Cabinet 28th May 2013


Date of Meeting: 28th May 2013
Report of: Head of Public Protection and Enforcement
Subject/Title: Key Decision 10 - Update on the Review of Service Delivery
Options – Leisure Services
Portfolio Holder: Councillor Janet Clowes (Health and Adult Social Care)
1.0 Report Summary
well and for longer
1.1 A key decision12/13-19 Cabinet resolved “That approval is given to the
procurement and appointment of a suitable leisure and financial consultant to
review the range of potential delivery models available and recommend a
preferred option for leisure and related services”;
1.2 This report now sets out the work to date on the various potential delivery
models to secure the future of leisure services. It seeks Cabinet approval for
the creation of a company that will be a charitable Trust and that the delivery
of leisure services will be transferred to that company The project is in line
with the Council’s three year plan: Priority six: Redefining the Council’s role in
core place-based service. It is also part of the Major Change Programme “6.1:
Developing new delivery model for leisure provision”
1.3 The Council’s leisure facilities are currently managed ‘in-house’. In line with
the need to deliver efficiencies in future service provision; this report outlines
the conclusions from the options appraisal work by FMG consulting.
1.4 The project has been reviewed by the Technical Enabler Group (TEG) on the
2nd May and it’s comments have been taken into account in the writing of this
report. Further work has also been undertaken on the project documentation
following the TEG meeting and will be presented for endorsement to the
Executive Monitoring Board (EMB) on the 14thMay.
1.5 The current service is an amalgamation of those inherited from the three
former district councils including fifteen facilities: a total of nine sites have
swimming pools and two have athletic stadiums. Of these, eight are joint-use
community leisure facilities shared with high schools. This process also
includes the Council leisure, sport and play development team as phase 1.
Annual attendance visits for 2011/12 was 2.7 million. The service has 400
plus FTE staff who will transfer to the trust and in the last financial year the
council invested £9.040m in the service.
2.0 Decision Requested
2.1 Cabinet is asked to note the findings of the options appraisal and consultation
exercise that have concluded that the most appropriate model to be that of a
Agenda Item 14
Page 125
charitable trust. The full options appraisal report is attached at appendix A for
2.2 Cabinet is asked to approve the formation of the Trust and the transfer of
leisure services into it with an effective target date of 1
April 2014 with the
trust being established by the end of the year at the latest. In making this
decision Cabinet should take into consideration sections 9 and 10 of this
report and in particular 9.1.The implementation of the 1
of April assumes that
they will be no significant delays in relation to critical external dependencies
(i.e.- Charity commission registration)
2.3 Once 2.2 has been confirmed, that delegated authority be given to the Head
of Public Protection and Enforcement (SRO for the project), Borough Solicitor
and 151 Officer (or the officers that are devolved those powers) to implement
the preferred delivery model in consultation with the Portfolio Holder and
Leader of the Council.
Reasons for Recommendations
3.1 There is a need to achieve best value for the services that the Council directly
provides and reduce net operating cost wherever possible, whilst at the same
time maintaining the best possible service for its residents in line with the
Council’s three year plan.
3.2 The review of leisure facilities and the establishment of a charitable trust
means that the leisure facilities will not be privatised and a trust will also help
to achieve the previous point whilst also maximising opportunity for partner
engagement and promoting high quality service delivery..
3.3 The purpose of the options report was to deliver an appraisal for leisure
services and to determine the future delivery models which also include
leisure, sports and play development services,. The analysis covered both
the financial and non-financial implications of different management vehicles
and has covered a wide range of potential options, including:
Continued in-house management;
Outsourced management – either through a private company or an
existing charitable company (Trust); and
Establishing a new company – either charitable or non-charitable,
covering the following options:
Unincorporated Charitable NPDO;
Industrial and Provident Society (IPS);
Company Limited by Guarantee (CLG);
Charitable Incorporated Organisation (CIO);
Page 126
Limited liability partnership (LLP);
3.4. The report has concluded that the most viable option is a charitable trust and
this should be in the form of new one created by the Council.
3.5 In reaching this decision members should also be aware that 4 week
consultation exercise has been undertaken and the evaluation of the
consultation exercise shows that 62% of the responses were supportive of
charitable Trust. A number of responses were also received from Schools and
Parish Councils. (The full consultation analysis is attached at appendix B)
3.6.1 There is a requirement for the project to go through the Councils project
Gateway process for review and endorsement before a recommended way
forward can be presented to Cabinet. At the time of writing this report it has
been reviewed by TEG and will go for EMB endorsement on the 14
4.0 Wards Affected
4.1 All Wards are affected.
5.0 Local Ward Members
5.1 All Local Ward Members.
6.0 Policy Implications
6.1 The Council’s three year plan outcome 5 –People live well and for longer- in
particular that “local people have healthy lifestyles and access to good
cultural, leisure and recreational facilities”.
6.2 The Council’s Business Plan identifies efficiency savings linked to Leisure
services (Priority 6. Redefining the Council’s role in core place-based
services- 6.1: Develop new delivery model for leisure operations).
7.0 Financial Implications
7.1 The financial savings associated with the establishment of trust do not
currently include any potential savings due to a revision of staff terms and
conditions, this will be explored in more detail and any potential savings will
be in addition to those that are mentioned later in this report.
The report assessed the financial implications of the outsourcing options
being considered based on the following key income and expenditure areas:
the current net direct costs of the services;
the impact of VAT and NNDR on the different models;
the impact arising from central support costs;
Page 127
profit, contingency and overheads;
the impact on pension costs to the Council and operator;
set-up costs and timescales;
operational changes to increase revenue or reduce costs; and
implications of including other services within the commissioning
The potentail to work more closley with partner organistion including Town
and Parish council in alterntive delivery models.
7.2 The external consultant’s report commissioned to review the various delivery
vehicle options calculated that the trust model delivers the highest amount of
annual savings for the Council with an existing trust providing a greater level
of savings than a new trust. This is mainly because an established trust has
lower management costs, easier access to capital funds that can be invested
to generate additional income, greater economies of scale and new expertise
that a new trust could not offer in the short term. This was confirmed in the
net present cost modelling of each option over a 25 year period (see table
7.3 There is further work required to review the figures provided in the
consultant’s report and to investigate further costs of implementation. In
particular, the additional pension costs, the impact on the Council’s support
services costs and further savings that could be delivered. However it is clear
the NNDR and VAT savings alone present a strong business case for the
move to trust status. The report indicates that a saving of 20% of net direct
service costs could be saved through NNDR and VAT benefits.
£ (Base)
Sector £
Trust £
New Trust
Total 25
year cost
£94,940,205 £91,424,170 £77,234,553 £84,664,134
£60,473,754 £58,516,256 £49,477,942 £54,180,446
25 Year
to base
£0 £1,957,498 £10,995,812 £6,293,307 -£6,947,681
Page 128
The recommendation is to establish a new trust charitable trust as this will
provide an excellent level of saving and will deliver the greatest non-financial
benefits to the Council, particularly in relation to strategic priorities and
integration of services. All current sites within Leisure facilities will be
7.4 The total cost of implementation of the preferred model is the region of £200k
and funding is already in place for this, however members should be aware
that examples from other authorities have indicated that this could be as high
£400k. The costs of implementation will be monitored by the project manager
, within the £200k allowance has been made for external legal advice, a
dedicated Project Manager and extra capacity to support the assets service.
The project being delivered within this budget will depend on whether any
unexpected implementation costs are incurred, the capacity of the other
corporate enablers (HR, Finance, Procurement) to deliver and if a shorter
time frame is required then that recommended at 2.2 then the cost will be
considerably more, further work will be required to establish a clear budget for
the establishment of the charitable trust.
8.0 Legal Implications
8.1 Unless the Council is outsourcing the service delivery to a company that is
wholly controlled by Cheshire East Council it will be necessary to undertake a
procurement exercise. Contracts for the provision of leisure services are
“Part B” Services for the purposes of the EU procurement rules. Part B
Services contracts should ordinarily be competed under EC Treaty principles
where there is a realistic prospect of cross-border interest for the award. If
this arises then a proportionate level of European wide advertisement and
competition should be carried out in order to open up the opportunity to fair
and transparent competition in the European provider market. The form of
advertisement need not be by Contract Notice in the OJEU (although this is
often used as an effective way of discharging this obligation).
8.2 As the value of the service contract exceeds £173,934, the contract is also
further subject to limited application of the Public Contracts Regulations 2006
(as amended) and in particular in relation to non-discriminatory technical
specifications; requirements to treat bidders equally and in a nondiscriminatory
way; and also to act transparently. The level of representation
on the trust board cannot exceed 20% otherwise the trust cannot be seen to
be independent for charitable purposes. In order to achieve the full tax
benefits a charitable trust cannot be wholly controlled. This is pertinent
because the only exemption from the procurement requirements is in a
situation where the services are being transferred to a company that is wholly
owned and controlled company (this is called the Tekal exemption). External
legal advice has confirmed that transferring the service to a wholly owned
company (the Teckal company) and then subsequently transferring the
company into the ownership of the leisure trust would not provide a more
viable route since in disposing of the Teckal company, the new ownership
arrangements introducing private interests would invalidate the Teckal status
of that company and therefore it would not be able to retain the arrangement
Page 129
to provide services back to the Council. Indeed, the establishment of a
Teckal body for the purposes of an imminent onward sale could in itself be
considered a single linked transaction in breach of the procurement rules.
8.3 In the event that Council, following due diligence, concludes that there is not
sufficient cross-border interest in the leisure service, it can make a direct
award to a trust however this is open to challenge. If successfully challenged
then the contract could be set aside as ineffective and the staff and service
will revert back to the council. If a procurement challenge is brought under
the Public Contracts Regulations 2006 for the award (or prospective award)
then the complainant would normally only have 30 days to bring proceedings
from when they first knew, or ought to have known, the grounds of starting
proceedings arising. The courts have discretion to extend this to 3 months in
exceptional circumstances. Therefore, market notification (in terms of a press
release or award notice in the OJEU) may be sufficient to commence time
running for this purpose. This may not be attractive as it would mean drawing
attention to the issue but would serve as a means to flush out possible
industry objection. A challenge on the basis of a judicial review of the
Council’s decision on the basis of compliance with the EC Treaty principles
would have to commence within 3 months from when the grounds for
challenge first arose.
A complainant could raise a complaint with the European Commission which
would then investigate the issue with the UK government. If it is unsatisfied
with the justification in response, it could ultimately refer the issue to the
European Courts. Such actions would lie against the UK government (rather
than directly against the Council) which could ultimately result in the member
state being fined (though this is rare). There is no time-limit for such a
complaint being brought to the Commission. Expert legal advice will be
required in the event that the award is challenged and this will be in addition
to the external legal resource already figured into the project cost. No
consideration has been made as to the length of the service delivery
agreement with the trust or the lengths of leases to the trust.
8.4 The Council will also need to consider the risk of any funding to the Trust
being deemed unlawful state aid. State Aid may arise where the Council
provides aid to select undertakings (any entity which puts goods or services
on the given market), which has the potential to distort competition and affect
trade between member states of the European Union. The outsourcing of
Glasgow’s leisure and cultural services to a leisure trust was for example
formally challenged on state aid grounds; the challenge was however turned
down by the European Commission. It will be important therefore to ensure
that state aid is properly considered as part of the decision making over the
structure of the arrangements.
8.5 If service delivery is transferred to a trust the Council will not maintain
influence over decision making and it will not be able to depend on
transferring further services should it decide to do so in the future. At school
Page 130
sites the council has joint use agreements in place with the schools and these
will need to be honoured by the trust.
8.6 As the trust will be completely separate entity to the council it will have its own
governance and approval process, the only representation the council is
permitted is an allocation on the board of less than 20 percent a balanced
trust board including elected members and senior officers would allow the
Council to retain a good degree of strategic control, ensuring service delivery
is aligned with the priorities of the Council.
8.7 A detailed outcome specification and performance management system will
ensure services are focused on the priorities of the Council and local
residents, with any management fee linked to the delivery of agreed
8.8 Transferring the service delivery to an arm’s length company such as a Trust
will trigger a TUPE transfer of employees who are working in or for the leisure
service immediately before the transfer.
8.9 The council will have to undertake the necessary due diligence to identify
which employees have the right to transfer to the Trust and to be able to
provide the necessary employee liability information in accordance with the
TUPE regulations. The Council and the Trust will also have to comply with
the Regulations consultation requirement which stipulates that consultation on
changes to terms and conditions (measures) needs to be conducted in good
time before the transfer. In “good time” is not defined in the regulations but a
comparison is usually drawn with the timescale for redundancy consultation
which is 45 days.
8.10 As part of the project the review of employment terms and conditions will be
undertaken to ensure the future success of the trust in the leisure market.
8.11 Specialist pension/actuary advice will be required on pension issues and
confirmation of the potential bond costs will need to be established which
could be considerable in relation to the transferring staff. The Trust may well
also see an increase in the employer contributions of the employees post
transfer. If the Trust chooses not to offer access to the LGPS pension for any
new starters it will also have to seek expert pension advice in relation to what
pension fund to offer new starters and the required implementation and
associated costs.
8.12 As part of the implementation plan, the board of trustees will be appointed
and this board will become responsible for forming and recruiting to the
management structure of the Trust.
9.0 Risk Management
There are number of risk associated with the project, these are captured in
detail along with mitigating actions as a part of the Project governance, the
Page 131
below represents the pertinent ones that it is felt necessary to bring to the
attention of members.
9.1 Early and continued engagement with trade unions and the existing workforce
even at this early stage will be key to successfully delivering the outcomes of
the review and also in transitioning to a new delivery model.
9.2 Early and continued engagement will also be required with the Cheshire
Pension fund in relation to the actuary reports required in relation to the
transferring employees, bond requirements and pension changes and the
completion of a Pension Admission Agreement Cheshire pension fund are
already aware of the request and once a decision is made then they will be
formally instructed to commence the work
9.3 The creation of the Trust well in advance of the anticipated transfer of Service
date to ensure that the Trust is able to undertake al the necessity preparatory
steps prior to the transfer and to engage in the necessary consultation both
with the employees and the Council.
9.4 Considerable Input from Legal and Assets Services will be need to ensure the
Council’s ownership is protected in order to secure the future use of the
assets for leisure and recreational purposes, members of staff from legal
service form part of the project and allowance has been made within the
implementation costs for the required assets work to be carried out.
9.5 There will be a number of Procurement issues that will need to be considered
further as part of the in-depth review of the preferred delivery model, these
will include current regulations that address asset and service transfer;
9.6 Guidance suggests that there are different routes depending upon whether
the asset is to be transferred or a service is to be transferred.
9.7 The ongoing issues with the Council’s physical asset stock mean that major
investment will be required in the near future to deliver the Lifestyle Hubs.
This level of major asset work can be incorporated into any future delivery
model, but it is more complex if a private outsourcing model is selected due to
the contractual nature of the relationship with a third party provider and this is
compounded if the likely outcome of the asset strategy is unknown when the
contract is entered into. This will be further explored as part of the review.
9.8 In order to achieve the fiscal benefits of a trust model, it is also likely that the
existing and any future leisure facilities will be leased to the company, with
appropriate safeguards around facility maintenance and service delivery.
9.9 Whilst a different delivery model could realise revenue budget savings in
relation to changes in VAT status, care will need to be taken in respect of
arrangements for future capital investment (i.e. to avoid incidence of
significant irrecoverable VAT on developments).
Page 132
9.10 Should a procurement challenge be successful and therefore the Charitable
Trust is not an option the fall back position, would be the creation of an
organisation under the Teckal exemption (or other option)
9.11 Currently the shared services SLE is being established and once this has
been implemented, there may be an obligation on the Council / Trust to
continue using the shared services arrangements on interim basis, and
therefore savings from this element may take longer to realise- the final
decision on the provider of these services will be made by the Trust.
9.12 Similarly the impact on the councils other support services associated with
this service will need to be managed effective as part of the project. This will
ensure the trust retains the necessary expenditure and staff resources to
deliver the core business whilst reducing the likelihood of any residual
overhead remaining with the council.
10.0 Background and Options
10.1 The establishment of a trust to deliver leisure operations was considered in
the early life of CEC and was deemed to be the preferred delivery model at
that time. The report has concluded that this is still the most appropriate
10.2 Further consideration will be given to the range of services that will constitute
the makeup of the potential trust but the first phase will be the whole of the
Leisure facilities services including the leisure, play and sports development
10.3 Initial advice has indicated in financial terms, that a transfer of leisure facilities
either via a new trust or existing trust model is likely to provide the greatest
potential for savings. In non-financial terms the service and community
benefits associated with a trust model provide a clear driver for setting up a
new trust that can become a strong delivery vehicle across leisure and other
services in the future.
Action Plan for implementation
10.6 In order to implement a delivery model, there is a large amount of
documentation to be prepared and legal requirements to be met. This will
require a specialist dedicated Project Manager with in-depth knowledge of the
area and a dedicated internal project team will be needed, with this in place
the preferred model should be achieved in time for the next financial year.
10.7 The key elements of the implementation of the trust and in order to achieve
this ambitious timeframe being:
Appointment of Board Members by the- 1
September 2013
Appointment of CEO and Management Team- 1
November 2013
Asset Surveys & Leases completed – 31
January 2014
Drawing up of SLA and Performance specification – 1
February 2014
Page 133
Registration with Charities Commission confirmed 28
February 2014
Completion of Trust Business Plan- 28
February 2014
Trust becomes fully operational- 1
April 2014
11.0 Access to Information
Name: Christopher Allman
Designation: Project Advisor
Tel No: 01270 686689 begin_of_the_skype_highlighting 01270 686689 FREE  end_of_the_skype_highlighting
Page 134


Join UNISON in just 3 minutes - all you
need is your bank details and you’re set.

Join now

Need help?

Find out who to contact for help, or where
to find the information you need.

Tel: 01244 346894