PAPER C
Purpose
: for Decision
REPORT
TO THE EXECUTIVE
Date : 4 JUNE 2003
Title : WIGHT LEISURE EXTERNALISATION
REPORT OF THE PORTFOLIO HOLDER FOR TOURISM AND
LEISURE
IMPLEMENTATION DATE : 16 June 2003
SUMMARY/PURPOSE
1.
To consider the future of the project to externalise
Wight Leisure in the light of the recommendations made by Mr Tony Hall from the
Institute of Public Finance, following his review of the process adopted in the
project.
BACKGROUND
2.
It is now 12
months since the Wight Leisure Best Value Review (BVR) was accepted by the
Executive with a recommendation to transfer the services provided by the
Council through Wight Leisure to a Not for Profit Distributing Organisation
(NPDO). This aspiration was first
considered by the Council in 1997.
3.
Given the amount of time
having elapsed since the recommendation of the BVR was approved, it was thought
prudent to ask an independent “third party” to review the process and provide
guidance to the Council to enable it to make a judgement that the work
completed to date provides a sound basis for externalisation.
4.
Tony Hall
from the Institute of Public Finance has now completed this work and delivered
his final report to the Council. The
Executive Summary of the report is attached as annex 1 to this report. The main recommendations of the report are:-
(a)
That the
project in its present form should cease with immediate effect because:
·
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).
(b)
If the project
is to restart then the Council must establish a new and robust project and
project plan and project protocols to effect
a completion driven by a multi disciplinary Project Board. This Board should be led by a Strategic
Director.
(c)
Before the
project recommences the Council should implement two further recommendations: -
(i)
The Council
should initiate an enquiry into the irregularities that have arisen during the
course of the project
(ii)
A further
review is essential to establish exactly why the and how the organisational
deficiencies that have come to light during this review happened and to
determine how to prevent them in the future.
5.
In arriving at these recommendations Tony Hall made a
comparison between the systems and processes adopted by the Council in the
project and a model by which he felt the project may have been successfully
concluded. This model has been used
successfully in similar projects elsewhere, although is not the only model that
could be used.
6.
The Council’s approach to the project has been based
on advice received in 1998, and accepted by the then Policy Committee. The approach has been modified and re-shaped
with each subsequent decision taken in respect of the project.
7.
Whilst both approaches have significant similarities,
there are two crucial areas of difference:-
7.1 In Tony Hall’s view the Council should
have prepared a specification setting out its expectations of the NPDO in
“managing its leisure services”. This
would have allowed the NPDO to produce a business plan to match and be judged
against the Council’s expectations rather than a plan which delivered the
NPDO’s expectations first and the Council’s requirements second.
7.2
The board of the new NPDO, early on in the process,
again in Tony Hall’s view, should have been established using the independent
board members only. This would have
allowed those responsible for the running of the NPDO in the future to be
involved in the decision-making processes that would shape its future. This would have also ensured a greater
clarity of client and contractor roles within the Council, and possibly
improved the decision-making processes in these roles. The board would have had a duty to challenge
the business plan under development.
8.
Should the Council choose to recommence the project,
then the establishment of a Project Board would seem a sensible proposal to
prevent any future organisational difficulties. Such a board would own and direct the project on behalf of the
Council, it would be an intelligent client processing and receiving advice from
external advisors, receive progress reports from the Project Manager and ensure
the appropriate dissemination of information across the Council.
9.
Tony Hall’s recommendation is that the Project Board
should be chaired by an Executive Director, the Strategic Director of Education
and Community Development would be the most appropriate and comprise senior
representation from the Council’s finance and legal departments and the Project
Manager. It is felt that it would also
be beneficial to include a representative from the Property Services department
and also the Leader, Deputy Leader and Portfolio Holder for Tourism and
Leisure. The Managing Director and
senior officers of Wight Leisure will also need to attend the Board as
necessary.
10.
The Project Board will ensure that appropriate
protocols are agreed in order to ensure probity is ensured throughout the
process.
11.
The Project Board will also ensure that any
assumptions underlying both the decisions taken in the light of this report and
decisions taken on previous occasions are challenged.
12.
The role of the Project Manager, in Tony Hall’s model
for delivery is seen as pivotal to the success of the project. The Project Manager will need to be the key
point of contact between the Council and the NPDO. All information passed between the two parties, including that
provided by Wight Leisure – the Council department, should be via the Project
Manager. It would be appropriate for
the Head of Community Development and Tourism to fulfil this role for the
Council.
STRATEGIC CONTEXT
13.
One of the aspirations of the Community Strategy,
under the theme of improving access to services and facilities, is to,
“encourage physically and/or mentally stimulating activities as a route to
staying healthy and a foundation for a full and active life”.
14.
The Council’s own key objective of improving health,
housing and the quality of life for all identifies the promotion of healthy
living as a being of particular importance and lists, “encouraging the uptake
of physically and mentally stimulating
activities as a route to staying healthy and leading a full and active life” as
a key priority.
15.
Working, “with the tourism industry to promote the
Island as an all-year holiday destination, particularly seeking to develop
sustainable tourism initiatives and improving standards of customer care in the
industry”, is a particular priority for the Council within the context of its
objective to encourage job creation and economic prosperity. The development of the Island as one of the
UK’s leading tourist and leisure destinations is also a relevant aspiration
within this objective.
16.
Services provided by Wight Leisure and the areas for
improvement identified in the Best Value Improvement Plan can be clearly seen
to link with these themes, objectives and aspirations of the Community Strategy
and the Corporate Plan.
CONSULTATION
17.
In completing his report for the Council, Tony Hall
has interviewed a number of people connected with the project. The list of interviewees is included in the
Appendices to his report and is summarised below:-
Isle of Wight
Council:
·
Head of Community Development and Tourism
·
Head of Legal and Democratic Services
·
Head of Property Services
·
Corporate Finance Manager
·
Managing Director of Wight Leisure
·
Finance and Administration Manager, Wight Leisure
Independent Advisers:
Representatives from:-
·
Leisure Partners
·
Leonie Cowen & Associates
·
PMP Consulting
Isle of Wight
Economic Partnership
·
Partnership Development Manager
·
Area Regeneration Director
FINANCIAL/BUDGET IMPLICATIONS
18.
It is estimated that the externalisation of Wight
Leisure to a NPDO would save in the order of £145,000 per annum. This is almost all due to the NPDO being
able to claim mandatory rate relief (at 80%) on the National Non-Domestic Rates
of the Council owned premises it would utilise. There is also a small VAT benefit included in this total “saved”
amount.
19.
Previous discussions and resolutions have determined
that this saving could be used to fund the best value improvement plan and
continuous improvement in the services.
One area identified for improvement in the Best Value Review having been
the fabric and structure of the Council’s leisure buildings. The review identified three principal costs
in this regard:-
Essential Facility Works £898,000
Desirable Facility Works £417,000
Development
Opportunities £3,900,000
The Council having allocated £351,000 towards these works from its anticipated capital receipts in 2002/03.
20.
The major financial criteria agreed for the transfer
being that it should be at, “no additional cost to the Council”. In his report, Tony Hall has suggested that
the Council may wish to review this criteria in the context of its newly
developed medium term financial plan.
21.
The less tangible benefits of the externalisation have
been previously identified as the ability of the NPDO to access funding streams
for service development that are not available to the Council. The ability of any NPDO to achieve this is
largely dependent on the project in question and the funding streams
approached.
22.
Since 1998 the Council has allocated through the
Committee system a total of £70,000 to procure independent advice in respect of
the externalisation. The fact that such
an amount has been allocated to the realisation of the project is indicative of
the on/off nature of it across 3 successive Councils since 1996.
23.
The cost implications of restarting and then
completing the project are not yet fully known and would need to be identified
very early on by a newly formed project group.
The costs are also dependent on the scale of any newly proposed
transfer. It would seem that the costs
will fall into 3 main areas;
·
Completion of legal documentation
·
Preparation of Council aspirations (specification)
·
Grant assistance to the new board of the NPDO for it
to procure advice and respond to the Council’s aspirations
This may come to in the order of
£40,000 total, but this figure needs confirmation and would be reduced if the
preparation of the Council’s aspirations could be achieved through an internal
secondment.
24.
The Monitoring Officer and Chief Financial Officer
intend to undertake a short investigation designed to establish:
·
The amount and legitimacy of spending on this project
to date
·
Whether any recommendations can be made to the Council
in relation to either the corporate or service specific management of the
externalisation process.
LEGAL IMPLICATIONS
25.
In coming to a decision about the externalisation of
Wight Leisure, Members must be assured that the decision is reasonable,
discharges the fiduciary and best value duties of the Council and establishes a
structure which will ensure the delivery of the strategic objectives of the
Council over an extended period of time. Tony Hall’s brief was to provide a
report that would set the context in which this decision could be
considered.
26.
The Council’s powers to proceed with the transfer of
the services have been clearly set out in previous reports. The core legislative provision empowering
the transfer being Section 19(3) Local Government (Miscellaneous Provisions)
Act 1976. This is an especially narrow
power and one which has been extensively litigated, therefore demanding that
the Council is cautious in the actions taken to deliver the transfer. The extent to which the Local Government Act
2000 supplements the s19 power remains to be tested in the courts.
OPTIONS
1. Stop the project in its present form
with immediate effect.
2. Restart the project, using a revised
process, to externalise Wight Leisure to a management developed NPDO.
3. Restart the project using a revised
process, looking first at various externalisation vehicles including a
currently trading NPDO (via a tendering process) and other models previously
discounted by the Best Value Review.
4. Keep and continue to manage the
services, “in-house” for a period of at least 2 years pending exploration of
options for future service delivery.
5. A Project Board, with terms of
reference reflecting paragraphs 8 to 12 inclusive, as described in this report,
be established to oversee the externalisation process in a new project.
6.
To endorse the actions of the Monitoring Officer and
Chief Financial Officer (set out in paragraph 24).
EVALUATION/RISK MANAGEMENT
27.
If the project is allowed to continue in its current
form then it is unlikely that the Council will be able to come to a reasonable
decision that the work completed to date provides a sound basis for
externalisation.
28.
Option 1 is consistent with the findings of the Best
Value Review although it would be prudent for the Project Board to revisit these
findings to confirm their relevance some 12 months after their publication, and
also within the context of the Council’s medium term financial plan.
29.
One of the main concerns raised in the Audit
Commission’s inspection of Wight Leisure was that the delivery of the Best
Value improvement plan was reliant on the externalisation of Wight Leisure to
an NPDO. No other options considered in
the Best Value Review were thought to have the same capacity to deliver as this
one. Any decision which therefore seeks
to deviate from that model will need to be made in the context of the capacity
to deliver the improvement plan.
30.
The extended time for which externalisation has been
an aspiration of the Council has contributed to the staff of Wight Leisure
feeling at the least unsettled and certainly frustrated. A guaranteed period of reflection as set out
in option 4 may serve to reinforce the Council’s commitment to ensuring the
long term sustainability of Wight Leisure’s services and their consequent
employment. However, this would need to
be set against the uncertainty of not knowing what would happen at the end of
that period.
RECOMMENDATIONS 31.
That options 1, 2, 5 and 6 be adopted. |
BACKGROUND PAPERS
32.
Report by Tony
Hall dated 23rd May 2003.
33.
Wight Leisure Best Value Review, May 2002.
34.
Audit Commission Inspection of Wight Leisure, October
2002.
Contact
Point : John Metcalfe / John
Lawson
|
D
PETTITT Strategic
Director Education
and Community Development |
J
FLEMMING Portfolio
Holder for Tourism
and Leisure |
EXECUTIVE SUMMARY
Introduction
Scope of the Review
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.
Layout of Report
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.
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.
Section 4 provides an account of the findings of the review.
Section 5 details 16 conclusions that arise from the review.
Recommendations
Externalisation Project
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.
Corporate Issues
The Council should initiate an enquiry into the irregularities that have arisen during the course of the Externalisation Project.
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.
Summary of Conclusions