Agenda item

Report of the Corporate Director of Resources

The Sub-Committee received a report of the Corporate Director, Resources and Commercial which provided an update on the Commercialisation Strategy that had been approved by Cabinet in June 2015.

The Corporate Director, Resources and Commercial provided an overview of the report and drew particular attention to:

·                     in addition to updating the progress of commercial initiatives, the report reviewed whether the expected financial returns were being realised and detailed new projects that had commenced since 2015.  The major projects were being reviewed as part of the budget refresh.  Overall major projects had made a bottom line contribution to the budget;

·                     Harrow had tapped into commercial initiatives that had been shown to be successful income generating opportunities for other councils and had joined networks.  The importance of improved selling and marketing was recognised.  It was acknowledged that were risks in relation to some areas;

·                     Project Infinity was a major part of the Commercialisation Strategy due to its uniqueness and scale.

A Member expressed concern at the deferment of the projected savings from Project Infinity to the next financial year without compensatory budgetary adjustments or secondments or backfill of posts, thereby possibly resulting in budget reductions elsewhere in Adult Services.  The Member expressed the view that the longer it took to market Project Infinity the greater the possibility of other companies entering the market.  The officer advised that the officer input subsequent to the signed deal had been significant and reflected the contribution IBM required from the Council.  Although the actual development of the project had been slower than envisaged, the business opportunity for the minimal MCeP viable project had been marketed at a conference.  He undertook to inform Members of the anticipated delivery dates for MCeP, OCeP and TCep.

In response to a question with regard to the private trading companies, the officer clarified that there was a clear separation between directors of the Council who represented its shareholder interest and the directors of the trading companies in order to avoid any conflict of interest.  The companies were expected to identify any potential conflict of interest in order to ensure that there was no impact on their role as paid employees of the Council.  The appointments to Sancroft Community Care would not include any senior officers from Adult Services in order to avoid any conflict of interest.

A Member enquired as to the probability of a delay in the Sancroft Community Care project.  The Corporate Director reported that the savings built into the current budget were behind schedule and would be considered in conjunction with other savings budgets.  The creation of a subsidiary company was at a very early stage and the project, which was a sizable opportunity, had been slower to get off the ground than expected.

A Member asked whether there was any point at which the Council would consider ‘pulling the plug’ on any of these companies.  The officer advised that Sancroft Community Care was being registered so was not yet trading.  All commercial activities were Council delivered services except for two Council trading companies in line with the intention to only set up trading companies where it was legally required or there was a strong business case.  In accordance with the agreement of business plans and monitoring,  Concilium Business Services Limited  was monitored quarterly and was within the financials of the annual plan.

A Member expressed the opinion that it would have been beneficial to include financial targets or monitoring for each service rather than an overall target.  For example, Project Phoenix comprised a number of different strands.  He asked how individual budget lines that were costing money would be identified without their having an income target, for example MOTs.  He sought a detailed report on individual lines to enable confirmation that new commercialisation activities were not adversely affecting previous council services, for example commercial services ground maintenance and housing ground maintenance.  It was possible that not having a separate trading company could be a disbenefit for an underperforming area.  With regard to the handyman scheme, it was not possible to ascertain the budget input, savings or income.

In response, the officer advised that normal budget monitoring processes took place for those services which would continue alongside commercialisation projects.  Although the report to the Sub-Committee contained an overall figure, departments had more detail which was regularly reviewed and any income went into the departmental budget.  The Corporate Director reported that a financial target had not been identified for the handyman service and when discussed this was not considered to be a significant concern as the numbers were small.  With regard to MOTs the appropriate Directorate would review the number of MOTs in an individual cost centre.  The Director of Finance undertook to provide more detailed information on the breakdown of Project Phoenix.

A Member expressed the view that investing in commercial property was a very high risk investment and requested detail on the governance arrangements including committee membership and their qualifications.  He also asked about the credit analysis and cash flow.  In response Members were advised of an agreement whereby Luton Borough Council identified potential property and that Council employed a former property fund manager who was also contracted by Luton.  A report to Cabinet in November 2015 laid out a set of delegations regarding due diligence to the existing corporate property team, officers and Portfolio Holders.  An initial screening of potential property took place and survey work was sourced in the same way as in other commercial property.  Although Harrow Council had always owned commercial property, the properties under consideration here were outside the borough.  The criteria for purchase took into account distance from Harrow, the expected return on the investment, the quality of the building and tenant, and the length of the unexpired lease.  The Corporate Director undertook to circulate the qualifications of those sourcing properties on behalf of the Council.  It was noted that Harrow Council set the remuneration of and advertisement for the trading companies which, whilst working in the interest of the company, were accountable to the Council as shareholder.  Whilst the property purchase initiative was new to Harrow Council, there was a large body of knowledge and expertise elsewhere, for example the LGA peer advice on property.  Slippage had arisen due to properties being inspected and discounted as unsuitable.

With regard to Harrow Deals it had proved not to be a major money spinner.  There had been positive feedback from local businesses and the scheme was not costly.

RESOLVED:  That the report be noted.