Stockton-on-Tees Borough Council 2013/14 VFM Conclusion Appraisal of financial and governance arrangements supporting ‘Big Ticket’ savings schemes

Contents

01 Executive Summary ............................................................................................................... 2

02 Conclusion ............................................................................................................................. 4

03 Business Case and Decision Making ................................................................................... 6

04 Procurement ......................................................................................................................... 10

Appendices ................................................................................................................................ 13

Appendix A Timeline ................................................................................................................. 14

Appendix B Project and joint venture risk areas .................................................................... 16

Appendix C Procurement risk areas ........................................................................................ 18

Appendix D Procurement process ........................................................................................... 20

Action Plan ................................................................................................................................ 21

Our reports are prepared in the context of the Audit Commission’s ‘Statement of responsibilities of auditors and

audited bodies’. Reports and letters prepared by appointed auditors and addressed to Members or employees of

Stockton-on-Tees Borough Council are prepared for the sole use of the Council. We take no responsibility to any

Member or employee in their individual capacity or to any third party.

Mazars LLP is the UK firm of Mazars, an international advisory and accountancy group. Mazars LLP is registered

by the Institute of Chartered Accountants in England and Wales.

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01 Executive Summary

Introduction

We are required to reach a conclusion on the arrangements Stockton-on-Tees Borough Council (the Council) has in place to secure economy, efficiency and effectiveness in the use of resources. Our conclusion for the 2013/14 audit year is based on two criteria, specified by the Audit Commission:

securing financial resilience –whether the Council manages financial risks to secure a stable financial position for the foreseeable future; and

challenging how the Council secures economy, efficiency and effectiveness – focusing on how resources are prioritised within tighter budgets and the need to improve productivity and efficiency.

In our Audit Strategy Memorandum for 2013/14 we set out that the main focus of our VFM work would be the arrangements for delivery of the Medium Term Financial Plan (MTFP). We subsequently recognised that new partnerships, joint ventures and ‘invest to save’ initiatives have become significant features in the Council’s plans to preserve service delivery and financial stability, and therefore the arrangements which support decision making and procurement in these areas had become key.

In our view these developments gave rise to a new significant risk to our 2013/14 VFM conclusion. We therefore needed to undertake local risk-based work to update our knowledge of the Council’s arrangements, and contribute to our 2013/14 VFM Conclusion.

Background

The Council has responded well in recent years to a less stable financial environment in wider local government, meeting funding reductions by implementing action to deliver its MTFP. Further downward pressure in 2013 on local government spending power increased the Council’s ‘budget gap’ that the MTFP must bridge in future years. The Medium Term Financial Strategy includes the requirement for savings to address a budget gap rising to £17 million by 2017/18.

Part of the Council’s strategic response to the funding reductions include service reconfigurations, referred to as ‘Big Ticket’ reviews, which seek to identify savings in three areas of high expenditure:

children’s social services;

adult social services; and

waste and energy.

Big Ticket reviews have progressed well over recent years, and are expected to deliver the substantial part of savings required from service reconfiguration. However, plans have required the Council, in line with Government policy, to identify new ways of working and innovative approaches to service delivery.

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Scope and objectives

In order to update our knowledge of the Council’s arrangements, we selected an example of a service reconfiguration initiative linked to the delivery of savings in one of the Big Ticket review areas.

In consultation with the Council, we identified the Spark of Genius North East LLP joint venture as an ideal example which exhibits many new and potentially unfamiliar aspects of service delivery configuration and investment. The joint venture is a limited liability partnership (LLP) with a private sector care provider for the provision of accommodation and education for children with complex needs within the Borough wherever possible. These children are currently looked after in facilities outside Stockton.

The Council expects to realise savings of around £600k per annum from Spark of Genius North East, contributing to the Big Ticket review of Children’s services which supports the MTFP. Securing these savings relies on up-front investment by the Council to acquire property assets from which services can be delivered.

The initiative is at an advanced stage of development, has not been without controversy in its later stages, and consequently has a high profile locally. We have examined the arrangements in two key areas: business case, and procurement.

Business case

We independently assessed the decision making process that underpinned the creation of Spark of Genius North East LLP (the LLP), in order to assess the extent to which it demonstrates a project, and supports an investment decision, which is:

economically sound – demonstrating a good strategic fit with service objectives, and providing the best solution from the options appraised;

financially viable - affordable to the Council, and providing the desired contribution to the MTFP; and

well managed – showing clearly how the proposal benefits service users and partners to the venture, and how the delivery of these benefits will be monitored.

Procurement

We considered the Council’s arrangements for managing risks in procuring a service provider and residential property.

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02 Conclusion

Overall conclusion

Based on our assessment of the Spark of Genius NE LLP project, in seeking new and innovative ways to deliver services the Council has arrangements that:

seek to safeguard public money;

consider the needs of citizens; and

aim to comply with laws and regulations.

Our work found evidence of a controlled and innovative process in procuring a new way of providing statutory services. The reconfiguration of the services can, when operational, lead to financial savings for the Council whilst providing better care and education to some of the Borough’s most vulnerable people.

Business case and decision making

The Council did not develop a formal business case for the project, so the development of all aspects of the project is not recorded in a single place. The project developed over time and our assessment, therefore, has sought to evidence that the key elements we would expect in a typical business case process are clearly shown to have taken place in support of informed decision making.

We found that appropriate groupings within the Council made informed decisions that have not left the Council exposed to significant risks. In overall terms, the decision to bring children with complex social and educational needs back from care settings outside Stockton-on-Tees:

fits well with national and local policy for Children’s services;

is affordable and serves the financial realities addressed by the MTFP; and

aims to benefit service users in the long term.

There are aspects of the project where we found scope to improve or formalise management arrangements, including the potential to develop formal business cases to gather all of the stages together in a single place for such novel, contentious or innovative service development proposals.

Procurement Implementation of the proposed service reconfiguration involved two elements:

the selection of a partner to help develop services for children returning to the Borough; and

the identification and purchase of suitable properties from which to deliver the partnership’s services.

The selection of the preferred partner followed a comprehensive, detailed and inclusive process which specifically sought innovation. This served the Council’s ambition to identify new ways of providing better services in partnership with specialists from other sectors while adapting to new financial constraints. The process went beyond merely complying with procurement rules and regulations and aimed to mitigate the potential risks. Our work identified a small number of areas where arrangements could be improved for future procurements of this type.

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It is notable that the identification of suitable residential properties in the Borough, within which the children will live, has become a controversial aspect of the service reconfiguration. Our enquiries have shown that this was not anticipated and action had not, therefore, been taken in advance to mitigate the potential risk to the Council’s reputation. It is important, therefore, that the Council harness the valuable learning for future developments, as it considers how services are provided in the future.

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03 Business Case and Decision Making Introduction

The business case is the starting point in any public sector investment decision. If a business case is robust, it can have a significant role in ensuring the investment contributes to improved services and performance. If it is not, difficulties could be faced in securing the best deal available from the private sector and later in securing efficiency and effectiveness.

Our chosen project is one, arguably fairly small, element of the wider Big Ticket review of Children’s Services. Our work has therefore been alert to the risk that, because of this, the project might have been subject to less onerous or rigorous decision making processes. In addition, the Council did not prepare a formal business case document which recorded the whole decision making process in a single place. Instead, the decision making process spanned over two years and followed the changing arrangements to service and financial review necessitated by service reforms and spending cuts.

Our assessment therefore aimed to assess whether the key stages of decision making could be shown clearly for the development of this project as it progressed over the timeline shown in Appendix A.

Strategic context

Effective policy and service development should lead to benefits to service users and other stakeholders rather than simply lower costs. In this case, the service review and reconfiguration can be traced back to the outcomes of the Efficiency Improvement and Transition (EIT) Review of Child Placements, which the Council’s Children and Young People Select Committee reported in March 2010. The review was wide-ranging, and aimed to identify strategic, policy and service options that would meet the needs of children.

Throughout the EIT review there is a consistent view that, where appropriate, children should be placed in their local area. By November 2011 the Tees Valley Group on Looked After Children reported to Cabinet an 'overwhelming consensus' that children should be close to home wherever possible. The Council’s own policy, the Looked After Children Placement Strategy 2012-15, was published in August 2012 and further cemented this approach.

The Council’s strategy and approach supports that adopted at a national level throughout the Parliament. Local authorities now have a duty under statutory guidance to ensure that there is sufficient accommodation to meet the needs of looked after children in their home community, with access to local services and close to their friends and family when it is safe to do so. More recently, the launch of the Children and Families Act 2014 included a call from the Children’s Minister to end to an ‘out of sight, out of mind’ culture which led to high numbers of children being placed away from their home community.

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Recent growth in the number of children in out of area placements has been significant, with a corresponding impact on cost, rising from 20 children costing £1.8m at the time of the EIT report to 37 children costing £4.6m at the time Cabinet decided to pursue a joint venture solution. The Cabinet decision clearly enshrined the objectives of the service reconfiguration as being to develop facilities in the Borough to return children with complex needs from other areas wherever possible, at reduced cost overall.

Policy and service review team

The Children’s Social Care Programme Board (CSCPB) has been the main grouping involved in directing the project. The Board appears to be the most appropriate grouping within the Council for this purpose, comprising senior officers and specialists from social services and financial backgrounds. The Board has reported throughout to the Corporate Management Team and to the Cabinet who make decisions. Cabinet meetings are reported to full Council.

The procurement panel is considered separately in Section 02, but in this context it is possible to conclude that appraisal of available options was at low risk from bias and self interest.

Objectives and benefits criteria

The objectives of large and complex projects should be clearly set out to enable identification of benefit criteria which can be measured in the future. The risk is that instead of framing objectives under service policy (regeneration, job creation, inward investment, sustainable communities, etc.), savings opportunities become the key driver. Cost saving should not be a benefit criteria in a business case, which should instead focus on comparing the relative benefits released by the available options.

The objectives of the Council’s Big Ticket reviews are clearly set out in the Medium Term Financial Plan.

Option appraisal and selection

The EIT review explored the following options:

continuing to ‘spot-purchase’ residential care;

to develop the Council’s own residential provision; and

to commission a private/voluntary sector provider to establish a local children’s home.

At the same time, the Tees Valley local authorities were exploring wider partnership on placements but this did not progress to a solution that involved joint working.

The option appraisal for this project was actually part of the procurement process. With a procurement specification and evaluation criteria that included innovation, the evaluation team appraised the options that were offered by the shortlisted bidders. This approach is appropriate for the example project reviewed. , Where the Council, however, plans larger and more complex service change it could undertake a formal process of option appraisal, narrowing down by cautious appraisal the widest range of possible options, including the ‘do nothing/do minimum’ option.

Risk management

The Cabinet approved a report in March 2013, proposing to enter into a partnership with the private sector to provide residential, care and educational services for children with complex needs, from Council owned property assets. The report includes comment on project risk, given as ‘low to medium’, which noted that some risks would be shared with the private sector.

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For our example project, risk assessments are evident at 3 levels, as set out below:

Corporate risk – the Council’s risk register contains the risk of service developments in light of Big ticket reviews not delivering improved outcomes;

Project risk – specific project risk registers were set up and maintained for the example project; and

Joint venture risk – the Council completed a Partnership Healthcheck Questionnaire (included in the Corporate Partnership Guidance Manual) during the project, which goes some way to considering the risks arising from joint ventures such as the LLP. However a range of other risks are evident, as in Appendix B, which might usefully be considered in other such developments.

There are a number of generic risks which apply to projects, and consideration of some relevant risks in Appendix B shows no obvious omission or exposure in risk planning. The risks considered in Appendix B shows, however, how reputational risk, initially assessed as low for such a project, has become the highest profile risk as the project progressed.

The Business Plan

Although no formal business case document was prepared for the project, a Business Plan was presented to Cabinet in March 2013 which forecast cost savings of £400k per annum from an estimated initial investment of £2m. The Plan was updated in May 2014 as improved information became available, indicating expected investment of £2.5m and greater savings potential of £600k each year, and presented to Cabinet in July 2014.

The financial model for the project is relatively simple. The Council will pay the LLP for individual placements, which will be provided from Council properties rented by the LLP. The Partnership’s equity and earnings are shared equally.

The Business Plan was prepared by the LLP partners from costings and assumptions which underpin the projected investment, income and costs. We carried out an exercise to identify the arrangements in place at the Council to assess the Business Plan and challenge its content, ensuring the validity of the figures and financial information. Our work covered the projections for 2016/17, the first year of full operation, and concluded that:

the estimated costs are based on assumptions provided by the LLP partner, which the Council has been able to challenge based on its knowledge of the market prices for placements;

the calculations within the financial model were correct; and

the costings and approach appear reasonable, with no obvious omissions or anomalies.

Plans show that the cost of residential, care and education services are not significantly different to those currently incurred outside of the Borough. The available ‘savings’ arise from the rental income receivable from King Edwin School and residential properties, and from the share of LLP profits. The rents charged to the LLP will be set by the Council’s Land and Property team and authorised by the Corporate Director of Resources.

The following steps have been taken to mitigate the financial risks in the model adopted:

the investment in high quality residential properties creates assets for the Council that might reasonably be expected to retain their value, and a market for resale;

for properties which are under-occupied, the cost of placing children is not incurred. There is also an opportunity to make surplus capacity available to neighbouring or other local authorities;

if placement costs are higher than planned or expected, the Council is under no obligation to place children with the LLP and can choose a lower cost alternative. Property rents remain receivable, however; and

parties to the LLP Agreement have exit strategies and recourse to provisions covering sale of interests or winding up.

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Recommendations

R1 For projects and procurements involving service reconfigurations, consider preparing formal

documentation to contain decision-making information in one place.

R2 Use the objectives and required non-financial benefits of Big Ticket reviews and service developments to

develop success measures and benefits realisation processes for future monitoring.

R3 For large and/or complex service developments, consider formal appraisal of as wide a range of options

as possible when planning service reconfiguration, including the ‘do nothing/do minimum’ option.

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04 Procurement Introduction

The procurement process is fundamental to a local authority gaining the best deal from an investment decision. A well run procurement will facilitate the acquisition of a flexible and tailored contract/agreement that meets current and future requirements, at a competitive price. In contrast, a poorly run procurement can compromise securing value for money from the outset. Councils must apply the highest professional standards when spending money on behalf of taxpayers, to ensure they get a good deal and to provide appropriate and necessary goods and services to the quality required to meet user needs.

The example project has involved two kinds of procurement. The most significant has been the procurement of a service delivery partner to provide the services necessary to allow the children currently placed ‘out of area’ to be cared for in the Borough. The second element of procurement is the purchase of the residential facilities, which is proving to be a controversial part of the service development.

Procurement of private sector partner

When Cabinet endorsed plans to provide residential, care and education services from local facilities the Council then undertook a significant procurement exercise. The process spanned 8 months from April to November 2012 and resulted in the selection of the preferred bidder, Spark of Genius.

Having decided to defer the demolition of King Edwin School in February 2012, Cabinet sought to procure a specialist care and education service provider. The process adopted is set out in detail in Appendix D, beginning in April 2012 when the Council openly invited 77 providers from around the UK, including existing suppliers and market leaders to an engagement event. The event allowed the Council to present to 31 interested providers, setting out its vision for ‘looked-after’ children and that the proposed procurement process would involve dialogue with bidders over 3 evaluated stages. In the weeks after the event, meetings and site visits were held with potential bidders who had expressed an interest.

The tender documentation itself did not define the exact term and form of contract, indicating its preference for a ‘long term partnership’. These details were to be developed and refined during the dialogue stages of the procurement process. With few apparent preconceptions, a wide service specification required bids to demonstrate:

improved outcomes for Children and Young People (40% of the bid score);

financial savings to the Council (40%); and

innovation (20%).

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From 15 requests for tender documentation the Council received 8 bids, which were evaluated by a panel comprising senior and specialist officers from Children’s Services and Finance. The Council has well established processes for officers to declare potential conflicts of interest. We have no concerns that members of the Panel had any inappropriate links with any of the bidders, but it might aid transparency of decision-making to formally establish the independence of a panel in future procurements.

The eight bids evaluated by the Panel were shortlisted to three, and following a series of dialogue meetings, reduced to two bids at the second evaluation. Following further dialogue meetings and site visits, revised proposals were submitted. Following a third evaluation, the Council selected a specialist service provider based in Scotland, Spark of Genius, as the preferred bidder.

The detailed content of the dialogue and negotiation with bidders in this procurement is a matter that has been raised by electors with the Crown Commercial Service, which considers concerns about the conduct of a procurement process. This review has now concluded that the procurement was run in an open and transparent manner. Our work considers the arrangements which the Council has in place, and therefore did not extend to the detailed content of the various dialogue stages set out in Appendix D.

The process was one tailored to the specific objectives of the procurement. The services being procured (health and education) were exempt from the full OJEU regime, but many of the OJEU requirements were adopted and the process used went much further than merely complying with the letter of the Council’s own Standing Orders and Standing Financial Instructions. This, together with the wide brief against which tenders were originally made, led to a complex process and Appendix C considers how the Council’s arrangements mitigated a range of relevant risks.

The procurement sought innovative solutions from bidders, and this is evident in the creation of a public/private sector joint venture to provide the services, in the form of a limited liability partnership (LLP) rather than from the award of a service contract. The Council’s legal services team worked with the preferred bidder to prepare a formal Partnership Agreement, under which:

the LLP has 2 partners, Spark of Genius and the Council;

each partner nominates 3 representatives to comprise the Board. The Council’s nominees are officers specialising in Children’s Services, Education and Finance; and

the partners share profits equally.

Cabinet delegated responsibility to officers for considering legal implications of the procurement and development of the partnership. A recent Cabinet paper confirmed the position on key legal implications of the project, including issues of ‘trading’ and offering surplus places to other local authorities.

Procurement of residential property assets

Implementing the project requires the Council to have premises and facilities from which services can be provided. The fact that the Council did not have such premises and facilities is the reason vulnerable children have been cared for and educated out-of-area in the past.

This has led to the purchase of sufficient properties to provide residential accommodation for those children the Council wishes to have returned to the Borough. Funding for the purchase of the assets (and renovation where necessary) was available from the Council’s Transition Reserve, which had been set aside in 2012 as part of the MTFP to support transition and implementation of ‘invest to save’ initiatives.

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Guidelines were therefore set (and subsequently revised due to a scarcity of suitable sites) for the identification of properties by the Council’s asset team and the LLP partner. Though not formally set down, we believe these to be properties which:

are in the Borough of Stockton-on-Tees;

have at least 5 bedrooms, or can be combined or extended to this size; and

can be adapted to function as a Children’s Home.

When potential properties are identified the Council’s Land and Property team provides specialist input, and once it is concluded that a property is suitable, negotiation and purchase processes apply. Statutory planning applications are then made. This is where the Council has encountered fierce and sustained challenge from local residents and media.

Public Services (Social Value) Act 2012

The Public Services (Social Value) Act 2012 is a piece of UK legislation that came into force on 31 January 2013. Under the Act, for the first time, all public bodies in England and Wales are required to consider how the services they commission and procure might improve the economic, social and environmental well-being of the area. The Act effectively asks a public body to consider the ways that each decision most benefits society and helps to join up all of its strategic aims.

The legislation was not enacted when the Council procured its preferred partner, and does not apply in the purchase of the residential properties. However, its relevance to future service developments means that it would be beneficial to consider, particularly in light of the public and media interest in the LLP, the principles it embodies. The Council adopted a Social Value Policy November 2013 when Cabinet also decided to apply the Act’s principles to all contract procurement.

Recommendations

R4 Tender evaluation panels should formally declare any links or potential conflicts of interest with bidders,

or otherwise, to aid transparency in decision -making.

R5 Reflect on the lessons that can be learned from the project which might benefit future service

reconfigurations, in particular the elements of the project resulting in public challenge.

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Appendices

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Appendix A Timeline The Council’s Children and Young People Select Committee published the outcome of its Review of Child Placements in March 2010. The Cabinet discussed the recommended action included in the report and decided to develop additional ‘local’ residential provision for looked after children.

Over the next year and a half, the wider Council responded to the new Government’s austerity measures and the changes to the local government financial environment. Ultimately, the establishment of the ‘Big Ticket’ reviews within the 2012/13 Medium Term Financial Strategy led to the creation of the Children’s Social Care Programme Board (CSCPB).

Date Project Development

(CSCPB Minutes and Cabinet reporting)

Procurement of preferred partner

Nov 2011 Tees Valley Group on Looked After Children

reports to Cabinet on options for the 6 LAs. Notes

'overwhelming consensus' that children should

be close to home wherever possible.

Dec 2011

Jan 2012

Feb 2012 Cabinet Decision to defer demolition of KE and

procure a placements solution including its

redevelopment and use.

Mar 2012

Apr 2012 Invitations issued to 77 Residential Care Providers

for presentation on developing the Project.

May 2012 Presentation to 31 Residential Care Providers.

Jun 2012 One-to-one meetings with providers.

Jul 2012 Lead officer for ’52 Week Residential Care’ (the

Project) work strand appointed.

Reported that there is ‘little appetite’ for joint

working among Tees Valley Councils.

King Edwin School (KE) discussed as possible

service facility.

Invitation to Tender published.

Aug 2012 Presentation on Looked After Children Placement

Strategy.

Tender Return deadline.

Sep 2012 Tender evaluation, clarification and shortlisting.

Oct 2012 Continuing discussion on appropriate setting for

particular needs.

Dialogue meetings. Submission of revised

proposals by remaining bidders.

Nov 2012 Proposal for CSCPB to meet preferred bidder. Selection of Spark of Genius as preferred bidder.

Dec 2012 CSCB meeting with Spark of Genius.

Proposal to update Cabinet, and to progress

identification of suitable properties.

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Date Project Development

(CSCPB Minutes and Cabinet reporting)

Procurement of preferred partner

Jan 2013 Begin development of Business Plan.

Feb 2013

Mar 2013 Governance arrangements approved for the

Project.

Report to Cabinet covering intention to enter into

partnership with Spark of Genius. Quotes £2m

investment and £400k annual savings.

Apr 2013 Work commences on identifying properties.

May 2013 Creation of limited liability partnership.

Jun 2013 Works progressing on KE.

Discussion of market rates of providers, for

Business Plan.

Potential suitable property identified and

acquired.

Jul 2013 Alternative property types discussed due to lack

of suitable sites in Borough.

Supplementary LLP Agreement signed.

Planning permission granted for change of use of

first property.

Aug 2012

Sep 2013

Oct 2013 Updates on Property #1 and KE redevelopment

and inspection by OFSTED.

New suitable property withdrawn from the market

by seller.

Nov 2013 Revised approach decided on suitable properties,

involving liaison with Parish and Town Councils’

Forum.

KE now operational and open.

Dec 2013 Options explored for new build on Council land.

Jan 2014

Feb 2014

Mar 2014

Apr 2014 Discussion of liaison plans with stakeholders

following identification of suitable properties.

Acquisition of second property and identification

of third.

May 2014 Update to Business Plan proposed.

Jun 2014 Business Plan revised, showing higher levels of

savings than initially expected.

Planning permission granted for change of use of

second and third properties

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Appendix B Project and joint venture risk areas Spark of Genius North East LLP is represented in the Corporate Risk Register as part of the wider risk that Big Ticket initiatives will not deliver improved outcomes for services users. At individual project level, risk management is less clear. The table below sets out some generic risk areas for our example project, with a brief assessment of the Council’s exposure.

Area of risk Procurement of Educational and Residential Provision for BESD

Young People in Stockton-on-Tees

General project risks

Uncertainty: The projected costs and benefits

of an option will always be subject to some

uncertainty. Assumptions made, such as the

scope for future efficiency savings or the

precise level of future demand, are normally

hard to judge at an early stage.

The business plans developed for the scheme are based on

assumptions which are clearly set out. Plans are updated

periodically as information becomes more ‘solid’. With greater

certainty around demand and supply now that properties are

sourced and acquired, this does not appear to be an area of

significant risk.

Optimism bias: When the possibility that

something will turn out differently is not fully

allowed for, an optimistic bias occurs.

Council funds invested in high quality residential properties should

not be significantly at risk. Expenditure on placements simply

replaces other Council spending on placements out of area.

Savings are dependent on demand for in-Borough placements,

with any surplus capacity likely to appeal to neighbouring

authorities. Suggests low susceptibility to over-optimistic financial

planning.

Variability: Where the range of possible out-

turns of an option is wide, it is subject to

variable risk. The range of variability may be

different between options under

consideration, and adverse outcomes may fall

more heavily on some areas of the Council’s

activities than on others.

The range of outturns does not appear wide for this project,

indicating that variability risk is not significant. Service quality risks

appear to be mitigated by the track record of the provider partner,

surplus capacity does not appear likely, and the purchase of

property assets by the Council is not new or significantly risky in

financial terms.

Reputation: The impact a project can have on

the Council’s ‘good name’ or standing as

perceived by the public, in the Region and

nationally, and in the wider media.

In the early stages of the project’s development, reputational risk

could reasonably have been seen as low for such a simple scheme.

However, as the project has progressed this is the risk to which the

Council has become significantly exposed.

Generic joint venture risks

The objectives of the venture are not totally

clear and communicated to everyone

involved.

The objectives are clear, having been clearly set out in the

procurement process, and known to both parties.

The partners have different objectives for the

joint venture.

The objectives of each partner appear clear and congruent in this

case.

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Area of risk Procurement of Educational and Residential Provision for BESD

Young People in Stockton-on-Tees

Imbalance in levels of expertise, investment

or assets brought into the venture by the

different partners different cultures and

management styles result in poor integration

and cooperation.

For Spark of Genius NE LLP, the Council has equal representation

on the Board from service and finance specialties. Neither partner

has provided investment into the venture.

Arrangements for conflict resolution are not

clearly set out in the Partnership Agreement.

Arrangements are set out in the ‘Deadlock’ terms of the

Agreement.

The timetable is too tight for the project to

allow proper implementation.

There is no timetable constraint or pressure on the LLP for placing

children in the new settings, as they are already being looked after.

The Agreement clearly sets out how financial

losses will be dealt with.

The Agreement has a Profits, Distributions and Set Up Costs

section which covers this issue.

There is an exit strategy built into the

Agreement.

The Agreement includes the arrangements for the winding up the

LLP

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Appendix C Procurement risk areas The table below considers relevant risks which might apply to a procurement of this type, and the process adopted by Stockton-on-Tees Borough Council in procuring a preferred partner.

Area of risk Procurement of Educational and Residential Provision for

BESD Young People in Stockton-on-Tees

Identifying the need and planning the procurement

Under/Overstatement of need

Risking poor competition, purchase of

unsuitable services, wasting money, failure to

satisfy service need, increasing costs.

The procurement process was aimed at securing an innovative

way of delivering services, so service need was not the key

driver in deciding how to procure.

Misinterpretation of user needs

Risking purchase of unsuitable services,

interruption to care and increased costs.

Continuity of service to existing users was not at risk during

procurement. Only providers of the required services were

involved in this procurement, minimising the risk.

Probity issues

Risking increased cost of procurement, misuse

of resources, unsuitable services purchased

and unethical conduct.

Tender evaluation was undertaken by a Panel of 6 officers from

3 different Directorates.

The Council maintains an up to date Register of Interests. None

of the Evaluation Panel had any links to, or potential conflicts of

interest with, any of the bidders.

Developing the specification

Narrow or biased definition

Risking fewer alternatives, unsuitable product

purchase, complaints from bidders or

increased costs.

The procurement aimed to select a preferred partner, stating

that the Council had no pre-conceived ideas about how the

partnership would be structured, legally and commercially. The

Evaluation included a weighting for innovation.

Definition of inappropriate services

Risking unsatisfied need, interruption to care

and increased costs.

Services were not defined by the Council in tender

documentation. Instead, bidders were required to describe how

they would improve educational and social outcomes.

Inadequate statement of requirements

Risking lack of variety from offers, unmet

need and difficulty in evaluation.

The Council had presented to potential bidders on the

background and context for the procurement, which aimed to

recruit a preferred bidder rather than tightly specify services.

Selecting the procurement method

Failure to identify potential sources

Risking a lack of offers from suitable bidders.

The Council invited 77 providers from around the UK to

participate, from which 31 engaged in the procurement.

Selecting inappropriate method

Risking re-tender, cost variations and poor

value for money.

The procurement sought a partner to provide an innovative

solution from which financial savings and improved service

outcomes would be realised.

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Area of risk Procurement of Educational and Residential Provision for

BESD Young People in Stockton-on-Tees

Inviting, clarifying and closing bids

Enquiries from tenderers inadequately

addressed

Risking complaint or action from bidders.

We are unaware of any accusations or complaints from any

party during this procurement.

Favouritism in providing information

Risking complaint or action from bidders.

We are unaware of any accusations or complaints from any

party during this procurement.

Breach of confidentiality

Risking complaint or action from bidders.

We are unaware of any accusations or complaints from any

party during this procurement.

Insufficient number of bids

Risking poor value for money from

competition, interruption to care and

increased procurement costs.

77 providers were invited to engage, with 31 attending the

presentation. Tender documentation was sent to 15 providers,

and 8 bids were received.

No response from known quality suppliers

Risking reduced competition and higher

prices.

Attendees at market engagement events represented

Registered Care Providers from the local area, throughout

England, Scotland and Northern Ireland.

Evaluation of bids

Failure to follow effective processes

Risking inconsistent or subjective evaluation,

complaint or action from bidders.

The evaluation process was in 3 parts:

#1 shortlisted 3 bidders from the 8 received;

#2 following dialogue meetings and revision of initial bids,

reduced 3 bidders to 2; and

#3 following dialogue meetings, site visits and further

revision of bids, preferred bidder selected.

We are unaware of any accusations or complaints from any

party during this procurement.

Breaches of Security

Risking complaint or action from bidders.

We are unaware of any accusations or complaints from any

party during this procurement.

Bids do not meet needs

Risking interruption to care and increased

procurement costs.

The procurement had no impact on existing service users.

Evaluation of bids included an ‘improved service outcomes’

criteria, which was the main difference between the final

bidders’ scores.

Failure to identify clear winner

Risking decision on subjective basis, and

claims and complaints from tenderers.

The Council notified the final scores to the final bidders, which

showed a clear winner.

20

Appendix D Procurement process

Evaluation Panel

Early Years and Complex Needs Manager

Service Manager, Looked After Children

Business Support and Project Manager

Senior Finance Manager

Head of Finance and Assets

Head of Education, Early Years and Complex Needs

Bidders invited to dialogue

Second Dialogue Meetings

(Finances) - 4th

October 2012,

with: 2 bidders

Cabinet Report

7th

March 2013

Market Engagement (31 attendees)

Provider Briefing (18th

May 2012)

One to one Meetings/ Site Visits with providers (28th

May-15th

June 2012) (8 providers)

Advertisement Stockton Borough Council website/Catalyst/ NEPO Portal

Invitation to Issue Outline Proposals Closing date: 1

st August 2012

Selection Stage

First Evaluation 7

th September 2012

First Dialogue Meetings

20th

September 2012

Second Evaluation

20th

September 2012

One bidder rejected

Site Visits

4th

/11th

October 2012

Revised Subtotals Submitted

19th

October 2012

Third Dialogue Meetings

25th

October, with: 2 bidders

Revised Proposals Submitted

9th

November 2012 Third Evaluation

13th

November 2012

One bidder rejected

Final Bidder

15th

November 2012

Clarification Meetings

16th

/ 17th

January 2013

21

Action Plan Rec. No Recommendation Council’s response Responsibility Target date

1 For projects and procurements involving service

reconfigurations, consider preparing formal documentation

to contain decision-making information in one place.

Agreed Corporate

Management

Team

March 2015

2 Use the objectives and required non-financial benefits of Big

Ticket reviews and service developments to develop success

measures and benefits realisation processes for future

monitoring.

Agreed Corporate

Management

Team

March 2015

3 For large and/or complex service developments, consider

formal appraisal of as wide a range of options as possible

when planning service reconfiguration, including the ‘do

nothing/do minimum’ option.

Agreed – This was undertaken at different stages

throughout the project

Corporate

Management

Team

March 2015

4 Tender evaluation panels should formally declare any links

or potential conflicts of interest with bidders, or otherwise,

to aid transparency in decision -making.

Agreed Corporate

Management

Team

March 2015

5 Reflect on the lessons that can be learned from the project

which might benefit future service reconfigurations, in

particular the elements of the project resulting in public

challenge.

Agreed Corporate

Management

Team

March 2015