The Chairman referred to InvestSK, describing it as the fuel to the engine that was DeliverSK; proposed for the consideration of the Growth Overview and Scrutiny Committee. The purpose of the meeting was to consider the resource implications in establishing DeliverSK.
The questions Councillor Baxter had submitted were welcomed and it was noted that these would be used as a checklist at the end of the meeting. The opportunity being provided for Members to undertake pre-scrutiny was also welcomed.
In introducing the report (DSK001), the Leader referred to the reasons why Members had been elected which was to improve the lot for residents which could be achieved a number of ways; through better housing, access to jobs and good education and services. In order to do this the Council would need to work in partnership with the private sector. InvestSK had been established to generate economic growth and business support, alongside place-making across the district.
The next stage was to move to the physical development of projects. Undertaking one project at a time was not an appropriate option.
The aim was for SKDC to take an active ‘hands-on’ role in the process and ensure key projects were delivered by creating effective and efficient delivery ‘pipelines’ for future projects throughout the District.
The way forward would be to work in partnership to enhance the work of the private sector. Housing was required but so was new business and this could only be addressed by investing in physical growth on the ground. The report outlined proposals for the formation of an investment partnership, ‘DeliverSK’. This partnership would manage development schemes from the initial concept through to delivery. Feedback from InvestSK had indicated there were a number of companies wanting to invest in the District.
The Chairman thanked the Leader for his overview and reminded the Committee of their role to scrutinise and be a critical eye. He welcomed the first question about the financial implications noting the Committee would need to give due diligence to this area.
Legal and Financial considerations:
In response to a Member’s query about whether the £600k for setting up the Company would be a loan from the Council and incur an interest rate, the Committee was informed that the figures were estimated working capital figures based on comparisons of the establishment of similar companies by other local authorities. The sum of up to £100k was anticipated to be required to assist in partner selection and in drawing up the required partnership agreement with the chosen partner. It was not envisaged that this would be paid back to the Council. The £500k estimated working capital would be used for initial project development activities and would eventually be paid back to the Council.
It was suggested by Cllr Craft that the £500k costs for 6 months might be matched by a similar contribution by the private sector partner for the following 6 months.
A suggestion was also made that the recommendation should read “up to £100K”.
Further discussion took place on interest rates; how InvestSK was different because the Council owned 100% of it, the importance of seeking commercial experience and advice from the private sector, ensuring that the Council was seen as a proactive partner and that terms of financial investment would be agreed with the partner.
In response to the Committee’s concerns on how the £500k would be used the Leader assured Members that only an investor with a long term vision who shared the same values would be sought. Consideration would not be given to those who did not have the same values. The Committee was informed there were a range of investors seeking to be involved with councils and DeliverSK would be a company similar to ones created by other local authorities.
The Committee was informed that the current legal advice had been drawn-down from a local framework which would have been subject to the required procurement processes. Financial advice had not yet been procured. It was possible that it would also be secured from a framework. DeliverSK would not be obliged to publish expenditure over £500 in the same way as the Council.
Prospective Partners and Procurement:
The Committee discussed the range of diverse projects that DeliverSK would be delivering such as construction, design, leisure centres, commercial developments, office space and domestic housing and was informed that it was intended that only one partner would be selected to invest in DeliverSK. The elements discussed would be delivered through the SPVs.
Further discussion took place on the type of service provider that would be considered and reference was made to a number of companies that had been created by other authorities who had failed. It was reiterated that the partnership would not be with a service provider; that was not what was being sought. The aim was to find a like-minded co-investment partner with the same vision and who saw the same opportunities as the Council. The partner would need to be willing to invest and/or facilitate the necessary investment, alongside the Council. The partners would work together to procure services as necessary to deliver the objectives of the partnership.
The Strategic Director noted that an Invitation to Tender (ITT) would not be published because this was not a procurement exercise. It would only be a procurement exercise if the Council was looking to procure supplies or services directly. However, this was not the case.
The Public Sector Legal Advisor from Pinsent Masons, confirmed that the Company would not be procuring works or services they would be seeking and selecting an investment partner.
The Leader added that the Company would oversee a suite of options and projects which would be kept separate (as Special Purpose Vehicles) in order that should one fail then it would not contaminate the work being undertaken on other projects. Each project would be separate. DeliverSK would provide a further element to existing direct partnership working, as well as the work of Gravitas and would enable further delivery vehicles. Each project would have a business case that would be considered prior to any commitment.
In response to concerns about the public perception of the way public money was being used, the Committee was informed that the money would be an equity stake by the Council. It would be used to create a stake in a company that would be the vehicle for delivering projects throughout the District and would be match funded by the Investment partner. The funding would likely not be required all at once and could be released in tranches.
A Member queried what safeguards would be put in place to ensure that InvestSK and DeliverSK did not experience the same problems as SolutionsSK, and the Committee was reminded that SolutionsSK was an environmental services provider for Stockport Council. Again, this was a service provider so not entirely relevant to the format/function of DeliverSK. However, what the report in the Manchester Evening News did highlight was the importance of strong management input with the right expertise.
With regards to the query about the selection of companies, the Council would include those companies who had not already approached them.
With regards to whether officers had taken independent legal advice on the selection process, advice had been provided by Pinsent Masons. Anne Bowden, the Public Sector Partner for Pinsent Masons was in attendance today. Pinsent’s provided advice on the report that was being considered by Growth OSC and had confirmed the nature of the process was to find a partner, not procure a service.
In response to a request for reassurance that a private partner had not already been informally chosen and a concern about recent decisions around the selection process of consultants and senior staff, the Strategic Director emphasised that a partner had not already been selected.
Further discussion took place on what evaluation criteria would be used to select the preferred investor and what balance would be placed on financial experience and the quality of bid. Members were directed to paragraph 4.4.of the report where the criteria were set out. It was essential that the Council found a like-minded partner that saw the same opportunities and had the resources to invest in those opportunities and/or access to other sources of private funding.
Share of Roles and 50:50 Partnership working
The Company would be a 50:50 joint venture so control would always be 50:50 (each SPV would be owned by DeliverSK) but the required level of investment in each SPV would vary. The Council’s stake would, in many cases, be the land on which a proposed development would take place. In some instances, DeliverSK may propose that the Council makes further financial investment(s) in a particular scheme, but this would be subject to the usual Council scrutiny and approval processes. The creation of a 50:50 partnership would mean that the Council would not be subject to 100% risk should any projects fail.
Following a discussion about how key decisions would be taken and whether a third-party had the veto over delivery, the Committee was advised that if the business case produced by DeliverSK was not enough to satisfy the private sector partner, then there should be question marks over whether it should proceed. The partner selection would be predicated on a number of conditions which would include the acceptance of work carried out to that point.
Transparency and Accountability
Discussion moved onto the transparency and accountability of the Company. Paragraph 5.6 in the report outlined when the Council would be required to make decisions. These decisions would of course be open to the usual scrutiny processes.
In respect of Freedom of Information requests the partnership would be 50:50 with the private sector and would not, therefore, be a public body and as such not subject to FOI. As outlined in the report, it was important that the Partnership operated on a commercial basis. Making DeliverSK subject to FOI requests would undermine its ability to operate on an equal footing in a highly competitive commercial sector.
The Council would still be subject to FOIA in relation to its involvement in the partnership, unless the information sought was considered to be commercially sensitive.
Members queried how decisions and progress made by DeliverSK would be reported to Councillors and whether they would be open to scrutiny. Further discussion took place on the feasibility of decisions being reviewed by a small group of Members outside the Cabinet. Members were directed to paragraph 5.6 of the report which sets out where Council would be required to make decisions.
The Committee considered recommending to Cabinet that the Shareholder Committee receive quarterly reports from DeliverSK on progress.
Reference was made to InvestSK and how there had been no mention of a further company being developed and what the urgency was in establishing DeliverSK. Members were reminded of the background to the decision in respect of InvestSK and that they were being provided with an opportunity for pre-scrutiny. There were two options for the Council, (i) to sit and wait to see what happened or (ii) to begin to deliver the projects that would enable growth and investment into the District. The Cabinet wanted to get on and deliver projects for the whole of the District.
Company Structure and Governance
Further discussion took place on the proposed company structure, who should be members of the Board, what channels there were for recourse should it be required, whether the SPVs would be asset backed and how “best value” would be measured.
DeliverSK would be led by a board with two representatives from both partners and decision making would always be by consensus. The Council representatives would need to agree before a project could be enacted. The Managing Director would be fulltime, report to the Board and be responsible for a small core team who would draw on the expertise of consultants on an “as and when” required basis. Recourse would be undertaken through the Shareholder Committee.
Further clarification was sought on what experienced legal advice had been received and the Committee was informed that the Public Sector Legal Advisor from Pinsent Masons had been involved. Her experience was gained from working with a number of councils who had also established companies.
The Public Sector Legal Advisor confirmed her experience and noted the benefits of the establishment of such a company, those mainly being, to be ‘fleet of foot’ and to be able to expedite delivery. There were a number of investors who were looking to invest with forward thinking councils. The scope for the SPVs would be as wide as possible in order to provide scope for flexibility which would be able to deliver projects across the District.
A Member suggested that at 9.4 of the report referring to the distribution of any profits, consideration should be given to including the words, “reverse also applies” as losses should be shared as well as profit. Another Member suggested that a contract with a future SPV investor should include a clause that 5% of the investment amount be provided ‘in escrow’ by the investor should the project fail.
Also discussed was the governance of DeliverSK and the framework for the Company. The Leader commented that he would take on board the principle of carrying out a review of the governance for all SKDC companies in order to ensure that the roles of elected members and officers were clear and effective in respect of those companies.
Final Decisions and Projects
In response to a query about the potential for a challenge to the decision of a partner and who would bear the costs, it was noted that if there was a challenge to the decision, the cost of defending that decision would be borne by the Council.
A further query was raised on the appropriateness of a single cabinet member having delegated responsibility for selecting and engaging a long-term private-sector partner with whom it was expected to be a strategic project for the Council. The Committee commented that other members (eg Cabinet) be involved in the selection process.
Discussion also took place on the types of projects and where these would be undertaken. The Committee was informed that some of the detail around one of the projects under consideration was commercially sensitive.
In response to a query about the Leader’s announcement about a range of ambitious projects in October 2017, there would be no intention to delay anything because of the setting up of DeliverSK. DeliverSK would bring in the necessary resources to progress with much-needed projects such as the new leisure centre for Market Deeping.
The meeting adjourned between 11.25am and 11.43am
When the meeting reconvened, the Chairman noted that the Committee would now be asked to consider the recommendations.
For further clarification, a member asked about the number of employees there would be and the salaries senior employees would receive and was assured that the senior employees would receive salaries that were commensurate with their role and the profession in which they operated, noting that DeliverSK as a commercial entity would have to compete with other similar companies.
In response to a query about the Treasury Management Strategy, the Committee was informed that this was the process by which the Council managed its money and funded capital projects. There may be changes required to the current Treasury Management Strategy in order to support the work of DeliverSK, but these would be brought before the relevant committee at the right time.
The Public Sector Legal Advisor commented that the Company would also need to consider looking at projects that could be expedited quickly in order to provide the company with some performance kudos.
The Leader concluded by reiterating that a review of governance for all SKDC Companies would be undertaken.
Following an in-depth discussion and consideration of the report along with responses to the Committee’s questions the Growth Overview and Scrutiny Committee recommend that:
a) Cabinet support and approve the establishment of DeliverSK as described within this report, DSK001
b) Cabinet 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 select and confirm the private sector partner for DeliverSK, as outlined in the report
c) Cabinet 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 set up DeliverSK as detailed in this report, entering into any necessary legal agreements needed to facilitate this.
d) Cabinet recommend 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 DeliverSK, once the company has been set up.
e) Cabinet approve the appointment of the Leader of the Council and the Chief Executive as the Council’s nominated Board Members for DeliverSK, and the Deputy Leader of the Council as an observer on the Board and nominated substitute for the Leader and Chief Executive.
f) Cabinet request the Governance and Audit Committee consider any changes necessary to the Council’s Treasury Management Strategy to allow the initial and future investments in DeliverSK activities and projects.
The Committee also requested that consideration is given to:
g) Looking at the potential for some of the upfront establishment costs payable by the Council being rolled into the initial operational costs so they are recoverable from the Partnership's profits in due course
h) That a Shareholder Committee forms part of the proposed structure and receives a quarterly report from DeliverSK
i) That at 9.4 of the report the words, “reverse applies to losses” be added to “Any profits made by DeliverSK will be shared between the partners in accordance with their respective investment inputs and that the reverse applies to losses”
j) The Committee requested that further consideration be given to whether a contract with a future SPV investor should include a clause that 5% of the investment amount be provided upfront by the investor as a surety should the project fail,
k) The Committee wished to register their concern, about a single cabinet member having the responsibility of making such key decisions, and suggested that other members (eg Cabinet) be involved in the selection process.
l) The Committee supported the principle of carrying out a review of the governance for all SKDC companies in order to ensure that the roles of elected members and officers are clear and effective in respect of those companies.