Report number DSK02 of the Leader of the Council. (Enclosure)
1. Cabinet supports and approves the establishment of DeliverSK as described in report DSK002
2. Cabinet delegates to the Cabinet Member for Growth and Communications, in consultation with the Strategic Director for Growth and the Strategic Director for Resources, authority to select and confirm the private sector partner for DeliverSK as discussed in report DSK002
3. Cabinet delegates to the Cabinet Member for Growth and Communications, in consultation with the Strategic Director for Growth and the Strategic Director for Resources, authority to set up DeliverSK as detailed in report DSK002, entering into any necessary legal agreements needed to facilitate this
4. Cabinet recommends to Council the approval of a budget of up to £100k for initial set-up costs and up to £500k as initial working capital for DeliverSK, and to delegate to the Cabinet Member for Growth and Communications, in consultation with the Strategic Director for Growth and the Strategic Director for Resources, authority to invest up to £500k (i.e. the working capital) in Deliver SK, once the company has been set up
5. Cabinet seeks to recover a portion of the establishment costs for DeliverSK from the Partnership’s future profits
6. Cabinet approves the appointment of the Leader of the Council, the Deputy Leader of the Council and the Chief Executive as the Council’s nominated Board Members for DeliverSK
7. Cabinet requests that the Governance and Audit Committee considers any changes necessary to the Council’s Treasury Management Strategy to allow the initial and future investments in DeliverSK activities and projects
8. Cabinet authorises a governance review of all of the Council-owned companies and DeliverSK to ensure that decision-making is transparent and open, and that those companies are empowered to fulfil their stated purpose
Considerations/reasons for decision
1. Report number DSK002 of the Leader of the Council
2. The Council is seeking to add a further £1.2 billion to South Kesteven’s economy by 2040
3. An announcement made by the Leader in October 2017 regarding £40m investment in strategic projects to be delivered or underway by 2020
4. The opportunity for the Council to work with an experienced private sector partner on a more agile, commercial basis on larger development projects
5. Detailed business cases would need to be approved for all projects
6. Potential inputs different partners could bring to DeliverSK and their benefits to the district
7. Working with a partner would share the ownership and risk
8. Companies seeking to be prospective partners would be considered as part of a selection process
9. Returns would be used to pay off project costs, then investments from both partners, then any profits would be split according to the proportion of investment made by each partner
10.The proposed management structure for the company as set out in report DSK002
11.Indicative timelines for the formation of DeliverSK and commencement of activity
12.Assessment of risk and controls in place to mitigate identified risks
13.The role of the Governance and Audit Committee, which is to “monitor, review and amend as appropriate the Council’s approved Treasury Management Strategy paying particular attention to the inherent risks of the prevailing economic/financial climate”
14.Comments and recommendations made by the Growth Overview and Scrutiny Committee at its meeting on 29 August 2018 and subsequent legal advice taken in respect of those recommendations
Other options considered and assessed
· Option 1: Do nothing
The Council could continue to serve primarily as a facilitator for growth, setting policy and creating a framework for the district’s regeneration, but not take an active, participatory role. This has a number of disadvantages, not least of which is that the type of growth that comes forward and in what order will be something over which the Council has limited influence. SKDC’s land assets will also remain unused. This approach is also inconsistent with the progressive, forward-thinking ethos that SKDC has embraced in recent times and will not unlock the district’s potential. This option was therefore discarded.
· Option 2: Create a wholly owned company
The Council has created other companies – most recently InvestSK – that are wholly-owned, i.e. not formed with an external partner. This would mean all decisions around what DeliverSK did remained, effectively, in Council control, whereas in the LLP model proposed in this report decision-making is by consensus of both parties. Creating a wholly-owned company would see all of the risks associated with finance and development sitting with the Council, whereas in the proposed LLP model the Council would share the risk and have access to commercial skills and expertise it lacks.
· Option 3: Create a traditional Local Asset Backed Vehicle (LABV)
An LABV is a form of partnership or joint venture between a public body and a private sector investment partner, normally over the medium or long-term. The public partner generally inputs assets, with the private sector partner providing finance and technical expertise, including development management skills and also potentially the construction supply chain. There have been some high-profile examples created in the UK previously, but the LLP model proposed has some significant differences that create a better fit for SKDC.
For example, SKDC would not be procuring development management skills or contractors; DeliverSK would engage its own consultants/contractors as it moves forward with individual projects. In addition, it is common that LABVs have significant land assets transferred to them at inception, and that this drives the pipeline. This not only means more upfront commitment than is needed in the model proposed for DeliverSK, it also means it is more complex to create and operate, and that the Council is likely to have less control.
This type of vehicle tends to be lengthy and costly to set up and does not offer the Council the concentrated investment focus that it requires.
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The Leader introduced report DSK002, stating that he saw the formation of DeliverSK as a key tool to help meet the Council’s growth ambitions. Reference was made to a meeting of the Growth Overview and Scrutiny Committee at which the formation of DeliverSK had been considered.
The Overview and Scrutiny Committee had made a number of recommendations, which Cabinet Members considered. The Cabinet agreed to incorporate recommendations about recovering a portion of establishment costs through the partnership’s future profits and that there should be a review of the governance arrangements for DeliverSK and all of the Council’s other companies. There was also recognition that as well as profits, any losses would be split between the partners in accordance with their investment inputs. Cabinet Members did not support the Committee’s recommendation about the inclusion of a clause that 5% of the investment amount be provided upfront by the investor as surety should the project fail as there was concern that this could deter potential partners. The Growth Overview and Scrutiny Committee also raised concerns regarding individual Cabinet Members having sole responsibility for decision-making on selection of a partner and entry into the partnership but reassurance was given that the Cabinet Member would be supported in decision-making by Cabinet colleagues.
Cabinet Members agreed the recommendations in the report together with the two recommendations based on the comments made by the Growth Overview and Scrutiny Committee regarding governance and offsetting establishment costs.