Revised Recommended Template s3

* PART 1 – PUBLIC DOCUMENT AGENDA ITEM No. 20

TITLE OF REPORT: RENEWAL OF LETCHWORTH LEISURE CONTRACT

REPORT OF THE HEAD OF LEISURE AND ENVIRONMENTAL SERVICES PORTFOLIO HOLDER: COUNCILLOR I.J. KNIGHTON

1. SUMMARY

1.1 The purpose of this report is to seek approval for the management of North Hertfordshire District Council’s leisure facilities within Letchworth be re-tendered in 2013 in accordance with the existing contract framework.

1.2 To seek Cabinet approval on key changes to the leisure management contracts that are due to be tendered in 2013/14.

1.3 For Cabinet Members to discuss and approve the Service Profiles for the Leisure Management Contracts.

1.4 To approve delegated authority for the project management of the procurement process and seek Cabinet approval for key decisions.

2. FORWARD PLAN

2.1 This report contains a recommendation on a key decision that was first notified to the public in the Forward Plan on the 1st August 2012.

3. BACKGROUND

3.1 The Council’s Leisure Contracts are made up of three contracts - Hitchin, Royston and Letchworth

Hitchin : Hitchin Swimming Centre, including the Outdoor Pool and Archers Letchworth : North Herts Leisure Centre, Letchworth Outdoor Pool and Fearnhill Sports Centre Royston: Royston Leisure Centre

3.2 This report relates to the Letchworth Leisure contract only, which is currently operated by Stevenage Leisure Limited a Leisure Trust, this contract was last awarded by Cabinet Members at the January 2005 meeting and the contract commenced on 1st May 2005.

3.3 The contract was for a period of five years plus an option to extend for a further four years. In July 2006 Cabinet agreed to extend the Letchworth contract by two years. This was agreed as part of the capital refurbishment project which also led to a reduction in the annual management fee. A further extension was agreed in 2011, therefore, taking the contract to the full length of nine years.

3.4 The following programme sets out the key tasks that are required to enable the Letchworth Leisure Management Contracts to be re-tendered and commence 1st April 2014.

CABINET (11.12.12) Task Date

Project Start Complete Report to Cabinet with Service Profiles and any Dec 2012 significant amendments to the previous contract OJEU Notice Jan – Feb 2013 Write contracts Dec - Feb 2013 Pre Qualifying Questionnaires Feb – March 2013 Tender contracts out April - June 2013 Evaluate tender responses June - Aug 2013 Award new contracts Sept/Oct 2013 Contracts start April 2014 Project End April 2014 4 Overview of Leisure Management Contracts

4.1 The Leisure Contracts are currently being written and the project plan has scheduled these to be tendered out in April13. The Contract is made up of a number of sections that are being written by Officers. The Service Profiles (copies are available in the Members Room and available on the Council internet on the following link http://www.north- herts.gov.uk/index/leisure_and_culture/leisure_and_sports_facilities.htm) provide the outline specification to the contracts, these have been based on the current contracts. However, officers have reviewed these to ensure they comply with current legislation and to make improvement in areas which have been identified within the current contract.

4.2 Within any contract the best time to make financial changes to a contract is at the renewal, therefore, Members need to carefully consider the scope and content of the Service Profile. 7.1 of this report provides the current contract prices for the three leisure facilities. Although there can be variations in the contract period, financial saving are not normally fully recovered.

4.3 Due to the popularity and condition of the North Herts Leisure Centre it provides a surplus to the Council and on the proviso that there is future investment in this facility to provide future needs, officers consider the financial position should either remain the same or improve. However, in the long-term, particularly by 2024 consideration needs to be given for the replacement as at that time it will be over forty years old.

4.4 The Letchworth Outdoor Pool is currently seventy seven years old and is one of a few outdoor pools in the country that still remains open. Although currently there is no capital investment required it is likely that over the next ten years capital investment may be required.

4.5 The Council’s current views regarding this facility, is that this facility will remain open until significant capital investment is required. There is a significant level of risk that such investment or closure will be required in the next ten years.

4.6 For many years your officers have been consulting with Herts County Council (HCC) and Fearnhill School to explore self management by the School, their procrastination has led to the status quo. Your officers consider due to the low level annual cost and financial risk of terminating the current agreement with HCC, this facility should remain in the contract. However, for the benefit of the local community officers will continue to work with HCC and the School to further explore self management.

4.7 Rather than having specific policies these have been integrated within the Service Profiles. CABINET (11.12.12) 4.8 Officers have also written the draft conditions of tender and conditions of contract documents. These documents have been updated to ensure that they cover current legislation and the proposed changes are set out within this report.

5 KEY CHANGES

5.1 Fitness Equipment

5.1.1 In 2004 when the current contract was written, to ensure there was parity across the contracts and the quality of the fitness equipment was to a satisfactory standard, officers obtained a waiver for a nominated fitness supplier so tenders could be compared on a like for like basis

5.1.2 Since 2004, the quality and range of fitness equipment has improved and there are more companies providing products that are as good or better than what is currently in our fitness facilities. Therefore, when the Hitchin and Royston Leisure contracts were tendered in 2010 the Council did not nominate a fitness supplier, this resulted in saving being made from the tenders received.

5.1.3 It is suggested that as part of the tender response tenderers shall provide detailed information stating the type and nature of equipment they are proposing and the replacement date during the contract. This information will be taken into consideration as part of the quality evaluation.

5.2 Length of the contract

5.2.1 There are two options available to the Council: -

5.2.1.1 A five year with an option to extend by a further five years, this will bring all three contracts back in line if they all run the full term. The benefit of this will mean that the Council will be able to tender all contracts out together in 2024.

5.2.1.2 Alternatively the Council could have a longer contract, for example a seven year with the option to extend by a further seven years, this may provide better financial benefits to the Council as the contractor would be able to write off any large set up costs over a longer period, however, this would mean that the Letchworth contract would finish at a different time to the Hitchin and Royston Contracts.

5.2.2 Based on the above, it is advised that the Letchworth contract is five years with an option to extend by a further five years to allow the option to merge all contracts in 2024.

5.3 Utilities

5.3.1 The current contract puts the responsibility for utilities onto the contractor. However, with the rise in fuel costs over the last five years and continuing price uncertainty there is a risk that tenderers could inflate their prices to ensure that there is sufficient tolerance to cover any future utility rises.

5.3.2 When Hitchin and Royston Contracts were tendered in 2010, the council calculated the base usage for these leisure facilities. If the contractor then uses more than the base usage they pay for the financial impact, however, if the cost of utilities increase and the contractor controls the use within the base figure the Council amends the contractors accounts to take that into consideration and additional cost in excess of the Retail Price Index. This method is proposed to be introduced to the Letchworth Contract

CABINET (11.12.12) 5.4 Profit Share

5.4.1 The current contract has a profit share agreement. If the contractor makes a surplus against the tender price the surplus is shared 50:50 between the Council and the contractor. The contractor must set out how they wish the Council’s profits to be invested back into the facilities within the contract and, if the Council agree to the suggestions the money is reinvested. However, if the Contractor makes a deficit against the tender price the contractor has to absorb the loss.

5.4.2 The profit share agreement has enabled projects to be undertaken to make improvements to the leisure facilities which have benefited the community and the Council.

5.4.3 When the Hitchin and Royston contracts were tendered in 2010, this clause was amended due to the current financial climate, and allows the Council to decide if the Council’s profits are reinvested into the facilities or returned to the Council’s accounts, if there is an overwhelming financial priority for supporting other Council commitments. It is recommended that this clause is introduced into the Letchworth contract.

5.5 Human Resources

5.5.1 There are no direct TUPE implications for the Council as the service is already contracted out. However TUPE information will be required from the existing contractor to provide to tenderers and the Council will use its reasonable endeavours to obtain such information.

5.5.2 If any current staff are members of LGPS (having been transferred from the Council on the first tender), the Council will need to obtain, at its own cost, an actuarial valuation in respect of the pensions liability based on the new contract particulars. The Council will also need to liaise with Hertfordshire County Council on its requirements for admitted body status.

5.5.3 A member of Human Resources will be fully involved in the tendering process to ensure that potential providers meet the council’s equality requirements.

6 EQUALITIES IMPLICATIONS

6.1 The Equality Act 2010 came into force on the 1st October 2010, a major piece of legislation. The Act also created a new Public Sector Equality Duty, which came into force on the 5th April 2011. There is a General duty, described in 7.2, that public bodies must meet, underpinned by more specific duties which are designed to help meet them.

6.2 In line with the Public Sector Equality Duty, public bodies must, in the exercise of its functions, give due regard to the need to eliminate discrimination, harassment, victimisation, to advance equality of opportunity and foster good relations between those who share a protected characteristic and those who do not.

6.3 The Council’s Contract Procurement Rules, and specifically the Procurement Strategy require both the Council and its contractors to fulfil their obligations in regard to the Equality Duty, from point of first tender through the delivery itself. As the contract is in excess of £50k and affects more than one ward, detailed equality analysis will be required as the tender is awarded in due course

CABINET (11.12.12) 7 FINANCIAL IMPLICATIONS

7.1 The current cost of the Letchworth contract is £90,354 per annum, as shown in the table below. Annual contractual inflation is applied in line with the September Retail Price Index. The total contract value in 2013/14 has therefore been set at £92,704, an uplift of 2.6%. An equivalent uplift next year would result in a contract value of £95,114 in 2014/15 .

Letchworth Contract 2012/13 Annual contract Price Letchworth Outdoor Pool £ 121,456 North Herts Leisure Centre -£ 41,239 Fearnhill Sports Centre £ 10,137 Sub Total £ 90,354

7.2 The contract management fee is also annually increased by the September Retail Price index, however, until the tenders are received the actual cost to the Council will not be known.

7.3 The total budget for repairs and equipment across all sites is £35,000, in addition an annual contribution of £10,000 is made to a facilities maintenance reserve. The reserve was established during financial year 2008/09. The reserve will help to deal with short term fluctuations in building maintenance requirements. At the 31st March 2012 the reserve balance was £12,100.

8 HUMAN RESOURCE IMPLICATIONS

8.1 Covered in section 5.5 of report.

9 LEGAL IMPLICATIONS

9.1 The Procurement of a new contract must comply with the requirements of the Council’s Contract Procurement Rules. These Rules require the Council to undertake an EU procurement exercise when the value of the contract exceeds the EU threshold. The EU threshold is currently £173,934.

9.2 Given the value of this new contract will exceed the EU threshold, all aspects of the procurement process must comply with Public Contracts Regulations (2006). These Regulations give effect to EU requirements and regulate the advertisement of the tender, the writing of the specification and other tender documents, the selection procedure and the final award of contract.

9.3 The tender of this contract is a major service development which constitutes a key decision. As such, resolutions by Cabinet are required to authorise the recommendations in paragraph 12.

10 RISK IMPLICATIONS

10.1 There are procurement risks to the letting of this contract that will be managed by the Contracts and Projects Manager with advice from the Procurement Officer and Contracts solicitor. There is a low risk that the contract price will be increased which would have an impact on the Council’s revenue budget. If a new contractor is successfully awarded the contract then there are risks to the performance levels which are managed through the six month hand over period.

11 CONSULTATION WITH EXTERNAL ORGANISATIONS AND WARD MEMBERS

11.1 Consultation has taken place with the Portfolio Holder of Leisure and SLL, the current leisure contractor for Letchworth contract.

CABINET (11.12.12) 12 RECOMMENDATIONS

12.1 For Members of Cabinet to agree the procurement exercise for the Letchworth Leisure Management Contract which is due to expire on 31st March 2014.

12.2 For Members of Cabinet to approve the programme for the Leisure Management Procurement exercise as shown in 3.4

12.3 For Members of Cabinet to provide delegated powers to the Strategic Director of Customer Services in consultation with the Portfolio Holder of Leisure to project manage the procurement process

12.4 That the Letchworth Leisure Contract consists of the North Herts Leisure Centre, Letchworth Outdoor Pool and Fearnhill Sports Centre.

12.5 Members of Cabinet are asked to consider and agree the Service Profile for the Letchworth Leisure Management Contract.

12.6 Members of Cabinet are asked to consider and agree key changes for the new contracts which are set out in paragraphs: -

 5.1.3 (Fitness Equipment)  5.2.2 (Length of Contract)  5.3.2 (Utilities)  5.4.3 (Profit share agreement)

13 REASONS FOR RECOMMENDATIONS

13.1 To ensure that the Leisure Procurement exercise can be undertaken and complete within the timescales that are outlined in 3.4.

14 APPENDICES

14.1 Appendix 1 - Service Profile (In Members’ Room).

15 CONTACT OFFICERS

15.1 Steven Crowley Contracts and Projects Manager Tel: 01462 474211 [email protected]

15.2 Vaughan Watson Head of Leisure and Environmental Services Tel: 01462 474641 [email protected]

16 CONTRIBUTORS

16.1 Gavin Ramtohal Contracts Solicitor Tel: 01462 474578 [email protected]

16.2 Tim Neill Accountancy Manager Tel: 01462 474461 Tim.neill@north-herts/gov.uk

CABINET (11.12.12) 16.3 Maggie Williams Employee Relations Officer - Human Resources Tel: 01462 474506 [email protected]

16.4 Fiona Timms Performance & Risk Manager Tel: 01462 474251 [email protected]

16.5 Liz Green Head of Policy and Community Services Tel: 01462 474230 [email protected]

17 BACKGROUND PAPERS

17.1 Letchworth Leisure Management Contract 2005 – 2014.

CABINET (11.12.12)