Variation to Environmental Services Contract - referral from Cabinet (Agenda item 15)
Report of the Environmental Services Manager.
Attached are the reports and appendices that were considered at the Cabinet meeting on 19 October 2010 where it was resolved that the Audit Committee be commissioned to investigate the financial aspects of the proposal (Minute extract attached).
Roger Wilkin, the Council’s former Interim Environmental Services Manager, presented the report which outlined a proposal from Serco to allow payments in advance for the Environmental Services contract, in return for a payment discount to Breckland Council.
A report had been presented to Cabinet at its meeting on 19th October 2010 where it had been resolved that the Audit Committee be commissioned to investigate the financial aspects of such a proposal.
The issue of paying substantial amounts of money before the invoice was due had been one of the reasons why it had been recommended to the Audit Committee.
Information on Serco’s current financial position looked favourable but it did not guarantee its performance. To carry out further rigorous checks would cost the Council more than the discounts were worth.
Serco had refused to consider any further offers.
Members were informed that there were other Councils who had accepted certain discounts (see paragraph 3.3 of the report).
Another concern to consider was if the interest rates changed. The Assistant Director of Commissioning had been approached about this matter and he had stated that if Cabinet accepted such a discount, it would have to be built into the contract with a caveat for an annual review. Taking this approach would allow the Council not be locked into something which could be considered unfavourable.
The Chairman could remember many companies that had collapsed over the years and felt that the time was not right for such a proposal taking into account the economic environment.
Mr Ludlow, Independent Member, reported that he had spent much time trying to unwind contracts such as these and therefore knew that the Council could be putting itself at risk by paying for services in advance. He disagreed with the aforementioned point about the proposal being written into the contract. Referring to Serco’s financial position, he highlighted the fact that such information could be retrieved from the company’s monthly management accounts. Mr Stevens, Independent Member, agreed with the points made above and felt that annual savings that could be made would not be worth the risk.
Lady K Fisher, who was in attendance specifically for this item was disappointed by the response as she thought £30k going back into the Council’s purse, would have been good.
The Chairman reminded Lady Fisher of the companies that had lost hundreds of thousands of pounds by their contractors failing and Serco could be just as much as risk as anyone else. He further reminded Members that this was Council Tax payers’ money.
A Member felt that in a culture of cuts it was not worth the risk.
The Independent Member felt that the level of risk for paying one month early was reduced, as this was paying for a service that had already been delivered.
A Member had many concerns about various points in the report, one of which was the failure risk if Serco was to go bust. If a supplier was coming forward that was not in financial distress, and in turn was sharing its value with Breckland Council, commercially he would like to know about whether the breakeven point of 4% had been reached (see page 56 of the agenda). The Independent Member responded to the above question.
After further discussion a one month settlement was proposed, and following a vote, it was
RECOMMENDED to Cabinet that the Gross Annual Service Charges for the contract be settled one month in advance in order to realise a discount of 1% from Serco.
- A14_Serco discounts report 6oct10, item 26. PDF 141 KB
- A14_B101019 Serco Payment Discounts, item 26. PDF 67 KB
- A14_Serco discounts report risk statement sep10, item 26. PDF 64 KB
- A14_Extract from October cabinet minutes, item 26. PDF 40 KB
- audit committee report 24 03 11 Serco early payments, item 26. PDF 82 KB
- Serco discounts Appendix A (3), item 26. PDF 42 KB