1 THE ISSUE

2 RECOMMENDATION

2.1 The Council Executive agrees that:

(1) It has been adequately demonstrated that a Public/Private Partnership demonstrates substantially greater benefits than a new local NPDO and is the preferred vehicle for externalisation;

(2) "Bidder A" (an existing NPDO) be appointed as "Preferred Bidder";

(3) The Operations Director, in consultation with the Executive Portfolio Holder for Tourism, Leisure and Culture, be authorised to negotiate and complete a contract with the Preferred Bidder.

(4) The Solicitor to the Council and the Corporate and Community Law Manager be authorised to execute all documentation necessary for the completion and implementation of the contract.

3 FINANCIAL IMPLICATIONS

3.1 The proposed preferred bid exceeds the Leisure savings targets in the financial plan of £250K expected from 2003 (including dual use Sports Centres). It will also ease the Council's difficulty in keeping within the 5% partial exemption VAT threshold. A penalty of approximately £700K would be incurred should this threshold be breached.

3.2 The proposed preferred bid delivers £2.1M investment into the sports and leisure centres over the contract period, the majority within the first 3 years of the partnership.

3.3 A more detailed financial appraisal is contained in Appendix 1.

4 STAFF IMPLICATIONS

4.1 76 Leisure Services Posts would be subject to transfer to a local NPDO or a Public Private Partnership under TUPE regulations - Transfer of Undertakings (Protection of Employment) Regulations. Under these regulations, employment terms and conditions are protected.

4.2 The posts of Head of Service and Business Support Manager would not transfer, would no longer be necessary and are therefore redundant. Should the transfer not proceed, efficiencies would be necessary to achieve the Council's £250K saving. A new post of Leisure Contract Manager would be created and the Councils "Management arrangements for dealing with the employee implications of organisational change" policy would apply to that new post and the employees in the redundant posts. Consultation is taking place in accordance with the Council's policy.

4.3 If redundancy occurs, the costs involved will be taken into account in any bidder negotiations, and any budget implications will be considered accordingly.

5 THE REPORT

5.1 To implement the resolutions of the joint committees, as set out in 1.1 of this report, a Project Team was formed in early 2001 (team membership is shown in Appendix 2). This team has provided guidance and advice throughout the process to ensure best value is achieved for customers, staff and the Council.

5.2 The joint meeting of the Business Services and Community, Culture and Leisure Committees also approved a process (refer Appendix 3) through which the benefits of a Public/Private Partnership could be assessed. This process has now produced detailed bids from 3 potential partners.

5.3 An assessment was made in early 2001 of the advantages and disadvantages of the NPDO option. A further assessment of the likely performance of a local NPDO has also been undertaken. The results of this exercise are set out in Appendix 4.

5.4 A team of 20 people made up of council officers, trades unions representatives and external advisers evaluated the 3 bids. A summary of the process and results is attached as Appendix 5. A similar team also evaluated the local NPDO "bid".

5.5 Risks have been assessed by the project team (appendices 6 and 7) to balance financial benefits against risks of failure.

6. CONSULTATION

6.1 The Project team contains 7 Leisure staff and 2 Trades Union representatives.

Presentations have been made to all staff in Bath, Keynsham and Midsomer Norton in

May 2002. Further presentations are planned during December.

6.2 A public website explains to members of the public how a Leisure Partnership can achieve

top quartile performance. It also contains "frequently asked questions". 1,000 copies of a

newsletter have also been distributed in the leisure centres.

6.3 Members have been consulted at each key stage of the project. Members have

considered the issues at at Business Services, CCL, Resources Coordination and

Strategy Committees and at full Council. Presentations were given to Members by 4

shortlisted bidders in March 2002 and visits made to their leisure sites. Managers and

staff at these sites were interviewed and their views sought.

7. CONCLUSIONS

7.1 The evaluation in Appendix 5 shows that a Public/Private Partnership demonstrates

greater benefits than a "Local NPDO" and in the case of the leading bidder the benefit is

substantial.

7.2 The Project team also believes that they will be able to negotiate a staff transfer

arrangement which will be acceptable to Trades Unions and staff members. In some

cases staff will benefit from career development advantages.

1. BACKGROUND

1.1. In March 2001, a joint meeting of CCL and Business Services Committees responded to the request by Council to achieve financial savings in its Leisure activities. The Committee resolved that the Council's objectives for Leisure Services can best be met by externalising the management of our Leisure Centres together with certain other leisure facilities.

1.2. The meeting also resolved that the vehicle for externalisation should be a "Not For Profit Distributing Organisation" (NPDO), commonly known as a Trust, unless a Public/Private Partnership can demonstrate substantially greater benefits. The process for achieving this was also agreed.

1.3. This process allowed for procurement of a Public Private Partnership (PPP) through five stages, with the option to proceed with a NPDO at any stage in the process, if substantially greater benefits were not forthcoming.

1.4. In April 2002, Strategy Committee resolved to waive contract Standing Orders to allow for a negotiated procedure to be used to select a partner; this was also resolved by Council in July 2002. This enables the Council to negotiate a "best value" contract which best meets the Council's needs, after a preferred bidder has been selected.

1. PROCESS

In summary the process has included:

· June - October 2001; "soft" market testing exercise to assess potential interest produced positive response.

· October- November 2001: 14 formal expressions of interest and pre-qualification questionnaires received following OJEC and local advertisement.

· January- February 2002. "Long" list of 10 companies invited to submit outline proposals.

· 14^th March 2002. Potential short list of 4 companies gave presentations to 10 councillors, staff trades unions and officers.

· 12^th and 15^th April 2002. Site visits to potential short listed companies by councillors, staff, trades unions and officers.

· 16^th April 2002. Strategy Committee agrees to continue with the procurement process.

· 1^st July 2002. 4 Short listed companies invited to submit detailed proposals (bids)

· 16^th September 2002 (closing date). 3 detailed bids received.

· September and October 2002. Evaluation and clarification.

2. THE BIDDERS

Bidder A - created in the late 90s, "NPDO" (Trust) based on North London since 1997.

Bidder B - formed in the 80s from management buy-out of London Borough's leisure services, now owned by a multi-national entertainment and media company

Bidder C - independent company founded in 1991 - the first ever private sector provider of local authority leisure services, Manages some facilities through associated not-for-profit organisation

1. Pros & Cons

In 2001, the council commissioned a report assessing the advantages and disadvantages of NPDOs. A summary of the findings is set out below.

2. Performance of a local NPDO.

2.1 Affordability without developments

An assessment has been made of the likely financial performance of a local NPDO based on the current performance of the existing service, with the following adjustments:

· Omit cost of NNDR

· No vat payable on income

· No recovery of VAT on costs of supplies

· Inclusion of Central Support & Management costs

· Inclusion of full catering costs/income

The net effect of this assessment is to predict a trading surplus for the NPDO of £105K in the first year. No NPDO set-up costs have been included.

2.2 Affordability with developments

A critical issue for the NPDO will be securing investment to fund developments. Sources of funding will be:

· Leasing

Based on the above, it is unlikely that substantial trading surpluses will be available until year 3 after transfer so early developments would require loans or lease arrangements. The likely development strategy of a NPDO would be to direct initial investment towards improving income streams. The possibility of loan/lease has been investigated to fund £450K of developments (increasing the capacity of the current gyms and introducing flume rides at SWSC and KLC)

With finance spread over 5 years and including other additional costs, it is estimated that these developments would produce additional net income of £70K in the first year rising to an average of £185K per annum over the next 5 years.

Indications are that lease finance would require guarantees from the council which it may not possible or legal to provide within the context of the Capital Finance Regulations. The NatWest bank has been approached regarding an unsecured loan. Their response is awaited.

A third development opportunity which has been evaluated is to provide a ten-pin bowling facility at Bath which, although providing good returns, would be beyond the reach of a NPDO, at least in the first 5 years. With developments, therefore, the NPDO could achieve a surplus of c. £175K in year 1, possibly rising to £290K in year 5.

A note of caution here - these estimated figures are not intended to be a detailed bid. If the NPDO does not achieve them, it will come back to the Council for more. Also, any guarantee of capital could count against the Council's capital spending score and, irrespective of the investment in health and fitness, existing infrastructure investment needs will probably remain unaddressed unless the NPDO is paid a sufficient grant to establish a R&R reserve or the Council finds the money to invest itself.

3. Contract fee

The council is seeking an "affordability limit" - maximum contract fee - of £205K p.a.

Subject to the above estimates, the NPDO could support the following:

1. The Process

1.1. The 3 bids were evaluated over a 3 day period during September by a team consisting of:

Bath and North East Somerset officers:

Head of Leisure Services, Finance Manager (Operations), Human Resources Manager (Operations), Corporate Law Manager, Sports and Leisure Development Manager, Best Value Programme Manager, Health and Safety Advisor, Property Services, Direct Services, Commercial Services and Sustainability and Economic Development Services

Trades Unions Representatives:

GMB and UNISON

B&NES Advisors:

Deloitte & Touche Management Solutions and Devonshires Solicitors

1.2 Clarification meetings were held with bidders on 10^th October followed by re-evaluation on 11^th October. The same team evaluated a local NPDO option and agreed evaluation results on 16^th October.

2. Evaluation Results

2.1. Bids were evaluated and scored against the following criteria:

2.2 Weightings agreed by the Project team were applied to the above criteria, giving a maximum points score of 1,000.

2.3 Summary scores for the bids (including the local NPDO option) are as follows:

* This score is based on the information supplied for evaluation; subsequent additional information would have resulted in an increase to the score of 16 points.

2.4 Bid prices, based on a 15 year contract (a 10 year option is also provided) and excluding major maintenance responsibility are as follows (figures in brackets indicate a payment to the council):

The financial plan requirement of £250,000 is met by all bidders; bidder A comfortably exceeds it.

2.5. Net Present Value of the contract (total discounted value of contractor's investment over a 15 year contract, less total payments by the council) was assessed. Figures in brackets represent a net income to the council.

2.6. A high level summary of the bidders' proposals is contained in the table below:

1. The proposed selection of a preferred bidder has been made after considering inherent risks. This is particularly pertinent to Leisure Services as the previous attempt to externalise the service failed when Contemporary Leisure, appointed as a contractor in 1992, went into liquidation in December 1995 leaving the Council to restore viability by taking the service back in house.

2. Regular risk assessments have been carried out by the Project team as the project proceeds. A confidential Appendix 7 is attached giving risk register details as an exempt item.

3. The risks inherent in the Local NPDO bid have also been assessed. There are approximately 50 Leisure NPDOs, mainly Trusts, in existence. Most of these were awarded during the CCT era and are not underpinned by contracts. A new NPDO is unlikely to withstand current best value assessment, as finance is rarely available without a track record of success. This has been demonstrated recently in a neighbouring Council where a NPDO leisure solution has been inspected by the Best Value inspection service and the published report identifies a failure since 1997 to attract the required investment and has received a "poor - no star" Best Value inspection score. Conversely, well established NPDOs can and do succeed after creating a track record of success; an example is Greenwich, established in 1993, which has now grown to 27 sites.