Meeting documents
Cabinet
Wednesday, 3rd December, 2003
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Bath & North East Somerset Council |
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MEETING: |
Council Executive |
AGENDA |
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MEETING DATE: |
December 3rd 2003 |
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TITLE: |
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WARD: |
All |
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AN OPEN PUBLIC ITEM |
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List of attachments to this report: |
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1 THE ISSUE
1.1 To identify the level of savings achieved by the contract.
1.2 To identify the mismatches between the leisure payments under the new arrangements and the council's budgets for 2003/04 and future years.
2 RECOMMENDATION
That the Executive requests Council:
2.1 To note the successful outcome of the leisure partnership contract with Aquaterra Leisure, which has exceeded original financial target expectations (see paras 5.1 & 5.2).
2.2 To make a financial adjustment in 2003/04 relating to set-up costs and the first year's difference in the profile of savings achieved against the financial plan projection, as detailed in para 7.1(a).
2.3 To note that the outstanding balance of the invest-to-save internal loan will not now be repaid. It will therefore not be available for future invest-to-save schemes, as detailed in para 7.1 (c).
2.4 To note that an adjustment will be required to the financial plan for future years to reflect the profile of savings achieved. This will be considered within the financial plan review and reported back to the Executive and Council in February.
That the Executive:
2.5 Approve a virement of £48k from Car Parking (TAWM) to Leisure.
2.6 Note that residual overspends of £163k for 2003/04 will be dealt with in accordance with normal budget management practice.
2 FINANCIAL IMPLICATIONS
3. 1 As per recommendations.
In the original 3-year financial plan, Council instructed officers to make savings of £200K pa by establishing a Leisure Trust and additional savings of £50K pa from dual use sports centres. Over the 2 years to June 2003 an extensive tender process secured a partnership agreement with Aquaterra Leisure, following Best Vale principles, to include the main dual use centre at Culverhay School. These were combined and assumed for 2003/04 onwards.
4.1 The contract for the operation of the following sports and leisure facilities with Aquaterra commenced 1st July 2003 for a period of 10 years. This includes operations of:
· 4 leisure centres (Bath, Keynsham, South Wandsdyke, Culverhay).
· 2 golf courses (Approach, Entry Hill).
· 2 public halls (Pavilion and River Suite).
4.2 The principle advantages of the contract are:
· NNDR relief of at least 80% is available to Aquaterra because of its NPDO status.
· Transfer of operating and all property risks to Aquaterra.
· £2.1m investment in facilities which does not put at risk the Council's VAT partial exemption position.
4.3 The contract implementation was 3 months later than anticipated. This caused an overspend against the reduced leisure budgets including:
· NNDR savings not being achievable resulting in higher contract costs.
· Continuation of the losses of existing operations.
· Additional negotiation costs and interim management costs.
5. FINANCIAL ANALYSIS OF THE CONTRACT
5.1 An analysis of the full 10 ten years' cost of the contract is presented in Appendix 1 attached. In summary the new arrangements are: -
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Costs (Over 10 Years) |
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£K |
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Authority Payments to Aquaterra |
1,981 |
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Post contract Leisure Management |
542 |
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Set-up / One off Costs (*) |
656 |
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Total Expenditure |
3,179 |
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Original Budget Provision (*) |
7,400 |
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Saving Achieved |
4,221 |
(*) The budget provision adds back saving requirements on budgets.
5.2 Over ten years, therefore, the contract is expected to achieve net savings against the Council's 2002/03 Budget of £4.221M (on average £422K pa). This is in addition to attracting significant external investment and the transfer of the historic operating deficit in Leisure. Therefore, the original annual saving of £250K (section 4 above) is comfortably exceeded.
5.4 Furthermore, at the time of setting the 2003/04 budget it was understood that the leisure contract would exceed financial plan savings requirements. Two further savings requirements were agreed by Council:
· An additional saving of £150k p.a. against leisure budgets, though the savings for 2003/04 only would be directed towards set-up costs.
· Property R&M budgets would be reduced by £120k pa as an element of the Aquaterra "Authority" payment includes a reward for the transfer of property risk.
In total, therefore, over ten years projected savings of £5.05M have been taken into account in setting the 2003/04 Budget and draft financial plan, £829K more than is now expected to be achieved. Savings anticipated in the budget were based on an understanding of the contract's financial position taken around Christmas 2002 which can now be seen to be over-ambitious in comparison to those ultimately achieved in contract negotiations,
6. BUDGET PROBLEMS
6.1 The financial plan assumes a level saving per annum, but in reality there are:
· Higher Authority payments in early years of the contract, thus the budget deficit is concentrated on the first five years
· One-off costs including specialist advice, severance pay, interim management etc. in first year.
6.2 The implementation was expected on 1st April 2003, and the financial plan therefore assumed a full £250K saving for 2003/04. The effect on the 3 month delay means that one quarter of this saving (£63K) is not achievable, simply because the "contract" payment made to the existing in-house operation has to continue at previous levels.
6.3 Also the in-house operation was overspent in 2002/03 and this trend continued for the first quarter of the current year. Along with exceptional costs and poor income results this is anticipated to lead to £100K trading loss. This was not taken account of in the original projections.
6.4 In summary, Leisure budgets for the first five years are forecast as follows:
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2003-04 |
2004-05 |
2005-06 |
2006-07 |
2007-08 |
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£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
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A |
Net Leisure overspend of new arrangements |
374 |
299 |
265 |
175 |
6 |
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B |
Invest to Save Loan |
137 |
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C |
Delay in implementing savings - first quarter |
63 |
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D |
In-house trading loss |
100 |
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Total Leisure Deficit |
674 |
299 |
265 |
175 |
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7. PROPOSED SOLUTIONS
7.1 The following treatments of the Leisure deficits outlined in 6.4 are proposed:-
a) The deficits in A for 2003/4 occur because the savings planned were assumed to be evenly spread over 10 years. We propose to write off £374K against balances.
b) Similarly, to adjust the financial plan for future financial years to eliminate deficits in A above caused by overambitious assumptions.
c) That the invest-to-save internal loan (B) of £137k should not be repaid and will therefore not be available for future invest-to-save schemes. This was an oversight in our planning assumptions.
d) To absorb delay in implementation of contract savings (C) and the in-house trading loss (D) within the on-going budget management of Operations.
7.2 The Car Parking Service transfers a sum of £48K p.a. to Leisure as "notional" rent for the use of Bath Sports Centre car park. This reflects an historical arrangement that compensates Leisure budgets for loss of former income streams. The Car Parking "notional rent" is not reflected in any other car parks. A far simpler arrangement proposed is that internal payments are ceased and a virement of cash limit from TAWM to Leisure, which has a neutral effect on both budgets.
Lessons have been learnt about the need to manage more effectively the financial analysis of major projects, including externalisations, and to transfer that analysis into the Council's overall budget process.
7 CONSULTATION
7.1 This report was sent to Trade Unions on xx November 2003. Any comments received will be reported at the meeting
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Contact person(s) |
Phil Hall, Head of Strategic Resource Planning Giles Oliver Operations Finance Manager |
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Background papers |
Page 3
Page 3