Councillors unaware of PFI clause allowing contractor to ask for extra £285k a year

An independent report into a leisure centre PFI deal has found that councillors at Rushcliffe Borough Council were unaware of an opt-out clause that allowed an external contractor to ask for an additional £285,000 a year.

The council’s officers were subsequently able to negotiate with the contractor, Carillion, and reduce the final amount – for management costs and heating – to £183,000 a year.

In autumn 2009 Rushcliffe commissioned an independent review of its involvement in the PFI deal, which involved East Leake Leisure Centre.

According to the local authority, the aim of the review was to “help ensure the council provides good value for money and to help decide whether this type of arrangement will be used in the future”.

The review was led by Stewart Dobson, former chief executive of Birmingham City Council. He suggested that:

• The five-year opt-out clause – agreed with the original contractor, MacAlpines – was never mentioned in any reports received by Rushcliffe’s cabinet, full council or member group. It was however clearly stated in the PFI agreement. The clause had been inserted later in the process following a series of late negotiations regarding the cost and working arrangements of the contract.
• The clause should have been brought to the members’ attention, but it was unclear if this was ever done. Verbal briefings had been given by the previous chief executive and senior managers but there was no written evidence of the content of these meetings.
• The verbal briefings were believed to have taken place prior to the chief executive exercising his emergency decision-making powers regarding an increase in price. The use of those powers was undertaken in the correct manner by notifying all councillors of the chief executive’s actions.
• The reports presented to members were insufficient for a project of this scale. “There was evidence to suggest that members did not appear to probe and ask the searching questions regarding the complexity and detail of the public finance initiative”
• The focus of the project centred upon the provision and affordability of the provision of the pool rather than the workings and costs of the PFI
• From the papers made available, there was no evidence of a structured form of risk assessment being adopted by either members or officers. “As a result there appeared to be no documented risk analysis used in this decision-making process”
• The whole project appeared to have been reliant upon one key officer. “This approach led to a situation where no overall assessment of the overall risks facing the council was formed, and therefore led to the situation where officers were left to lead the project without sufficient challenge from either the members or other senior officers”
• Despite the Leader and the Cabinet form of executive arrangements introduced under the Local Government Act 2000, the full council still seemed to have been regarded as being the ultimate decision-making body.

Dobson made a number of recommendations, including that decision-making by member bodies is undertaken in a properly informed manner and that a sufficient form of risk identification and assessment process is incorporated into the decision-making process.

He also said the council should ensure when selecting a way of working for a major project that it does not rely unduly on one key officer and allows for informed debate and challenge.

Dobson reported on his findings in July and Rushcliffe’s cabinet was due to consider his recommendations at a meeting earlier this month.

Subsequent to the Dobson report, it emerged that at a late stage of the deal the proposed leisure provider had withdrawn from the deal and that MacAlpines had indicated they would act as the leisure provider.

It was identified that MacAlpines – whose core business was not leisure centre operations – could withdraw or close the facility at any time, so the clause in question was inserted to ensure East Leake was in operation for a minimum of five years.

In a report, the chief executive said that this meant the clause was inserted in an attempt to protect the council’s interests. The officers had worked diligently at the time in seeking to protect Rushcliffe’s interests and achieve the council’s desire to deliver a pool, he added.

Cllr John Cranswick, Rushcliffe’s cabinet portfolio member for resources, said: “At the time we entered into this arrangement, PFI appeared to represent the best option for financing the replacement for the East Leake Leisure Centre and for ensuring a swimming pool could be built. It also ensured the village had a leisure centre for at least five years.

“The independent review concluded that in future the council should carry out wide-ranging risk assessments and ensure all information was to hand and widely discussed. However, the council has learnt from what happened and has taken the review’s findings on board. We already do things differently and have done for some time.”