SLM Contract Extension


Sunday, July 31st, 2011. 7:36pm


SLM Contract Extension Document

SLM Contract Extension Document ( Download, PDF)

On Wednesday the 27th of July I visited Cambridge City Council, accompanied by two readers of my website, to view the city council’s accounts. One of the areas we looked into was the council’s transactions with Sports and Leisure Management Limited (SLM). SLM run the city’s swimming pools, and some other facilities including Cherry Hinton Village Centre, on behalf of the council.

During the open period for the council’s accounts in 2010 I viewed the council’s contract with Sports and Leisure Management Limited (SLM), at that time I wasn’t allowed to view the document extending the contract to cover 2010-13 on the grounds no payments had yet been made under it. As it turns out the contract extension document wasn’t even signed at the time I last viewed the accounts – it is dated 13th December 2010. On visiting the council this time I was provided the contract extension document, along with details of all transactions between SLM and the council, some of which were made under the contract extension.

Interesting items from the transactions with SLM included in the 2010-11 accounts include:

  • The council paid SLM £23,535.25 for “gas costs” in July 2010. I don’t know why this payment was made, as generally the council don’t pay SLM’s gas bills.
  • On the 22nd of April 2010 the council paid SLM £6,691.63 as a 50% contribution to a “specialist clean” of the Parkside Pools floors. I find it very surprising that this payment was made by the council as it looks to me very much like an operational cost.
  • On the 18th of November 2010 the council paid SLM £23,793.50 in a transaction described as “Plant Room Parkside”, the city council owns the Parkside Pools and is responsible for the fabric of the buildings.
  • SLM’s management fee for each month up to and including September 2010 was £55,112.80 per month.
  • The management fees for the months following September 2010 were:
    • October 2010 – £67,439.66
    • November 2010 – £67,439.66
    • December 2010 – £67,439.66
    • January 2011 – £68,874.54
    • February 2011 – £68,874.54
    • March 2011 – £68,874.54

    From January 2011 the council was paying £12-14,000 more per month in management fees to SLM than it was up to September 2010.

  • While the extension document was signed on the 13th of December 2010 it was for “three years (up until September 30th 2013)”, suggesting it may have been effective from September 2010. This raises the question of on what basis the payments made between September and December 2010 were paid and why they were appear to have been paid at the higher rate agreed under the contract extension signed in mid-December.

Access to Commercially Confidential Material During the Open Period

  • In 2009 during the open period for the council’s accounts I was not permitted to see SLM’s management fee and denied access to SLM’s contract on the grounds of commercial confidentiality (article).
  • In 2010 I was allowed to view the SLM contract and see the management fees which were being paid. I suspected this change in the councils position may have been due to a judgement in the Veolia case (more details) in which Nottinghamshire County Council was ordered to give access to requested elements of its contract with the company during the open period for the accounts.
  • This year, 2011, we were told that a new judgement arising from an appeal against the 2009 decision had been made; (link to the new, 29th October 2010, judgement). The last sentence of paragraph 161 of this new ruling appears to be the crucial bit, it summarises that public bodies should make decisions on releasing confidential information during the open period in the same way as they would when considering releasing information under the Freedom of Information Act or the Environmental Information Regulations.

    The paragraph indicates that a public interest test is required; the reason given for deciding documents ought be withheld in the Veolia case is the council’s failure to “prove that interference with the confidentiality to which they are entitled would be justified”. (The council’s position was that it just wanted to do the right thing, it was neither pro or anti disclosure during the appeal hearing). The position following the appeal judgement puts access to commercially confidential material in public sector contracts during the open period in-line with the ICO’s view on how FOI requests for the same material ought be handled. While the FOI exemption for information provided in confidence is absolute, the ICO advise an alternative public interest test, with a presumption against disclosure, ought be considered.

    The Veolia case and the appeal judgement refers to information which has been identified in within the contract in question as “commercially sensitive”. There is no clause within the SLM extension document stating any elements of it ought be treated as “commercially sensitive”, I am not aware of any such provisions in the SLM contract as a whole, so it doesn’t appear to apply to the SLM contract extension or payments made under it. Cambridge City Council gave us access to the full unredacted contract extension document and all transactions with SLM.

My concern is that those entering public sector contracts will try and mark whole contracts, or large amounts of them, as commercially confidential. This will restrict access to the contracts both under FOI and the Audit Commission Act. Councils and other public sector bodies when negotiating contracts need to ensure that such clauses are reasonable and don’t conflict with any policies the body has on openness and transparency.

Paragraphs paragraphs 35 to 40 of the judgement give an interesting summary of how the current legal position developed, starting with the Poor Law Act 1844.

Paragraph 131 among other paragraphs suggests those viewing and copying documents during the audit commission act are not limited as to what they do with them. Two of the three Law Lords did not want to rule on what use to which documents obtained during an open period inspection could be put, but one of them did wish to do so.

The SLM Contract Extension

The document I was able to view, and take a copy of, shows the SLM contract was extended under the same conditions as it had run under since 2003 with the exception of a variation introducing a new agreement in relation to utilities charges.

SLM have reported that their “Gas Bill” for a year at the start of the contract extension would be expected to be £101,915.49 and their “Electric Bill” £200,382.37. (Cllr Wright was denied such figures when she asked for these costs via a council question).

The council have agreed in the contract extension to pay SLM an additional £100,000 per year in relation to these costs. Some rather cryptic conditions have been imposed which take effect if energy prices rise but energy consumption decreases. If under these circumstances:

  • SLM’s total utility bills stay the same or get cheaper SLM will not repay the council more than £100,000
  • SLM’s total utility bills get cheaper the savings will be deducted from the additional £100,000 the council has agreed to pay SLM
  • SLM’s total utility bills get more expensive the additional costs will be added to the £100,000 the council has to pay SLM

The second point appears to be rather negated by a later clause which states SLM will be entitled to profit from reduced energy consumption arising from improved management methods.

It appears the council has given SLM an incentive to reduce its energy consumption. If SLM reduces its energy consumption then the council will pay any increased energy costs caused by rising prices.

The text in the contract extension document, which the above is my attempt to interpret, is shown below:

see accompanying text which describes the clauses shown

A table is included in the contract extension document describing what the effect of any change in energy prices or consumption would have on each of SLM and the Council. This table isn’t very useful though as it does not include the effects of any investment by the council or improved management methods introduced by SLM. It also doesn’t deal with the key, and I would have thought quite likely, situation of energy prices rising and consumption decreasing; it does tellingly though state that in such circumstances there will be “no change” from SLM’s point of view, which if a fair summary of the other conditions must therefore mean the council will be picking up any increased costs.

There is a provision for the council to agree a set return on any investment the council makes in making the pools more energy efficient. It is notable that such returns are to be agreed in advance and not based on the actual performance of any equipment installed.

I note the council made no contribution to SLM for utilities in 2009-10 (transactions).

Full Council Written Question

Cllr Wright asked the Leader of the council a written question for answer at the full council meeting on the 21st of July 2011. (Document containing Q&A).

The question asked was:

What is the cost of energy used in running each of the city’s swimming pools over the last three years for which this data is available? Bearing in mind rising costs of energy what efficiencies are being undertaken in order to reduce these running costs?

The answer given:

Sport and Leisure Management Ltd (SLM Ltd) who run the pools on the Councils behalf have supplied the following information on rates of consumption of energy at the centres. The actual cost of energy used at the pools is noted to be commercially sensitive information as SLM negotiate all utility rates corporately and pay all utilities invoices directly to suppliers. SLM also make this request in light of the Leisure Management contract for Cambridge City Council services is coming up for a EU procurement exercise in the next year.
If required figures can be made available on a strictly confidential basis.

Electric Kwh 2008-09 2009-10 2010-11
Abbey Pool 783,917 783,516 794,860
Kings Hedges 345,893 345,683 330,706
Parkside Pool 1,192,797 1,121,983 1,431,589
Gas Kwh 2008-09 2009-10 2010-11
Abbey Pool 1,551,498 1,532,594 1,432,258
Parkside Pool 3,030,115 3,163,392 2,819,241*

Parkside Pool * The Combined Heat and Power Unit (CHP) plant is at the end of it operational lifespan and has been intermittent in its operation during this year. A new unit is currently being sourced.

The Council, working with SLM as contractor are working to reduce energy consumption as part of their day-to-day operational regime.
Carbon Reduction Folders and action plans are available at all sites and cover operational procedures and activities such as;
Recording room temperatures on a daily basis for all areas of the buildings. Target temperatures are set for each of these rooms based on instruction from the SLM Energy Manager
Regular staff training on energy usage and how staff can contribute to saving energy, including staff suggestions for energy saving.
Utility consumption data is recorded on a daily basis and graphical displays produced to show trends, which are then analysed, resulting in actions to reduce consumption further, and inform the Energy action plans at each site

The Building Management System at Parkside Pools has also recently been renewed, and a replacement CHP unit is currently being sourced by SLM. The City Council working with SLM have identified areas for “invest to save” projects as identified in the “Climate Change Invest to Save Fund” project appraisal taken to Environmental Scrutiny Committee on the 15th July 2011.
Table 3 of the report identifies that 6 of the 10 “Projects in the pipeline” are to do with efficiency savings and reducing consumption at the pools and leisure sites. These projects are currently being costed up for works and detailed savings are being calculated for the submission for approval of funds to progress these projects. They include measures such as variable speed drives and converting areas to LED lighting.
The contract extension granted to SLM has a mechanism within it, to allow any investment made by the City Council demonstrating a reduction in utility usage will allow these savings to be deducted from the current management fee paid over to SLM Ltd.

Other project areas across the Council that the leisure portfolio is currently involved in is the “Energy Management Initiatives” project recently approved at Strategy Scrutiny Committee on the 4th of July approving the installation of 50kw of Solar Photo Voltaic cells onto the roof of Parkside Pools (subject to planning permission), and a voltage optimisation scheme also at Parkside Pools.
A further project with the potential to be located at Parkside Pools is the Cambridge City District Heating Scheme, working with the Senior Sustainability Officer in the planning team and external consultants, is a project in the embryonic stages looking to provide a district heating circuit for large properties on Gonville Place and East Road.
There is real commitment and invest to save projects to reduce the energy consumption of the leisure portfolio (currently responsible for 30% of all carbon emissions of the City Council), and with a specific remit within the new leisure management contract from October 2013 onwards to focus on energy reduction across all operated sites, continues to demonstrate that efficiency savings are paramount within the operation of the Leisure portfolio.

How do the 2010-11 Figures for Gas And Electric Use Compare to the “Base” Figures in the Contract Extension?

I have added the contract base figures, including for the other pools and Cherry Hinton Village Centre to the tables:

Electric Kwh 2008-09 2009-10 2010-11 CONTRACT BASE
Abbey Pool 783,917 783,516 794,860 755,161
Kings Hedges 345,893 345,683 330,706 346,183
Parkside Pool 1,192,797 1,121,983 1,431,589 1,121,983
Cherry Hinton VC n/a n/a n/a 32,365
Jesus Green n/a n/a n/a 82,657
Gas Kwh 2008-09 2009-10 2010-11 CONTRACT BASE
Abbey Pool 1,551,498 1,532,594 1,432,258 1,484,615
Parkside Pool 3,030,115 3,163,392 2,819,241* 3,241,147
Cherry Hinton VC n/a n/a n/a 176,215

It is notable that in one case, for Parkside Pools electricity the base usage in the contract extension is the same as the 2009/10 actual usage, but in all other cases the values in the contract extension do not match an actual usage. The base figures to appear to generally reflect recent actual usage.

Contractor’s Investment

The SLM contract extension contains a section on “Asset Management provisions”; it states that in 2003 when the contract started SLM was to put £148,950 into repairs, fixed plant and service contracts; this sum has now been adjusted for inflation to £176,390.

This raises the question of why SLM has apparently not yet made this investment in the city’s pools (if the investment had been made there would presumably be no need to re-value it in the contract extension document).

Parkside Electricity

Clause 3.2.1 of the contract extension document states:

Due to the singular electrical supply coming into Cambridge Parkside Pools and feeding Parkside Pools, the Kelsey Kerridge Sports Hall and the Queen Anne Terrace Car Park, the Contractor will not be required to procure Electrical utilities for Parkside Pools. Cambridge City Council Property Services department procures utilities for the above named sites. The Contractor will be responsible for payment of its portion of the Utilities used at Parkside Pools as invoiced to the site by the City Council.

Notes:

  • I have a list of all payments from SLM to the Council in 2010-11. These show the reimbursement of the electric costs for Parkside at ex. VAT costs of:
    • Jan 2010 – £9204.08
    • Feb 2010 – £9296.81
    • Mar 2010 – £9913.15
    • Apr 2010 – £9529.30
    • May 2010 – £9749.29
    • Jun 2010 – £9427.67
    • Jul 2010 – £9621.26
    • Aug 2010 – £10,023.50
    • Sep 2010 – £9,633.62
    • Oct 2010 – £10,159.97
    • Nov 2010 – £9,945.18
  • The question of what these bills are based on is raised. Presumably if there is one electricity supply, there is only one meter and bill from the electricity company; how are these costs then apportioned? Is it based on actual usage or is the amount calculated in some way?

Summary

  • The council is paying about £12-14,000 more per month to SLM for them to run the city’s swimming pools than they were last year. Some of this is presumably due to the extra £100,000/year agreed to be paid by the council (subject to conditions) in relation to utility costs.
  • The council is continuing to pay for odd things related to SLM’s running of the pools. Last year it was a timing system, this year it’s a contribution to deep cleaning costs.
  • It is notable there a no rates being paid to the council by SLM (they might not have been picked up by the searches). Elsewhere rates form a key part of negotiations with SLM, it would have been interesting to see if the council or SLM would be responsible for paying any levy placed on the rates for a business improvement district scheme.
  • The contract extension makes no mention of moving Cherry Hinton Village Centre to community control and owernership, and no mention of any particular bookings the council would like to see preserved (though the original contract provisions remain in place).
  • Inspecting documents during the open period under the Audit Commission Act, while providing only historical information, does allow access to information not revealed in an answer to a councillor’s question at a full council meeting, and reveals documents discussed in private sessions at council meetings. Following the Veolia appeal judgement the right to view material which has been identified to the council as commercially confidential during the open is now subject to a public interest test.

11 comments/updates on “SLM Contract Extension

  1. Sam

    I wonder what the political implications are on the transparency agenda of the commercial confidentiality changes. This sounds like something that Parliament would be directly interested in taking up

  2. Geoff

    I’ve often wondered what the council actually ‘saves’ by using SLM. I guess it’s probably about pension costs. A useful comparison:
    Bourne Outdoor Pool a 50 yard heated pool (run by the locals). Costs in 2010 were:
    Gas – £77/day (£7265)
    Electric – £53/day (£4995)
    Lifeguards – £159/day (£15076)
    A total cost of £390 a day or £37,033 a season – including RATES!

  3. Richard Taylor Article author

    The problem is that if you can’t see the basis on which an amount for a payment has been calculated then you can’t check its been calculated correctly.

    If I was writing the law I’d give those inspecting the accounts in person access to everything, making clear though where there was a duty (or even a mere request) to respect confidentially.

    This would make the position analogous to observing a court in person – from the public gallery you get to learn lots of things which you are not permitted to report.

    I have in the past decided to respect a request (within the contract) to keep elements of Virador’s waste recycling contract confidential, even though I now believe I was under no duty to do so – now such elements would not be released.

  4. Richard Taylor Article author

    Geoff,

    An exchange at the last full council meeting revealed no new SLM staff have been taking up pensions, and they’re generally poorly paid, with even the assistant managers getting less than a supermarket checkout operator.

    It does appear this is a key area where SLM are probably saving money, compared to how the council would run it.

    The council have already ruled out running the pools themselves when the current contract expires.

  5. Richard Taylor Article author

    Looking at the conditions for the council paying the utility bills if energy prices rise, if I was writing the contract I would have required a significant reduction in usage to prompt changes to the arrangements for who pays; as it is a natural fluctuation in energy use could trigger clauses apparently intended to reward energy efficiency. SLM should benefit from being more efficient, not simply because we have a mild winter.

  6. Richard Taylor Article author

    The latest report on the tendering of the SLM contract is at:

    http://www.cambridge.gov.uk/democracy/mgConvert2PDF.aspx?ID=5017 (PDF)

    Minutes of the decision to go ahead with the procurement exercise are at:

    http://www.cambridge.gov.uk/democracy/ieListDocuments.aspx?CId=176&MId=527

    The report says that the ~£500,000 of “savings” SLM makes are largely due to the rates situation. If the council ran the service in-house it would have to pay them, but SLM doesn’t. The report states : “the current leisure provider already operates a trust model to achieve the appropriate savings from the contract.”

    (This is analogous to the situation with libraries where a council pays rates on libraries it runs, but if it hands over running them to friends groups constituted as trusts there will be no rates to pay – saving millions)

    Pensions are listed as another key area where the council running the pools itsself would cost more.

    It is obvious to me that we need to elect MPs who will exempt local councils from paying rates on swimming pools and libraries. It’s bonkers that when such facilities are run by councils they have to pay rates, but if run by others they can be rate free.

    My view is that the business rate system shouldn’t be the key factor in determining if services are run in house by a council or not.

  7. Phil Rodgers

    Re 6: As Cambridge Lib Dems were gleefully pointing out last week, the proposals to re-localise business rates from 2013 mean that moving libraries to a trust won’t make the expected savings. In fact the guide to the reforms says that locally-collected business rates will be split between County and District councils, which presumably means that once the reforms are in place, “trustifying” (or de-trustifying) libraries or swimming pools will simply have the effect of shuffling money between the County and District councils. Yet another argument in favour of a unitary authority.

  8. Richard Taylor Article author

    If the proposals do go-ahead then it will still make sense to argue for exempting public buildings like libraries and publicly owned swimming pools from business rates; or budgets won’t be as they appear and money will be irrationally flowing from one council to another.

Leave a Reply

Your email address will not be published.
Please consider saying where you are from eg. "Cambridge".
Required fields are marked *

*

Powered by WP Hashcash