivery of the project appear to be with WLL rather than the client.

4.3.7.2 Apparently two plans have been submitted, the first rejected by the client and the second received in December 2002 is still the subject of clarification and “negotiation”.

4.3.7.3 The author of this report has read both the plan itself and the initial response by PMP, in order to address the terms of reference for the current independent review of the Externalisation Project. Before commenting on that aspect, consideration has been given to the status of the Business Plan against the model given in Section 3 of this report.

4.3.7.4 The Business Plan has been submitted under the name of Wight Leisure Limited, but apparently developed by the Wight Leisure Management Team in conjunction with Leisure Partners Limited. (This situation potentially conflicts with both client/contractor split protocols and the Section 19 guidelines).

4.3.7.5 Since the Council has not developed a prospectus beyond the Best Value Review Plan, the WLL Business Plan becomes a fairly hybrid document in fitting it to the suggested model. It contains characteristics of the Prospectus, the PQQ and the Initial Proposal against which clarification discussions would be expected to have taken place.

4.3.7.6 As a Prospectus, the document largely fails since due to lack of guidance by the Council it is forced to make broad assumptions.

4.3.7.7 As a PQQ submission, it is unable to meet all of the minimum criteria, and since the PQQ would be evaluated on a Pass/Fail criteria the project would stop. The Council could not reassure itself of the credentials of the Directors since there are none and therefore no opinion of good governance of WLL can be formed. On other aspects such as finance raising capacity and funding there is no satisfactory evidence (it is patently not sufficient to rely on the fact that other NFPO’s have successfully attracted funding) of WLL’s prospects.

4.3.7.8 Finally the Council must form an opinion of the potential financial management capacity, capability and competence of WLL as a new business without established reserves. This is an area where the Council does have access to financial performance data of Wight Leisure operating as a Council Department under the ‘umbrella’ the Council’s total financial strength. The “Wight Leisure Revised Estimates and Budget Process 2002-03 and 2003-04” paper indicated budgetary pressures of over £500k against the base budget for 2002-03. The Council’s Finance Department would be able to more objectively advise on this issue, but, it is essential to take a view of financial robustness of WLL as ~~one~~ a new business with no reserves with which to manage financial risks. ~~Subject to further reassurance,~~ Without further information and reassurance~~in a PQQ context~~ one would conclude WLL would be likely to fail a PQQ.

4.3.7.9 As an Initial Proposal, probably satisfactory in the light of the lack of a Council Prospectus document but clearly needs considerable refinement and would by no means allow progress to a final proposal in the indicative timescale model given under paragraph 3.1.4.7. (Those timescales have already been considerably exceeded.)

4.3.7.10 A large contributory factor towards the slow progress arises from the client/contractor approach and an adopted strategy of mainly raising written questions rather than engage in face-to-face formal and minuted clarification meetings. Lack of communication has created misunderstanding and mistrust and it is concluded that there is no common understanding underlying the financial analysis by PMP.

4.3.7.11 The Council has apparently received advice that the lack of non-executive directors at WLL is not a problem and that this could be resolved shortly before the finalisation of the transfer arrangements.

4.3.7.12 Whilst legally this may be true, in practical terms it would appear to be a significant problem, given the governance role of those directors. The Council would be concerned in dealing with a company that entered into a major contractual arrangement on the basis that advisors, employees and the Council indicated that everything is “fine”. There needs to be challenge from within WLL if the Council is transferring significant risks as part of the externalisation arrangement.

4.3.8 Performance Indicators

4.3.8.1 Scant attention has been paid to this element of the terms of reference for the review.

4.3.8.2 Those indicators currently included within the Business Plan are clearly inadequate or incomplete since they only address certain elements of Best Value improvement requirements.

4.3.8.3 The lack of clarity surrounding the project suggests that there must be a fundamental review to determine exactly what is important to the Council. There would certainly need to be some Value for Money indicators included (which is not the same as Best Value) and some indicators of the extent to which WLL was providing services to disadvantaged members of the community.

4.3.8.4 There does, however, need to be realism that standards may drop in the early years of WLL as endeavours are made to achieve financial stability and security.

^[1] The Project Board would normally be chaired by an Executive Director, and comprise senior representation from the Council’s Finance and Legal Departments and the Project Manager. Its role is to “own” and direct the project. It would provide client understanding of advice from independent advisors, receive progress reports from the Project Manager and ensure appropriate dissemination of information across the Council.

^[2] The Project Manager clearly has the prime role in delivering the project according to plan, but also has the important role as the key point of contact between the Council and WLL All information passed between the two parties should be via the project manager, and this is particularly important in respect of data passed by Wight Leisure to WLL. This serves to reinforce the status of Wight Leisure as a Council Department and protect officers from conflict of interest accusations.

^[3] The author is grateful to all those who have contributed to the review, and has been impressed by the willingness of all of those who took part to engage in full and frank discussion.