APPENDIX A
AUDIT COMMITTEE – 13 JUNE 2013
PART I - DELEGATED
5.
WILLIAM PENN LEISURE CENTRE REFURBISHMENT
(CE/DCRG)
1.
Summary
1.1
This report considers whether to proceed with Stage 2 of the independent
review on the William Penn Leisure Centre Refurbishment and the financial
implications now legal matters have been concluded.
2.
Details
2.1
The Council on 16 February 2010 (Minute CL68/09) resolved:“Given the deep concern of Three Rivers residents at the substantial
overspend and delays associated with the William Penn project, this
Council wishes to ask the Council’s External Auditor to conduct a
full, independent and transparent scrutiny of the project to reassure and
inform its residents”.
2.2
The Audit Committee on 24 November 2010 (Minute AC28/10)
recommended to the Council:“that the Council notes the terms of reference for the review, accepts the
external auditor’s proposal and agrees that £25,000 be set aside from
reserves as a budget for stages 1 and 2 but that a review be carried out
by the Audit Committee after the completion of stage 1”.
The agreed terms of reference are attached at Appendix 1.
2.3
The External Auditor’s independent report (Stage 1) has been considered by
the Resources Policy and Scrutiny Committee (see Appendix 2) and by the
Leisure and Community Safety Policy and Scrutiny Committee (see Appendix
3).
2.4
The recommendations in the report have been included in the ‘Audit & Internal
Control – External Audit Recommendations’ report elsewhere on this agenda,
so that the Committee can monitor their implementation.
They are, that the Council should:a)
Review and refresh the Council’s tender processes to ensure that they
cover a wider remit and provide more robust investigation into vendor
capabilities in addition to price. This should include an assessment of
cultural fit, key personnel audits and an emphasis on the collaborative
aspect of projects.
b)
Ensure that, when undertaking due diligence on a vendor, its readiness
to contribute to a partnership and understanding of the particular nature
of contracting with the public sector is considered. BS11000, the
recognised good practice standard for collaborative working should be
taken into account.
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c)
Before embarking on a major project, the Council should assess its own
ability to manage the work and make any necessary arrangements to
strengthen its ability as far in advance as possible.
d)
Undertake interviews with more than one vendor at the selection stage,
even when there is a preferred vendor, to provide a useful comparison,
for example to establish a feel for their ongoing contract management
approach and the likelihood of cost variations.
2.5
In response, the Council’s Contract Procedure Rules (CPR), Guidance and
Good Practice Notes are being updated to reflect changes in legislation and
best practice and to provide greater clarity to officers. This is being done in
collaboration with Watford Borough Council since it would be useful if both
councils adopted the same rules particularly when officers from shared services
procure for both councils. Joint training will be arranged at both councils.
2.6
It is now for this Committee to consider if Stage 2 of the independent review
should be undertaken following the outcome of Stage 1.
2.7
In Stage 2, the External Auditor has been asked, firstly, to comment upon what
steps the Council could have taken in order to act as an intelligent client. The
recommendation at paragraph 2.4 (c) above substantially covers this point.
Revised CPR, Guidance and Practice Notes will ensure that before embarking
on a major project, the Council should assess its own ability to manage the
work and make any necessary arrangements to strengthen its ability as far in
advance as possible.
2.8
Secondly, the External Auditor has been asked to confirm the decision to
terminate the contractors was taken in accordance with Council procedures.
Members will be aware that the Evaluative Mediation decided where faults in
respect of the construction of the project lay and that the Council achieved a
positive outcome. The Council’s Contract Procedure Rules are silent on
termination. The Council’s standard terms and conditions will allow for
termination in the event of fraud and corruption but each individual contract will
have a termination clause unique to the contract. The Council followed
specialist external legal advice on termination in this case.
2.9
Lastly, the External Auditor has been asked to comment upon further steps that
the Council could have taken in order to minimise costs incurred. Having
embarked upon, and completed, the legal process, the legal fees were
determined by the steps the Council took and were negotiated down where
possible. Completion contracts were awarded competitively.
2.10
The purpose of the Independent Investigation is to learn the lessons from the
William Penn project. The Committee should decide whether the cost of Stage
2 will outweigh any potential gains. Mr. Paul Dossett of Grant Thornton UK LLP,
the External Auditors, will be present at the meeting to make comment on this
retrospective review and the assurance members should seek on future major
projects.
3.
Options/Reasons for Recommendation
3.1
The Committee should decide whether or not to proceed with Stage 2 of the
review.
3.2
The Leisure and Community Safety Policy and Scrutiny Committee will decide
on 19 June whether to set up a Task and Finish Group to scrutinise the Project.
This might be considered as an alternative to the external auditor’s Stage 2
review.
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3.3
In deciding whether to proceed, that Committee will, in addition to the factors
listed above, need to consider that:
some staff involved in the project have moved on, experts engaged by
the council to support its submission to the High Court would be
expensive to interview and are unlikely to provide any additional
information, and the contractors employed will almost certainly not be
available.

the Council has only limited resources to support such a Group.
4.
Policy/Budget Reference and Implications
4.1
The recommendations in this report are within the Council’s agreed policy and
budgets. The relevant policy is entitled ‘William Penn Project – Independent
Review’ and was agreed on 16 February 2010.
5.
Staffing, Environmental, Community Safety, Customer Services Centre,
Communications & Website Implications
5.1
None specific.
6.
Legal Implications
6.1
Detailed assessment of the Council’s legal costs would have involved significant
additional costs. The process could have exposed the Council to additional fees
bearing in mind that the hourly rates originally negotiated were well below
guideline rates and had remained at the same level since 2008. The Council
negotiated significant reductions in the overall costs without recourse to further
legal challenges.
6.2
The Settlement Agreement finalised in the Technology and Construction Court
on 16 January 2013 is subject to a Confidentiality Agreement and the Council is
not at liberty to discuss this or reveal the terms thereof outside of the Council.
To do so would expose the Council and potentially individual councillors to a
claim for breach of confidence.
7.
Financial Implications
Overview
7.1
.
7.2
The Council has expressed a wish to publically disclose as much of the financial
information concerning the project as possible. In view of the Settlement
Agreement, however, it has had to be cautious as to what it can publish.
Changes to the budget for the project have been regularly reported to
members. The latest position is attached at Appendix 4. The total approved
budget was £9.135m.
7.3
A summary of expenditure for the project is attached at Appendix 5 and
includes the settlement under the heading ‘Recovery Proceedings’.
7.4
The outturn expenditure was therefore £0.754m less than the approved budget.
This excludes the budgeted revenue costs of reimbursing Hertsmere Leisure for
loss of income (£0.368m) and the budgeted staff time (post-termination)
charged elsewhere but estimated to be £0.175m.
Statement of Accounts 2012/13
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7.5
The draft Statement of Accounts for 2012/13 is considered elsewhere on this
agenda. The total costs of the project cannot be obtained from the Statement,
as the total cost was incurred over several years and has been subsumed into
the gross valuations of the leisure centre included under fixed assets in the
balance sheet. The funding of the project has been reflected in the movement
in reserves over the life of the project. A transfer between revenue and capital
reserves has been made in 2012/13 to reflect the correct accounting treatment
of non-capital expenditure (i.e. legal fees) in prior years.
Budget Monitoring
7.6
The Budget Monitoring report for Period 3 of 2013/14 will show:a)
a higher balance than anticipated when setting budgets in February 2013 of
£1.625m in the Capital Receipts Reserve, and
b)
a reduction in the Reserve for Future Capital Expenditure of £0.871m.
This gives a net increase in unrestricted funding of £0.754m.
Further Disclosure
7.7
The Statement of Accounts and Budget Monitoring reports follow correct
accounting practices and council processes, but, out of necessity, provide only
summary information. Details of every item of expenditure comprising the subtotal of £7.517m in Appendix 5 is available for inspection as are over 80 project
files.
Cost of the Review
7.8
The cost of the Stage 1 review was £5,000. The Council made provision for
£25,000 for both stages.
8.
Equal Opportunities Implications
8.1
Relevance Test
Has a relevance test been
completed for Equality Impact?
No
– there is no proposed change to service
9.
Risk Management and Health & Safety Implications
9.1
The Council has agreed its risk management strategy which can be found on
the website at http://www.threerivers.gov.uk. In addition, the risks of the
proposals in the report have also been assessed against the Council’s duties
under Health and Safety legislation relating to employees, visitors and persons
affected by our operations. The risk management implications of this report are
detailed below.
9.2
The subject of this report is covered by the Leisure service plan. Any risks
resulting from this report will be included in the risk register and, if necessary,
managed within this plan.
9.3
The following table gives the risks concerned with the recommendations
members are being asked to consider, together with a scored assessment of
their impact and likelihood:
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1
2
3
Description of Risk
That if the Committee decides not to proceed with
Stage 2, the Council misses some learning from the
project
That if the Committee decides not to proceed with
Stage 2, the Council’s reputation for openness is
damaged
That unnecessary resources are expended on a Stage
2 review that produces no further learning
Impact
Likelihood
III
D
III
D
III
D
Of the risks detailed above none is already managed within a service plan.
9.6
The above risks are plotted on the matrix below depending on the scored
assessments of impact and likelihood, detailed definitions of which are included
in the risk management strategy. The Council has determined its aversion to
risk and is prepared to tolerate risks where the combination of impact and
likelihood are plotted in the shaded area of the matrix. The remaining risks
require a treatment plan.
Likelihood
9.5
A
B
C
D
E
F
123
I
II
III
Impact
IV
Impact
Likelihood
V = Catastrophic
A = >98%
IV = Critical
B = 75% - 97%
III = Significant
C = 50% - 74%
II = Marginal
D = 25% - 49%
I = Negligible
E = 3% - 24%
V
F = <2%
9.7
In the officers’ opinion, of the new risks above, were they to come about, none
would seriously prejudice the achievement of the Strategic Plan. They are
therefore operational risks. Progress against the treatment plans for strategic
risks is reported to the Executive Committee quarterly. The effectiveness of all
treatment plans are reviewed by the Audit Committee annually.
10.
Recommendation
10.1
That the Committee determines whether, or not, to proceed with Stage 2 of the
independent review.
10.2
That the Committee notes the public availability of financial information
concerning the project.
Report prepared by:
Steven Halls – Chief Executive
David Gardner – Director of Corporate Resources & Governance
Data Quality
Data sources:
Financial Information System
Data checked by:
David Gardner – Director of Corporate Resources & Governance
Data rating:
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1
Poor
2
Sufficient
3
High

Background Papers
None
APPENDICES / ATTACHMENTS
1
Independent Review – Terms of Reference
2
Resources Policy & Scrutiny Committee – 7 March 2013
3
Leisure and Community Safety Policy & Scrutiny Committee – 13 March
2013
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APPENDIX 1
1 Terms of reference
1.1 Introduction and background
Three Rivers District Council ("the Council") agreed to redevelop the William Penn leisure centre in
2007. The project was delivered after the agreed completion date and over budget. The Council had
appointed a consultant, WS Atkins, to oversee the contract to redevelop the leisure centre. WS Atkins
engaged the services of the contractor, Gee Construction, to perform the work. Legal action in
respect of this matter is ongoing.
The Council has raised a number of concerns in respect of terms of the compliance with the
Council's contract procedures regarding the appointment, type of contract used and the termination
of the contract. In addition, the Council are seeking advice on how to improve to become a more
intelligent client in the context of wider developments in local government hastened by the recent
Spending Review.
1.2 Scope and objectives
Stage 1, initial review:
To briefly consider the business case for the redevelopment and the associated procedures that led to
the adopted contractual approach;
To review that the Council's procedures for appointment of contractors were correctly followed;
Review and comment on the appropriateness of the form of the contract adopted;.
Stage 2, to commence only upon completion of any legal action regarding the case has been
concluded:
Comment upon what steps the Council could have taken in order to act as an intelligent client;
Confirm the decision to terminate the contractors was taken in accordance with Council procedures;
Comment upon further steps that the Council could have taken in order to minimise costs incurred.
1.3 Audit approach ( phase 1)
• Review of contract procedures and other key documentation associated with the transaction
including reports to council meetings;
• Discussions with key officers, members and other stakeholders as appropriate.
1.4 Reporting and timescales
The review will be carried out as follows: Set up meeting
Fieldwork
Summary report
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November 2010
November 2010
January 2011
APPENDIX 2
RESOURCES POLICY AND SCRUTINY COMMITTEE
7 March 2013
R.PS26/12 WILLIAM PENN PROJECT – INDEPENDENT REVIEW
This report enabled Members to discuss the Stage 1 report of the external auditor on the
William Penn project.
Mr Paul Dossett, External Auditor, introduced his report and highlighted relevant matters.
Members present raised the following questions/comments:–

Is the Council equipped to do such projects again?

Had Grant Thornton had sight of Contract Documents?

What in–house skills were available and if the Property Facilities Management
section was working on the project?

What problems should have been foreseen?

Should the review by the auditor have been carried out after the litigation
exercise?

Was this contract a price driven appointment?

What was the comparison of Contract forms (Standard compared to the
contract proposed by Atkins)

Why did the Council not do a formal Risk Assessment of William Penn?

What William Penn Documentation was available?

There was a need for Independent Project Managers to be appointed by the
Council.

Would the Portfolio Holders attend the next meeting of the Committee?
In reply the following comments were made at the meeting by the auditor or Chief Executive

The report just reviewed the pre–contract and procurement process. The next
Audit Report would deal with the legal stage.

A Standard Contract was suggested but Atkins recommended their own variant.

Atkins’ proposal was to provide full services, therefore covering skills not
available in, or to the Council.

There was difficulty in managing the relationship with Atkins in view of that
company’s size compared to the Council.

The Auditor to verify the documents they had seen when carrying out the
review.
(Post meeting note: the External Auditor has replied:–
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“stage 1 of the project focused on procurement of the design consultants
and the procurement of the main contractors. The contract agreed
between the Council and W S Atkins did not form part of our stage 1
review as we were focused on the Council’s arrangement for that
procurement. It is worth noting that in theory, by using their own
contract for management of the main contractor, W S Atkins would have
been managing a contract to ensure the best outcome for their client eg
the Council. We will consider the contract in stage 2 under the part of
our remit which says:
-
Comment on what steps the Council could have taken in order to act
as an intelligent client.”)

The BS1100 Standard in relation to collaborative working was new and not in
place at time of contract.

Price was the driver but addition weighting should have been given to other
items such as quality.

In respect of skills availability - Atkins was a “Blue Chip” company – the Council
should not be required supplement their resources.

Documentation was available for inspection at the Council Offices.
RESOLVED:that the external Auditor’s Stage 1 report into the William Penn project be noted.
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APPENDIX 3
LEISURE AND COMMUNITY SAFETY POLICY AND SCRUTINY COMMITTEE
13 March 2013
L.PP65/12 WILLIAM PENN PROJECT – INDEPENDENT REVIEW
This report enabled Members to discuss the Stage 1 report of the external auditor on the
William Penn project.
The Committee expressed disappointment that the External Auditor was not present to
answer questions on the report and considered that any further reports by the External
Auditor on this project should be considered by this Committee to which Members of the
Resources Policy and Scrutiny Committee would be invited.
The Committee asked that the External Auditor be asked:–




Due Diligence – what further information concerning due diligence should have been
sought?
What documentation did he want to see, what documentation would he expect to see
and what would the Council be expected to produce?
Would the Auditor plan to speak to the Portfolio Holder and other Councillors during
the Stage 2 report on the scheme?
Members also requested the Chief Executive to be in attendance when the Stage 2
report by the Auditor was considered.
Members requested a report at the June meeting on setting up a Task and Finish Group to
scrutinise the William Penn project.
ACTION AGREED:(1)
that the external Auditor’s Stage 1 report into the William Penn Project be
noted; and
(2)
that the Committee at its next meeting consider if a Task and Finish Group
should be set up to scrutinise the William Penn Project.
Post Meeting Note
A telephone conversation with Mr Dossett has elicited the following responses:
(1 Due Diligence) In reviewing the procurement procedures, the Auditors did not feel
the Council had not exercised due diligence in the WPLC procurement process, but the
Auditors made comments on the sort of due diligence they might expect for future
projects;
(2 Documentation) The Auditors believe they asked for everything necessary for their
task and the Council produced everything requested;
(3 Speaking to the Portfolio Holder etc) Stage Two of the project is subject to a review
of the Stage One report by the Audit Committee at its next meeting on 13 June. The
relevant minute is:
AC28/10 - AUDIT & INTERNAL CONTROL – WILLIAM PENN
REVIEW
RECOMMENDED:-
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PROJECT – INDEPENDENT
To the Council
that the Council notes the terms of reference for the review, accepts the external
auditor’s proposal and agrees that £25,000 be set aside from reserves as a budget for
stages 1 and 2 but that a review be carried out by the Audit Committee after the
completion of stage 1.
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APPENDIX 4
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APPENDIX 5
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