Agenda Item No____12________
LEISURE CONTRACT PROCUREMENT
Summary:
The Council’s current leisure contract with DC Leisure is
due to expire on 31 March 2014. There is an option
within the current contract to extend the arrangements
for up to 5 years, subject to mutual agreement. This
report discusses the potential options around the
procurement of a new contract while also considering
the future of the Splash leisure facility in Sheringham
which has now been operating for 25 years.
Options considered:
Leisure contract –
- whether to extend with the current contractor
and if so for how long;
- consideration of the most appropriate model for
delivering these services in the future including
traditional procurement with an external provider,
Trust options, to bring the services back in
house or some form of new hybrid arrangement;
- depending on the decision taken in relation to
the
most
appropriate
delivery
model,
consideration of the various options for procuring
any new contract, including the use of external
support and the issuance of a PIN (Prior
Indicative Notice) to gauge supplier interest and
feedback in relation to the contract opportunity
and the potential redevelopment of the Splash
facility;
- how to ‘package’ the future contract
arrangements and what if any additional services
to include as potential additions ie dual use
sports centres, woodlands etc.
The report also considers initial redevelopment
opportunities for the Splash leisure facility at
Sheringham –
- the Splash facility is now 25 years old, the
Council needs to consider all options around the
future provision of these facilities.
Conclusions:
Entering into some form of contract extension with the
current providers DC Leisure would allow the Council
the necessary time to fully explore all of the potential
operating models whilst also engaging with the market,
through the production of a Prior Information Notice
(PIN), to help shape any new contract. The extension
may also result in reductions in the current contract
management fee. Furthermore it would allow for
detailed investigations to be undertaken into all of the
potential options regarding the Splash leisure facilities.
Recommendations:
Reasons for
Recommendations:
It is recommended that Cabinet;
1. Approve a contract extension with DC
Leisure to enable a full analysis of all the
options available for future contractual
arrangements
and
the
potential
redevelopment of the Splash site.
2. Delegate to the Corporate Director and
Portfolio holder for Leisure the power to
progress the arrangements for/and to
conclude the appropriate length of contract
extension with DC Leisure to achieve the
best outcome for the Council.
3. Approve budget provision of £9,000 from the
General Reserve to commission support
from Improvement East to facilitate the
production of a Prior Information Notice (PIN)
to help consult with the market to explore
contract options.
To allow for sufficient time to fully explore all of the
potential operating models and procurement options in
relation to any new leisure contract whilst potentially
achieving revenue savings on the current contract cost.
A contract extension would also provide the time to
assess the options regarding any re-provision of the
Splash facility.
Cabinet Member(s)
Ward(s) affected
Cllr John Lee
Sheringham
Cllr Rhodri Oliver
Contact Officer, telephone number and email:
Duncan Ellis (Head of Assets and Leisure), 01263 516330, duncan.ellis@northnorfolk.gov.uk
1.
Introduction
1.1
The Council’s current leisure contract with DC Leisure is due to expire on 31
March 2014. There is an option within the current contract to extend the
arrangements for an additional 5 years subject to mutual agreement.
1.2
The contract covers the management and operation of the Council’s three
leisure centres which include Victory Leisure Centre in North Walsham,
Fakenham Leisure Centre and The Splash in Sheringham.
1.3
Both Victory and Splash provide swimming facilities, but Victory has been
designed and built as a more serious swimming facility whereas Splash
provides more of a recreational leisure/fun pool which includes a wave
machine and slide. These centres also provide gym and dance/studio
facilities while Splash also boasts a badminton court.
1.4
The Victory facility was subject to an extension to the gym area to help meet
increased demand and was completed during the 2007/08 financial year. This
capital improvement was financed by DC Leisure at a cost of approximately
£260,000. DC Leisure would normally write off a capital investment of this
nature over a period of 15 years but as there was only 7 years of the current
contract remaining. An arrangement was therefore reached whereby if DC
Leisure were not successful in obtaining a contract extension or winning the
next contract then the Council would repay any undepreciated amount. The
Council’s accounts currently contain a contingent liability in relation to this of
£148,000, which is the amount that would be payable if DC Leisure were not
successful with the new contract.
1.5
The Fakenham facility has no swimming provision and includes a gym,
various studios and a large sports hall. It is slightly different to the other two
facilities in that it is also used as the main sports facility for Fakenham High
School who have a Service Level Agreement (SLA) to cover their
requirements.
1.6
The Splash is by far the oldest facility opening in 1988, and is coming towards
the end of its useful economic life having been operational for 25 years.
Having been designed during the 1980’s the facility is expensive to run (due
mainly to the very high roof over the pool to accommodate the slide) and does
not reflect the energy efficient design of modern facilities such as Fakenham
and Victory which are 9 and 10 years old respectively.
2.
Change of subcontractor
2.1
DC Leisure Holdings was recently acquired by Places for People (PfP) and
now forms part of the PfP group. The group are one of the largest property
management, development and regeneration companies in the world, with
balance sheet assets of £3.1bn as at 31 March 2012.
2.2
To take advantage of opportunities in the leisure management contracting
sector PfP have established a national not for dividend organisation called
Places for People Leisure Limited. This has also been registered as a charity.
There are numerous charities that operate leisure facilities within the sector
so this is an accepted delivery model.
2.3
Under these revised arrangements DC Leisure Management Ltd (DCLM) will
sub-contract their leisure management contract to Places for People Leisure
in the same way it does currently using North Norfolk Leisure Community
Association as its sub-contractor. There has therefore been no change in our
relationship, with DCLM being the head contractor but with the new Charity as
its sub-contractor undertaking and providing the day to day leisure services. A
Delegated Authority was completed in April to recognise this revised subcontractual relationship.
2.4
The purpose of this report is to investigate the options for the future of the
contract, including the possible extension of the current arrangements and
also to consider the potential redevelopment options for Splash.
3.
Contract Procurement
3.1
As discussed above the current contract includes a provision for an extension
for a period up to of 5 years subject to mutual agreement. Officers have
undertaken initial discussions with DC Leisure who have confirmed their
interest in the contract extension option. They have indicated that potential
savings could be achieved on the current contract management fee and
officers estimate this to be in the range of £50k - £100k per annum depending
on the length of the extension.
3.2
There are a number of advantages to extending the contract. As well as
providing a potential revenue saving, it would also provide the time to
undertake a thorough options appraisal around the future delivery of these
services, including;




traditional procurement with another external leisure provider such as
DC Leisure;
Trust options with other Councils;
to bring the services back in house or;
some form of new hybrid arrangement.
3.3
Some other local Councils in the area are in the process of investigating
options around establishing a Leisure Trust. Extending the current contract
would enable the Council to consider the viability of entering into a joint
arrangement such as this in the future (either with another Council or
independently), which may have both operational and cost saving
advantages.
3.4
The extension option would allow for any new delivery models implemented
by other Councils to settle down and become established which would help to
reduce any risks relating to any potential future joint arrangements.
3.5
The extension may also enable the Council to access capital funding that,
while not available at present, could potentially be available over the next few
years if policy changes and resources are redirected by Central Government
through agencies such as Sport England etc.
3.6
Extending the contract would allow for the Council to produce a Prior
Information Notice (PIN). This would enable the Council to gauge the level of
interest from market providers and also to seek some indication as to the best
way to package the contract and could include issues such as contract length,
service specifications and service groupings. This could also include potential
options for consideration of the Splash facility and financing options.
3.7
Discussions have already been held at officer level with Improvement East
and they have offered to support the Council with producing this notice and
helping with the supplier engagement. It has been estimated that the support
required will include the production of the PIN, assisting with the design and
facilitation of any buyer event and then helping to analyse and make
recommendations regarding the final ‘packaging’ of the contract. The
estimated cost for this piece of work is approximately £9,000, although this
will be subject to confirmation from Improvement East regarding resource
requirements.
4.
Splash redevelopment options
4.1
It is beyond the scope of this paper to go into this area in great detail as the
purpose of the report is to request a contract extension to enable the time to
explore these additional options more fully. Some initial considerations have
however been provided below.
4.2
The use of a PIN would help the Council to engage with the market prior to
letting any new contract to see what interest there would be in a contractor
providing a new facility or potentially suggesting alternative operating
arrangements that the Council may not have considered, including alternative
financing arrangements.
4.3
If a new facility were to be provided it might be possible to achieve annual
revenue savings for the Council. Due to the older design and inefficiencies of
the Splash facility it is felt that there would be significant savings for any
contractor taking over the operation of any new facility which would then flow
through to the Council in the form of a reduced management charge. It has
been estimated that this could produce a saving in the region of £91,000
based on the current contract management fee. It should however be noted
that the exact level of any saving will only be known once any procurement
exercise has been completed if the Council decides to contract with a
traditional leisure service provider such as DC Leisure or any new facility is
built.
4.4
The granting of some form of contract extension would give the Council the
time to fully explore all of the options for re-provision of facilities at Splash and
would also enable consultation with the market via the use of the PIN to
explore alternative financing and operating models for any new facility.
5.
Conclusion
5.1
Entering into some form of contract extension with the current providers DC
Leisure would allow the Council the necessary time to fully explore all of the
potential operating models as discussed above. It would also provide the time
to conduct any procurement exercise as required.
5.2
The additional time provided would also enable the Council to engage with
the market through the use of a PIN. This would help to collect information
regarding contract length, service specifications, service groupings and ideas
and potential options for any redevelopment of the Splash facility which would
ultimately help shape any new contract. Support for the production of the PIN
is available from Improvement East.
5.3
Initial discussions with DC Leisure suggest that potential savings could be
achieved on the current contract management fee depending on the length of
any contract extension. This would have the added benefit of reducing the
outstanding capital liability relating to the Victory gym extension.
5.4
Furthermore it would allow for detailed investigations to be undertaken into
the potential re-provision of the Splash leisure facilities.
6.
Implications and Risks
6.1
Any new procurement arrangements could result in a new contractor taking
over provision of the current services. The Council does however have an
excellent long term working relationship with DC Leisure. The contract
extension would provide continuity with the Council’s current supplier, thereby
reducing the risk of any deterioration in service quality due to a change in
provider.
6.2
Any new service specification or arrangements will need to give due
consideration to the requirements of the Equality Act 2010 and this is
discussed further below under the Equality and Diversity section. The
application of new best practice guidance issued by the Equality and Human
Rights Commission will help to minimise the risk of any equalities related
challenge in relation to any new service delivery contract.
6.3
There are a number of risks associated with the potential replacement of the
Splash facility. However these risks would be considered in more detail if this
option was to be further progressed and would be the subject of a separate
report.
7.
Financial Implications and Risks
Leisure Contract
7.1
Indications are that an extension may result in a reduction in the current
contract management fee which would help the Council to achieve revenue
annual savings. There is however a risk that the contractor would not be able
to successfully operate the contract following any reductions. The risk of this
is however minimised due to the recent acquisition of the company by Places
for People which has an excellent financial standing and a strong balance
sheet (the group accounts for the year ending 31 March 2012 show assets of
£3.1bn). Furthermore any failure to meet any agreed reductions may
jeopardise any future contract arrangements with DC Leisure and would also
impact on the reputation of the company.
7.2
The extension option would also have the result of reducing the outstanding
capital liability relating to the Victory gym extension pro rata. For example the
3 year extension option would reduce the outstanding liability by around
£18,000 per annum.
7.3
The longer the extension period the more risk there is, due to the age of the
Splash facility, that there may be some failure of equipment or part of the
structure for example, which may then need to be repaired if possible. DC
Leisure have however indicated that they would be prepared to make some
investment to cover potential issues if the longer extension periods were to be
considered and this would need to be included and covered as part of any
negotiations. The Council could also potentially use capital reserves to
support the facility but only where it is economic to do so.
Potential Splash redevelopment
7.4
As discussed above potential contract savings of c£91k have been estimated
based on current contract prices as a result of the redevelopment of this
facility. This is due to the fact that the Splash is an older style building and
any modern replacement would have improved thermal properties and
operational efficiency which would mean that the running costs of the facility
should be significantly reduced, resulting in a lower management fee from
any operating partner. However, there is a risk that savings of this magnitude
would not be achieved and this would not become clear until a procurement
exercise has been completed.
7.5
It should however be noted that potential option for the replacement of the
Splash facility is subject to further work and investigation and therefore is not
explored any further within this paper. If the decision is made to replace the
facility, the options available will be the subject of a further report at that time.
8.
Sustainability
8.1
Any potential redevelopment of the Splash facility would have significant
sustainability issues as the current facility is dated and not efficient by today’s
standards. Any new facility would provide the Council with the opportunity to
greatly improve sustainability which could be further enhanced through
consideration of aspects such as ground source heating and solar panels as
part of any new capital development. However the potential redevelopment of
this site has not yet been decided and therefore there are no sustainability
issues as a result of this report.
9.
Equality and Diversity
9.1
The Equality Act 2010, consolidates protection against discrimination on the
grounds of age, disability, gender reassignment, pregnancy and maternity,
race, religion or belief, sex and sexual orientation. It also put in place a new
Public Sector Equality Duty (PSED), which gives public authorities a legal
responsibility to provide this protection and make decisions which are fair and
transparent, including the allocation of public money.
9.2
The Equality and Human Rights Commission published new guidance in
January 2013 covering the PSED under the Equality Act, which will help
public authorities encourage good relations, promote equality and eliminate
discrimination in the workplace and in delivering public services.
9.3
This duty also extends to any services that are contracted out and further best
practice guidance (Buying better outcomes) was issued by the Commission in
March 2013 covering the mainstreaming of equality considerations in
procurement processes, with a focus on;


The legal framework in relation to equality considerations and
procurement.
How equality considerations can be built into the different stages of the
procurement cycle.
9.4
If the Council were to undertake a procurement exercise or enter into any joint
arrangements with another Council(s) then due regard would need to be paid
to the service specification regarding outcomes for different groups. The
application of the best practice in relation to procurement contained within the
‘Buying better outcomes’ guide detailed above will help to minimise the risk of
any equalities related challenge in relation to any new service delivery
contract.
10.
Section 17 Crime and Disorder considerations
10.1
There are no Section 17 Crime and Disorder implications as a result of this
report.