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Pool Audit: Final Report

Pool Audit: Final ReportIts out.

The report that could have changed the balance of power (and the course of history) at Fylde, when assumptions about its findings were used by Fylde's officers - assumptions that might have damaged the electoral chances of a candidate just days before an election (See Premature Ejaculation? and Pressing Audit?) has been published.

So what does the Audit report say?
Well, we think Fylde will trumpet and make much of the sentence in the report that says "While there were areas where improvements could have been made in the procurement process by the Council, there is no compelling evidence that the process was unfair or that an inappropriate outcome was reached."

They will claim this vindicates what they did in assessing the competing bids of Mr Ellis and the YMCA, and all in the garden is fine and dandy.

Will they be right?
Err, not exactly

So did the auditors not do a thorough job?
Well, they did look at the process thoroughly. But what the report doesn't say, is whether what the Council actually did, was the best it could have done for its taxpayers.

Instead, the report takes some specific questions asked by Mr Ellis and provides information on them (we won't even go as far as calling them 'answers').

It is not what we would call a Special Audit Report.

It did not begin far enough back, it was - in our view - too trusting, and it didn't look from the taxpayer's point of view to see if things should have been done better, and who was to blame for the mistakes that were made.

Like the shiny black Teflon-coated body they love to be, the auditors have provided, (as have others before them), non-judgemental explanations of what happened in respect of Mr Ellis' questions, and they make some weak recommendations for changes to Fylde's procedures. And in some cases, they either take Fylde's word too readily, or they duck the issue.

For example one of Mr Ellis' questions was "How many ITTs [invitations to tender] were produced by the Council in relation to the St Anne’s pool re-opening, and did, at any stage, Fylde Coast YMCA withdraw from the tender process?"

The Auditors response to this question was a weasely "The Council has stated that at no time did an organisation that notified the Council of its withdrawal from the tender process re-enter the process – this includes the Fylde Coast YMCA."

But (as you can read further down this article), according to the Express, the YMCA did both withdraw from and return to the bidding process. So either the Council is being very economical with the actualité and it is excluding that instance because it was before the actual 'invitation to tender" was issued and Mr Ellis question referred to the "Tender process" (when he clearly meant the whole of the bidding process), or the Council is, shall we say, mistaken.

Either way, the Auditors should not have let such treacherous wordsmithery get Fylde off the hook on this matter. By persuading the YMCA to re-enter the bidding process (if indeed that is what Fylde did), they avoided being left with just Mr Ellis' bid that would have been much more difficult for them to refuse.

So what did the Council do that was wrong?
Well there were two main, and several small, failures in the process.

The cardinal failure was that Fylde's officers allowed companies and people who failed the Council's own qualification test to submit a bid to run the pool.

This has led Mr Ellis to hold the understandable view that because he didn't pass the criteria for bidding, it didn't matter whether his bid was £5 or £5m; he stood no chance of getting the contract; and the whole thing was a farce. Although we think there's maybe a bit more to it than that, we do have sympathy for, and understanding of, this viewpoint.

The second failure (in our view, although this is not something the auditors have picked up on) was that the Council was unclear about what was being offered for tender in the first place. They said they wanted "innovative proposals" and that "...the council is willing to consider any proposal and is giving all prospective tenderers virtually a blank sheet of paper..." when in fact all their tender process showed that all they wanted was the existing pool run as a pool as cheaply as possible.

Combining these two failures was always likely to lead to trouble.

There were other administrative failures as well on the Council's part, but although the auditors picked them up, the Council - predictably - denies they did anything wrong.

These 'smaller' failures were scoped and referenced in the auditor's recommendations which were:

  • At the pre-qualification to tender stage, they said Fylde needs to agree a set of criteria for assessing submissions in advance of the assessment. This should include the minimum acceptable score in areas where scores are awarded, and no deviations should be permitted to this assessment unless agreed in writing by the Chief Executive, and all bidders should be notified of the deviation made and the reasons for this prior to the issuing of the initiation to tender.
  • Clear guidance should be given to officers and bidders on how significant factors such as price should be assessed.
  • Complex reports to Cabinet that give summaries, together with the main report and the supporting documentation should be ‘cold read’ by an independent member of staff who has not been previously involved in the process to reduce the risk of relevant information being omitted and not presented in its correct context.

Broadly, those are the facts of the matter, but readers will no doubt be looking for our take on them.

We've put most of the detailed and factual stuff into chronological order, and made up a timeline of what happened when, which, if you want to know the anorak details, might be worth a read. Follow this link to the timeline.

In summary though, it starts with John Coombes and his unwillingness to accept that there was no-one who could run the pool (as it was operating) significantly more cheaply than his own staff were doing it.

Way before it closed, three times he tried to find a way, He tried negotiation with the YMCA. He tried asking consultants, and he put it out to tender, only to find that most of the bids received were more expensive than his own staff. Only the YM were cheaper and then it was only because as a charity they were exempt from paying the business rates on the pool building.

Then, after the huge loss from Streetscene, he closed the pools.

The public outcry would not die down, and he started quietly looking for a way to re-open them. Agreement was reached at Kirkham with the YMCA and Rural Splash, but St Annes pool was a bigger problem.

In May/June 2009 John Coombes was in talks with the YMCA, but had an approach from a local man Richard Ellis who ran a fitness/leisure operation in Chorley.

We believe John Coombes was using Mr Ellis as a lever to get the YMCA to lower its price, but the YM was having none of that, and we heard they walked out of a meeting when it was tried.

That left only Mr Ellis' proposal on the table.

Fylde could have gone with it at that time, but they didn't.

Mr Ellis had spotted that the only way to make it commercially viable was to add value (that didn't cost too much) to the experience - so you could charge more and it would still seem a good deal. Broadly his plan was to offer things as they were, but to sell hard on a new, 'membership' option that would give users the right to use the pool, a new fitness centre in it, and any of the Council's bowls, tennis, golf, putting and so on all for one quite reasonable monthly fee of around £20 or £30 with no further charge for any of them, and you could use it as often as you liked.

For whatever reason, we think Fylde decided even at that early date, that they didn't want the pool going to Mr Ellis.

But they didn't have the balls to tell him.

So they concocted a new tendering exercise with the two offers (YM and Mr Ellis) and a some 'expressions of interest'.

We're very dubious about the 'expressions of interest' and would not be surprised to find that the interest arose after contact to other leisure providers suggesting it might be a good idea if they asked. That's entirely supposition on our part, of course, but it would not be an unknown practice.

The report to Cabinet said "Within recent days further expressions of interest have been received from other existing private leisure operators in the region".

Hmmm.

The Cabinet Minutes said "The first step should be to decide whether the Cabinet wished to progress with any of the proposals, to agree on the outcome it would like to see from the process and to agree a model of operation. Having identified the preferred model of operation, the council should invite bids based on that model...."

But they never did. They left it completely open.

The process adopted required those interested to complete a (confidential) 'Pre Qualification Questionnaire.' The information for completing it included

"Leisure (Swimming Pool) Management And Development Opportunity In The Town Of Lytham St Annes."

"Only companies who can demonstrate the experience, commitment, quality, capability and vision to manage and operate the facility over a five year period will be included in the tendering process."

"The Authority is seeking innovative proposals from tenderers and a customer focussed approach towards implementing their proposals whilst ensuring that the facility provides a safe environment and minimises the financial contribution requested of the Council"

Now, two things stand out here. It's a contract for Leisure Management AND Leisure Development.   Second, the council is looking for innovation.

The fact that it was only for five years turned out to be a problem because this wasn't long enough to recover investment made in the business.

But you can forgive Mr Ellis for thinking this has been written for him "Innovative, entrepreneurial, market and customer led and development", these are all the words that define the man.

The specification in the invitation to tender was even stronger. That said "From the starting point of a closed pool the council is willing to consider any proposal and is giving all prospective tenderers virtually a blank sheet of paper to operate the facility with very few conditions."

But when it came to hey-lads-hey, this isn't what Fylde wanted at all.

Their whole process was set up to assume they would be dealing with someone like the YM who had experience of both leisure and pool specific, and they really wanted someone to run the existing pool, as it was, but more cheaply.

The Council held an 'open day' on 14th August 2009 for prospective bidders to look around the pool and ask questions. Whilst we recognise that if carefully conducted, these can be advantageous for both sides, they are fraught with danger and risk. You can inadvertently provide information to one contractor that doesn't get to others, (so some can get an advantage), and the contractors themselves recognise who they're up against. This helps them frame the scale of their bids, and worse, it can open doors to the risk of price fixing and cartel operation.

What does seems to have come out of this process, is a strong view that five years was too short for them to recoup investment. So the Council re-advertised the opportunity on 8th September 2009 based on a 12 year contract.

But on 3rd September, the Lytham St Annes Express announced the YM had withdrawn.

"Plug pulled on St Annes Pool Bid"

"In a statement to the Express the YMCA said that over the last five years the YMCA had been dedicated to public swimming and had tried very hard to work with the Council to find a solution for St Annes Pool in which local people and local interests were predominant. It continued "The YMCA's involvement began in 2004 when Fylde Borough Council underwent a Best Value Review on leisure provision within Fylde. The conclusion was that the swimming pools should be placed within a trust operated by the YMCA. Not excepting (sic) this outcome, council chiefs then contacted a team of consultants to review the provision and assess alternative delivery options. The conclusion was that the Council should enter into negotiations with the YMCA regarding management of the pools. Not satisfied, the Council then tested the market for interest in 2007 and placed the pools out to tender. YMCA was the lowest tender but it was still not offered the pool."

The final setback for the YMCA came in August this year [2009] when Fylde re-opened a second tendering process.

YMCA chief executive John Cronin said "We are extremely disappointed that we have had to pull out of the St Annes pool bid. We believe our knowledge and long standing commitment to the community is well placed to successfully run and manage St Annes pool in partnership with Fylde Council. However to run the pool as a public swimming pool as we intended would not be possible with the funding and conditions outlined in the latest bidding process""


We think it's safe to assume that the YMCA were one of the two bidders that had passed the financial hurdle, so this left Fylde in a real pickle. In effect they could only be sure of one valid bid, (Mr Ellis).

We suspect they must have worked hard to get the YM to re-enter the bidding process because by 24th September, the Express' James Riley carried an exclusive story.

" Fylde Coast YMCA has sensationally re-entered the race to take over St Annes swimming pool. The charity withdrew its bid earlier this month after a breakdown in talks with Fylde Council. The YMCA blamed the funding and contract conditions laid out in the bidding process which made the project unworkable. But after the Council extended the deadline for interested parties until September 28th a fresh bid has been submitted. Executive Director John Cronin told the Express "The primary reason in our decision to pull out of the initial bidding process was that we felt the contract length offered was not sufficient to ensure public swimming was a viable option. The reopened tender includes an extended contract length and we are working hard to submit a business plan which offers an affordable solution safeguarding the sustainability and future of St Annes pool for the local community.""

"News of the YMCA's renewed interest came as another of the mystery bidders was revealed. Health centre boss and St Annes resident Richard Ellis has spoken of his exciting plans for the facility"

He said "If our bid is successful the new leisure centre will operate on a non-profit making basis for the sole benefit of the local community"


Meanwhile, Mr Ellis and the other tenderers were starting to fill in their 'Pre Qualification Questionnaire's' and that's where the first complications arose for Mr Ellis.

He planned to create a new company to run the operation at Fylde. It was going to be called 'Fylde Leisure', and it would be structured as a rates exempt charity just like the YM. But of course, when Fylde asked about the experience that 'Fylde Leisure' could demonstrate, it was zero. Likewise they wanted its trading figures - turnover and so on - but there were none. There was no public liability insurance held either.

In short, as a company that was yet to be created, it had no track record.

After advice from Fylde, Mr Ellis did hid best to fill in the questions using a mix of the proposed new company, his existing Chorley based company, and his other business interests.

If they had wanted to, this would have allowed Fylde to cherry pick the best (or worst) aspects of Mr Ellis' business submission.

But either way, it won't be a surprise to anyone to find that that, compared with the YMCA or, say, Wigan Leisure Trust (which was the old Wigan Metro leisure department that had been sort of privatised), Mr Ellis' score on a predetermined scoring matrix used for all bids was both low, and below the minimum required.

But it wasn't only him that scored low.

Of the six companies who completed the questionnaires, ONLY TWO passed muster in the financial aspects.

But amazingly, the Council decided to allow ALL of the organisations that submitted a questionnaire to submit a tender, - even though four of the six were unsatisfactory on financial information grounds!

The Invitation to tender was issued to all six on 7th December 2009.

Mr Ellis was included and invited to tender. The audit report says "the reason given in his case was that he had shown considerable interest in the project and had been very active in promoting his case within the locality. Given the high profile nature of Mr Ellis’s interest, the Council believed that it could be criticised for not allowing Mr Ellis to put forward his proposals."

As we said, they didn't have the balls to say "No."

As a result, Mr Ellis spent a great deal of time and quite a lot of his own cash in preparing detailed costings with accountants, solicitors, architects and so on, together with other work necessary to prepare a full blown tender that was never going to be acceptable - because he had not passed the financial test, and could not provide a bond for a company that did not exist.

That's the charitable version of what happened. A less charitable view might be that Fylde had found the way it was looking for to exclude him.

Their auditors have taken the charitable view.

As local taxpayers, we have to ask at this point what on earth was the Council doing letting four bidders that were unsatisfactory onto the tender list in the first place? The audit report does not make it clear who took this decision, but we'd quite like to know who it was.

Then came the exodus that was entirely predictable.

On 26 January 2010 'Parkwood Leisure' – withdrew from the tender process. On 1 February 'Active Nation' – withdrew. When the Tenders were opened later that day (1 Feb) both 'Sport and Leisure Management' and 'Wigan Leisure Trust' withdrew by submitting a "No Bid" tender

This left the YMCA and Mr Ellis with valid bids.

Well sort of, because by rights Mr Ellis shouldn't have been on the list in the first place.

Three days later, on 4th Feb the Lytham St Annes Express reported that the bids were all in, and they include the YMCA. "Fylde Council bosses have said there are "many" interested parties but would not release the actual number saying the information is "commercially sensitive"

We wouldn't exactly describe 2 as 'many' and it's no wonder they were avoiding saying how many bids they had received.

They were up that well known creek without a paddle.

They'd shot their bolt, because having let Mr Ellis onto the tender list, they couldn't exclude him for the reasons they should have done (because he would have walked into any court in the land and won a compensation case hands down).

So now Fylde had to find another reason to refuse him. And that fell to the evaluation panel.

It will be no great surprise that this is where the auditors report is most critical of Fylde. They say:

"When identifying scoring criteria for assessing ITTs [Initiations To Tender], clear guidance should be given to the panel on how marks should be awarded for important criteria such as pricing. Without clear criteria, officers could find it difficult to consistently appraise bids received, and bidders are unable to determine the Council’s focus in these areas. "

Quite.

And audit's recommendation here is "Clear guidance should be given to officers and bidders on how significant factors such as price should be assessed."

FBC have countered to say they did do it already, but clearly, Audit wouldn't have formally raised the point if they were satisfied with what Fylde were doing.

Fylde also failed when they reported the results of the tender evaluation to Cabinet.

Whilst direct word count comparisons are probably not that appropriate, the auditors do note that Mr Ellis' bid was set out in approximately 35,000 words, while that for the Fylde Coast YMCA (which was significantly less complex) was approximately100,000 words.

The auditors also said "within the Council summary of Mr Ellis' bid:

  • Some income figures were recalculated to correct apparent errors;
  • Opening times were misstated by 0.5 hours;
  • Proposals for the 'Friends of Fylde Leisure' were omitted;
  • Proposals to have council representatives as trustees of the Trust created to run the pool were omitted; and
  • School swimming offered in the ITT was not explicitly stated, but reference was made to the refurbishment of the school changing areas.

and that the summary of the Fylde Coast YMCA bid also contained some omissions:..."

This led to the auditors to make the following comment

"The report presented to [Cabinet] Members in April 2010 attempted to summarise the content of the substantial submissions provided by the two bidders. As a result of this it contained only summary information and Members may have felt unable to fully compare the competing bids.

This could have been exacerbated by the omission of information contained in both bids that may have been useful to Members when considering their decision.

Omission of relevant information denies members full information on the bids received and could lead to different decisions being made than if the full information had been provided. However, in this case, the wording of the summarised information had no consequential impact on the outcome of the process."


Now we read that passage to be a thinly veiled statement that the report did not tell the whole truth.

And again the Auditors felt it necessary to add a recommendation:

"Following the drafting of such reports an independent member of staff who has not been previously involved in the process should undertake a ‘cold read’ of the report and supporting documents. This will reduce the risk of relevant information being omitted and not presented in its correct context."

And once again the Council has sought to deny any maladministration or culpability in this matter in its response to Audit.

What did happen however, was that, as a result of the analysis by officers and their advisors (some of whom who we think were selected especially to produce the result that was wanted) a justification for not accepting Mr Ellis' tender was devised even though it was massively lower than the YM's

Our take on the tenders analysis presented to the Cabinet meeting (which was in a non-published report) was set out in Who's in the Swim?

It's recommendations were all about awarding the contract to the YMCA (not about why Mr Ellis shouldn't be denied the tender even though he was the most financially advantageous offer,) but the report contained comments such as

"However there are significant concerns in relation to the extremely ambitious membership predictions made in their [Fylde Leisure's] bid".

and

"Although the bid from Fylde Leisure was significantly cheaper than the YMCA it was felt to not be credible to accept. As a result the price assessment was marked down in that there was a high likelihood that the requirements of the contract/service would not be met."

and

In conclusion the Evaluation Team recommend:

  1. rejection of the bid from Fylde Leisure on the grounds discussed in the attached report.
  2. acceptance of the YMCA as the preferred bidder to operate the pool subject to agreement on the precise model for operation of the facility.

So the Council justified not taking the most financially advantageous offer because - in their view - it was not credible.

Their track record in this sort of judgement is not that great.

It seems to us exactly like the same mistake they made on the Heeley Road site - where they said at first it was only worth £125,000, then when pressed they said it was worth £250,000 and were going to accept that until the Heeley Road Group introduced a buyer who paid them £400,000. And the Council used professional advisers and valuers on that transaction as well.

It's also true that Mr Ellis' proposal was evaluated on the basis of his 'RKE Enterprises' company not as the new company 'Fylde Leisure' so it arguably wasn't even a fair comparison anyway.

So, with these derogatory and similar comments in the officer's report, the Cabinet was led to believe it should accept the more expensive option.

And it did.

The Auditor's perspective on the reasons why Mr Ellis was refused is to parrot that Fylde believed "Usage levels and subsequent income projections contained within Mr Ellis' bid were perceived to be optimistic based on both the assessment of the ASA and a comparison to facilities in Chorley and the existing Fylde Coast YMCA facility in St Annes."

We ask what advice the Auditors commissioned to test this view? What is their own view of the usage numbers? Were they realistic or not? And please don't try to tell us that KPMG does not have its own experts in this field, we know all the big audit firms do. (This is what we mean about their ducking of issues, and not being thorough)

They also said "The tender document itself was not focussed on the ITT requested by the Council making it difficult to review and assess the bid."

This appears to be another quote from the Council that is thrown in raw as an answer.

If that was the case, why did the auditors not ask what the Council really meant when it said "From the starting point of a closed pool the council is willing to consider any proposal and is giving all prospective tenderers virtually a blank sheet of paper to operate the facility with very few conditions." And why did it not have a process in place to evaluate proposals that arose from a 'blank sheet of paper' - proposals that were always going to be 'difficult to review and assess'.

So we don't believe the audit investigation was as thorough as we would have hoped. In many respects it was detailed, but it's scope was poor, and it's recommendations are weak. They have failed the people of Fylde, and it's fair to say that Mr Ellis has not been treated that well either.

We've never made a secret of the fact that we might also have chosen the YMCA. We'd probably have gone with the tried and trusted route ourselves.

But we'd have told Mr Ellis before he had the expense of preparing and submitting a bid he should never have been allowed to submit in the first place.

So, where does this go from here.

We're not sure. There is undoubtedly implied criticism of some officers, and it's not beyond the bounds of possibility that some sort of claim could be made by Mr Ellis.

But we doubt he will do that, partly because he's probably fed up with the whole process by now, and partly because he is a forward looking, not a backward looking sort of chap anyway.

We'll keep readers posted if anything more happens. Otherwise it's likely to become another of those nasty tastes that stays with you long after it ought to.

Those that want it will be able to see the report shortly (or in a few months) on Fylde's website. If you want a copy sooner let us know, we believe there are one or two floating around within the Council, and we'll try and get hold of a copy for you.

Dated:   08 August 2011


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