APPENDIX 1 MEDWAY COUNCIL REMODELLING THE OPTIONS FOR THE FUTURE PROVISION OF LEISURE FACILITIES A REPORT BY PMP

Transcription

1 APPENDIX 1 MEDWAY COUNCIL REMODELLING THE OPTIONS FOR THE FUTURE PROVISION OF LEISURE FACILITIES A REPORT BY PMP SEPTEMBER 2005

2 CONTENTS Introduction...1 The Context...3 Review of Delivery Options...18 Analysis of Implications of Delivery Options...24 Recommendations and Action Plan for Delivery...38 APPENDICES Appendix A Financial assumptions for the year 2005/2006

3 SECTION 1 INTRODUCTION Introduction 1.1 In June 2005, (the Council) commissioned PMP to review and update the findings of a previous management options study. 1.2 The review and update looked into the future delivery of the management of the Council s leisure facilities. 1.3 Following on from the Council s Best Value Review, the Council particularly wanted PMP to consider the option of the creation of a new not for profit distributing body (NPDB), analysing the financial and non-financial implications of this option and comparing these with alternative delivery options. 1.4 We understand that the Council s key objectives in respect of this study are as follows; The Council wishes to minimise annual revenue subsidy levels and indeed maximise annual revenue surpluses in respect of the leisure facilities The Council wishes to secure the long-term sustainability of the leisure facilities The Council wishes to ensure that the leisure facilities are managed in a coordinated and integrated manner, following clear strategic objectives The Council wish to ensure the highest possible standards of quality in the management of the leisure facilities 1.5 This report describes PMP s approach to this brief and sets out PMP s findings and recommendations to the Council for the way forward. Background to the Study 1.6 The leisure facilities specifically under consideration within this study were as follows; Strood Sports Centre, Strood The Hundred of Hoo Swimming Pool, Hoo Echoes fitness, health and beauty suite Stirling Centre, Rochester Black Lion Leisure Centre, Gillingham The Strand Leisure Park, Gillingham Deangate Ridge Golf and Sports Complex, Hoo Splashes Leisure Pool, Rainham

4 SECTION 1 INTRODUCTION Methodology 1.7 Our initial approach to this study comprised the following key tasks; Review of relevant documentation Consultation with key personnel within the Council Consultation with representatives of relevant personnel external to the Council 1.8 Specifically, we have reviewed the following documentation (produced by or on behalf of the Council unless otherwise stated); Options for the future delivery of the management of the Council s leisure facilities (PMP, May 2004) Best Value Review of Sports Development and Leisure Facilities Management (2001) Best Value Inspection Report (Audit Commission, October 2001) An Indoor Sports Facility Strategy for (PMP, July 2004) Site Condition Reports (1999) 1.9 In the light of the findings from the above processes, we have identified and described the primary delivery options available to the Council in respect of the leisure facilities Further, in the context of the Council s key drivers, we have analysed these delivery options, exploring the key advantages and disadvantages pertaining to each one. On this basis, we have identified the likely best option for the Council and have explored the various implications, financial and non-financial, of this option Finally, having reviewed the various implications, we have drawn up clear recommendations for the Council and set out an appropriate implementation plan for the delivery of these recommendations.

5 SECTION 2 THE CONTEXT The Context 2.1 This section of our report provides additional background to the context of the options analysis and, in particular, explores the current status of the Council s existing leisure facilities. 2.2 We examine the nature and scope of the Council s leisure facilities under consideration in this report. This examination includes an introduction to the strategic context of the leisure facilities in Medway, a careful analysis of the current financial and operational performance of the facilities, the condition of the facilities and the management and arrangements currently in place to deliver the services. Review of Strategy Documents 2.3 A detailed examination of the strategic context of the delivery of the Council s leisure facilities is provided in the Indoor Sports Facilities Strategy document produced by PMP in July This strategic context is summarised in Figure 2.1 below; Figure 2.1 Strategic Context of Leisure Facilities Delivery in Medway More to Medway: Medway s Community Plan Local Plan Medway Waterfront Renaissance Strategy Sport and Health Development Strategy 2000 to 2005 Chatham Centre & Waterfront Development Framework (draft) Gillingham Waterfront Planning Brief (draft) Rochester Riverside Draft Development Brief Indoor Sports Facilities Strategy 2004 Outdoor Sports Facilities and Playing Pitch Strategy Leisure Options Review Supported by: Best Value Report to Cabinet Sport & Leisure Options Review of Sports Devt & Leisure Facilities Mgt Medway Sports Devt & Facility Proposals

6 SECTION 2 THE CONTEXT 2.5 Each of the strategy documents described above are explored in depth as part of the Indoor Sports Facilities Strategy. 2.6 In the paragraphs that follow, we specifically revisit the findings of the Best Value Review of Sports Development and Leisure and the Best Value Inspection Report. We then review the conclusions of the Indoor Sports Facilities Strategy. Best Value Review of Sports Development and Leisure Facilities 2.7 The Best Value Review (the Review) covered the sports development service and the management of leisure facilities. Both services are within the Council s Education and Leisure Directorate. 2.8 The aims of the recommendations made by the Review were intended to result in the following in respect of the leisure facilities: a leisure facilities programme that clearly delivers sports development strategy objectives in a consistent way across Medway leisure facilities that are modern, fit for purpose, accessible and able to meet changing demands leisure facilities that meet the needs of Medway s population as a whole and in particular young people and ethnic minority residents (groups who are currently dissatisfied with provision) an improved capacity within the organisation to identify changing demands and preferences for sport and recreation and to plan effectively for them. 2.9 The relevant recommendations were as follows: to develop an outcome-based specification to apply to all leisure facilities contracts, linked to the Council s core values and desired health improvements to develop consistent contract monitoring procedures to assess how well leisure facilities are achieving specified outcomes to ensure that the leisure facilities monitor participation rates by different groups in the community so that there is equal access by all groups to the full range of activities to introduce an authority-wide membership scheme so that members of one leisure centre can also access facilities at other centres to develop a Medway facilities planning model to extend all existing (management) contracts due to terminate before 2004 to March 2004 in order to allow time to fully evaluate the preferred management option to consider the transfer of current in-house provision into a NPDB for April 2004 to consider the exposure of Black Lion and Strand to competition potentially as part of a wider sports village development for Medway

7 SECTION 2 THE CONTEXT Best Value Inspection Report 2.10 In its inspection report of October 2001, the Audit Commission assessed Medway s Sports Development and Leisure Facilities as a fair, one star service that has promising prospects for improvement The Audit Commission also found that some aspects need further attention and ongoing focus from the Council, including a facilities strategy linked to a robust marketing plan to address the leisure needs of the community. Indoor Sports Facilities Strategy 2.12 The Indoor Sports Facilities Strategy has identified eight key objectives as follows: to provide leisure facilities that meet the needs of Medway s current and future population and in particular young people and ethnic minority residents to provide leisure facilities that are modern, fit for purpose, accessible and able to meet changing demands to work with governing bodies of sport, local clubs and Sport England to explore and secure funds to implement strategies for the provision of centres of excellence and performance to meet the Medway area sport deficiencies plan to provide leisure facilities which address health and social inclusion priorities to seek agreement with schools to open up facilities for dual use sport and leisure activities to deliver a leisure facilities programme that clearly delivers sports development strategy objectives in a consistent way across Medway to seek funding and management initiatives to develop and refurbish existing Council leisure facilities to ensure that Medway s facilities are managed to the highest standards In the case of each of these objectives, a range of specific recommendations has been made. We consider the relevant objectives as context for this report to be as follows: R1.2: provide additional health & fitness stations at Black Lion Leisure Centre, Strood Leisure Centre and seek opportunities to provide additional stations at the other centres R1.6: improve the marketing of all the Council s indoor leisure centres R2.1: improve maintenance at all venues R2.2: refurbish specific areas at all venues, as set out in the existing condition surveys R2.3: improve disabled access, recognising the needs of the blind and partially-sighted as well as the needs of other disabilities

8 SECTION 2 THE CONTEXT R2.4: undertake a full feasibility study into the disposal of the Hundred of Hoo pool and the relocation of swimming facilities to the Hundred of Hoo school R7.1: investigate in detail the feasibility of the transfer of the Council s leisure operation to a non for profit trust R7.2: investigate prudential borrowing to fund the improvements required at the leisure centres, with pay back through invest to save schemes 2.14 Accordingly, the Indoor Sports Facilities Strategy has identified a range of opportunities to improve the services provided by the leisure centres and has suggested that the Council explore alternative options for the future delivery and funding of the centres. Review of Current Facilities 2.15 The facilities specifically under consideration in this report are as follows; Strood Sports Centre - This is a large mixed facility situated close the centre of Strood. The Centre s facilities include a 25-metre main pool, a teaching pool and a hydrotherapy pool, a six court multi-purpose sports hall, a dance studio, crèche, a converted squash court soft play facility, two further squash courts, a 45-station fitness suite, health and beauty suite including a sauna, steam room and spa, two sunbeds and two treatment rooms, a full size artificial training pitch, bar and a fully equipped meeting room. - The facility is currently managed by Medway Leisure DSO. The Hundred of Hoo Swimming Pool - This is community swimming pool situated on the edge of Hoo and approximately four miles from Strood. The Centre s facilities include a 25- metre main pool, a teaching pool, two squash courts, crèche, two beauty rooms and a 24-station fitness suite. The centre offers a varied programme of courses and classes including children s activities and parties. - The facility is currently managed by Medway Leisure DSO. Echoes Fitness, Heath and Beauty Suite - This is part of Strood Leisure Centre and the gym benefits from a full range of specialist equipment including cardiovascular equipment, weights and an abdominal area. It is identified as its own brand and therefore is treated as a separate cost centre to that of Strood Leisure Centre. Stirling Centre - This is a large dryside facility situated close to the town centre of Rochester. The Centre s facilities include a multi-purpose sports hall, nine outdoor floodlit courts for tennis, netball and 5-a-side football, a 15 station fitness suite, a new mini tennis fun area for under 11 s and a large purpose built lounge bar. The Centre provides a mixed programme of

9 SECTION 2 THE CONTEXT activities including hockey, badminton and basketball and the lounge bar area can be hired for weddings, parties and functions. - The facility is currently managed by Medway Leisure DSO. Black Lion Leisure Centre - The Black Lion is the flagship leisure centre for Medway. It is located on Mill Road, Gillingham, and provides both wet and dry facilities, including 3 indoor pools, three sports hall a 54-station gym and shokk children s fitness facility. It is the only public facility serving the centre of Gillingham. - Medway Leisure DSO took over management of this facility in April 2004, having been managed by Serco Leisure for the previous nine years. The Strand Leisure Park - The Strand Leisure Park is an outdoor leisure amenity situated on Pier Approach Road by the waterfront in Gillingham. The facilities include an outdoor leisure pool with features including a tube ride (the longest river ride in Britain) and leisure islands. The facility was built in 1904 and then refurbished in The pool is unheated and can be roped off in the middle for lane swimming. The pool is only open during the summer months between 10am and 5pm. Other facilities include a nine-hole par 3 golf course, miniature railway, crazy golf, children s paddling pool, children s play area, five outdoor tennis courts, a 5-a-side football pitch and a cafeteria. - Medway Leisure DSO took over management of this facility in April 2004, having been managed by Serco Leisure for the previous nine years. Deangate Ridge Golf and Sports Complex - Deangate Ridge Golf and Sports Complex is situated close to Hoo and the facilities include an 18-hole public golf course, 18-hole pitch and putt facility and club house, a separate 30-station Echoes fitness suite, golf driving range, a 200 seat athletics stadium (which is home to Medway Athletics Club), one sunbed, three all-weather tennis courts, two full size outdoor football pitches. - The facility is currently managed by Medway Leisure DSO. Splashes Leisure Centre - Splashes Leisure Centre is a mixed facility situated approximately one mile from Rainham town centre in Cozenton Park. The Centre s facilities include a leisure pool with slides, fountains and a wave-making machine, a 30-station fitness suite (Physicals), a tanning booth, a café area and licensed bar. This is a popular community pool and provides a mixed programme of public sessions, swimming lessons and children s parties - The facility is currently managed by Courtesy Leisure, with the current contract due to expire on March 31st As described above, there are currently two management organisations involved in the management of the Council s leisure facilities. These are as follows:

10 SECTION 2 THE CONTEXT Medway Leisure The Council s in-house management DSO currently has responsibility for the management of six Council leisure facilities. These are Strood Sports Centre, Black Lion Leisure Centre, Strand Leisure Pool and Park, Deangate Ridge Complex, Hoo Swimming Pool and the Stirling Centre. Courtesy Leisure Ltd - Courtesy Leisure Ltd manages Splashes Leisure Pool on behalf of the Council. The Council pays a management fee of approximately 141,000 per year. Courtesy Leisure is a relatively small operation, headed up by Colin Murphy (former Gillingham DSO), which also manages Willink Leisure Centre on behalf of West Berkshire Council. Current Financial Performance 2.17 Based on Medway Leisure s business plan projections for the financial year 2005/2006, the anticipated financial performance of the facilities managed by Medway Leisure is as shown in Table 2.2 overleaf;

11 SECTION 2 THE CONTEXT Table 2.2 Projected Operational Financial Performances 2005/2006 EXPENDITURE ( Ks) SSC HHSP E SC SLP BLLC DRGC TOTAL Employees ,556 Provisions (Catering & Other) Advertising & Marketing Repairs & Maintenance Equipment Utilities General Expenses * Legal & Professional TOTAL , ,033 INCOME ( Ks) Membership Dues Other Income ,882 Catering Income TOTAL , ,349 Management Fee Income (231) (154) (316) NET SURPLUS / (SUBSIDY) (125) (19) SSC = Strood Sports Centre, HHSP = Hundred of Hoo Swimming Pool, E = Echoes, SC = Stirling Centre, BLLC = Black Lion Leisure Centre, SLP = Strand Leisure Park, DRGC = Deangate Ridge Golf Complex *General Expenses includes Travel & Subsistence, Office Supplies & Systems, Communications, Insurance, Misc Rentals, Misc Fees & Services 2.18 These figures indicate that the leisure centres managed by Medway Leisure are projected to generate operational income of circa 4.349million and to incur operational expenditure of circa 4.033million in the financial year 2005/2006. Accordingly, the centres are anticipated to produce an operational surplus of circa 316K, which is the net management fee, paid back to the Council We have not been able to gather either recent or projected figures for the operational performance of the Splashes Leisure Centre. However, we are aware that, for the financial year 2005/2006, the Council are to pay Courtesy Leisure a management fee of circa 141K.

12 SECTION 2 THE CONTEXT 2.20 In order to understand the broader financial context of the leisure centres, we also need to consider the Council s other financial liabilities in respect of the centres. These are set out in detail in Table 2.3 below; Table 2.3 Overall Projected Financial Performance 2005/2006 EXPENDITURE ( Ks) SSC HHSP SC SLP BLLC DRGC SLC TOTAL Premises (Client responsibilities) National Non-Domestic Rates Central Leisure Administration 96 TOTAL ,112 Management Fee Income (57) (13) (141) 175 TOTAL (57) (13) (141) 175 NET SURPLUS / (SUBSIDY) (240) (125) (75) (62) (79) 20 (281) (937) SLC = Splashes Leisure Centre Premises (Client responsibilities) figures represent proportional allocation of general premises costs Central Leisure Administration figures represent allocation of central salary costs (eg. Head of Leisure) 2.21 These figures indicate that, based predominantly on projections for 2005/2006, the Council has revenue expenditure liabilities amounting to circa 1,112K in respect of the leisure centres. This expenditure is mitigated by the anticipated operational surplus of circa 175K (as reflected in the net management fee), such that the Council s net revenue costs amount to circa 937K In addition to these costs, we would typically expect the leisure services budgets to incorporate an apportionment of the central support service costs/overheads. We understand that in the Council s case, these additional costs, estimated to be 250K are not formally apportioned to the leisure service and have therefore been excluded from Table We understand that another consultancy company was commissioned in July 2002 to undertake a financial analysis of the performance of the leisure facilities. Whilst we have not seen the primary research used in this analysis, we understand that the key findings, at that time, were as follows: the recovery rates for the leisure facilities were relatively high staff costs were generally in line with national indicators, although were relatively high at Hundred of Hoo Pool and the Stirling Centre spend per head was relatively high net cost per swim was relatively low number of swims per 1000 population was relatively high

13 SECTION 2 THE CONTEXT 2.24 Where possible, we have also calculated a number of forecast performance indicators for 2005/2006 based on the expected operational income and expenditure business plans and usage information provided for the financial year 2004/2005. These performance indicators, together with relevant benchmarks, are summarised in Tables 2.4 to 2.7. Table 2.4 Performance Indicators for Strood Sports Centre PERFORMANCE INDICATOR SSC BENCHMARKS PMP SE 25% SE 50% SE 75% Percentage Cost Recovery 102% 56% 92% 105% Subsidy per Visit ( 0.10) Annual Visits per Square Metre Subsidy per Square Metre ( 3) Total Income per Visit Total Income per Square Metre Secondary Income per Visit Staff Costs as a % of Operating Costs Energy Costs per Square Metre Marketing Spend as a % of Total Income 72% 85% 57% 53% % 0.9% 2.3% 3.0% Health and Fitness Income per Station 7,468 3,000 to 6,000 Swimming Income per Square Metre of Water PMP benchmark figures derived from PMP database of operational performance SE benchmarks based on Sport England performance indicators for a mixed centre with outdoor facilities

14 SECTION 2 THE CONTEXT Table 2.5 Performance Indicators for the Hundred of Hoo Swimming Pool PERFORMANCE INDICATOR HHSP BENCHMARKS PMP SE 25% SE 50% SE 75% Percentage Cost Recovery 95% 50% 70% 93% Subsidy per Visit ( 0.09) Annual Visits per Square Metre Subsidy per Square Metre ( 9) Total Income per Visit Total Income per Square Metre Secondary Income per Visit Staff Costs as a % of Operating Costs 79% 72% 62% 57% Energy Costs per Square Metre Marketing Spend as a % of Total Income 0.7% 0.2% 1.1% 1.7% Health and Fitness Income per Station 2,964 3,000 to 6,000 Swimming Income per Square Metre of Water SE benchmarks based on Sport England performance indicators for a wet centre

15 SECTION 2 THE CONTEXT Table 2.6 Performance Indicators for the Stirling Centre PERFORMANCE INDICATOR SC BENCHMARKS PMP SE 25% SE 50% SE 75% Percentage Cost Recovery 100% 57% 72% 75% Subsidy per Visit Annual Visits per Square Metre Subsidy per Square Metre Total Income per Visit Total Income per Square Metre Secondary Income per Visit Staff Costs as a % of Operating Costs 72% 62% 57% 51% Energy Costs per Square Metre Marketing Spend as a % of Total Income 1.6% 2.0% 2.2% 2.8% Health and Fitness Income per Station 3,405 3,000 to 6,000 SE benchmarks based on Sport England performance indicators for a dry centre with outdoor facilities

16 SECTION 2 THE CONTEXT Table 2.7 Performance Indicators for the Black Lion Leisure Centre PERFORMANCE INDICATOR BLLC BENCHMARKS PMP SE 25% SE 50% SE 75% Percentage Cost Recovery 100% 37% 77% 87% Subsidy per Visit Annual Visits per Square Metre Subsidy per Square Metre Total Income per Visit Total Income per Square Metre Secondary Income per Visit Staff Costs as a % of Operating Costs 57% 67% 61% 53% Energy Costs per Square Metre Marketing Spend as a % of Total Income Health and Fitness Income per Station 1.7% 0.4% 1.1% 1.6% 13,780 3,000 to 6,000 Swimming Income per Square Metre of Water SE benchmarks based on Sport England performance indicators for a mixed centre without outdoor facilities 2.25 The key findings from the performance indicators based upon the 2005/2006 business plan figures provided to us are as follows; The four sites studied should be looking to perform particularly well according to a number of indicators, including percentage cost recovery, subsidy per visit and subsidy per square metre All four sites ought to perform above average in terms of income per square metre Strood Sports Centre and the Stirling Centre should look to receive a greater than average visit per square metre, but the Hundred of Hoo Swimming Pool and Black Lion Leisure Centre may receive relatively low visits per square metre The sites show variable potential performance in terms of the levels of secondary income per visit, with Black Lion Leisure Centre set to perform the best and Hundred of Hoo Swimming Pool the worst

17 SECTION 2 THE CONTEXT Staff costs at the four centres appear to be quite high as a percentage of total operating costs for the coming year Strood Sports Centre and the Stirling Centre may incur relatively high energy costs per square metre, but the other two facilities should incur below average energy costs There is considerable variation in the potential levels of health and fitness income generated at the four facilities, with a range from only 7,468 per station (at the Strood Sports Centre) up to 13,780 (at the Black Lion Leisure Centre) Swimming income generated at the sites is approximately in line with, or slightly below, normal benchmarks Current Operational Performance 2.26 Our study did not involve an in-depth analysis of the current operational performance of the various leisure facilities. However, we are aware that the results of formal mystery visits carried out in as part of the Medway Excellence Review in 2001 were generally sound and did not highlight any particular areas of weakness In addition, Medway Leisure currently holds a number of accreditations/awards across the various sites. These include the following; ISO 9001 (2000) - Quality Management BSI OHSAS Health and Safety Management ISO EMS Environmental Management Quest - UK Quality Scheme for Sport and Leisure Charter Mark - Public Sector Quality Award Investors in People (corporate award as part of the overall Council_ RoSPA Gold Award - Health and Safety Performance Capital Requirements 2.28 The need for capital investment was recognised within the Best Value Review for Sports Development and Leisure Facilities At that time, the capital investment requirements in respect of backlog maintenance and the requirements of the Disability and Discrimination Act were considered to be as set out in Table 2.8 overleaf;

18 SECTION 2 THE CONTEXT Table 2.8 Capital Investment Requirements as stated within the Best Value Review FACILITY CAPITAL INVESTMENT REQUIREMENTS BACKLOG MAINTENANCE ( Ks) DDA-RELATED WORKS ( Ks) Strood Sports Centre The Hundred of Hoo Swimming Pool Stirling Centre Black Lion Leisure Centre The Strand Leisure Park 44 1 Deangate Ridge Golf and Sports Complex Splashes Leisure Pool TOTAL 2, We understand that the Council has invested in facilities since 1999 as have Medway Leisure under their Spend to Save initiative, therefore the figures in Table 2.8 are only indicative and not likely to be as high as this The Indoor Sports Facilities Strategy has studied the current balance of supply and demand of leisure facilities within Medway. In broad terms, this study shows a shortfall of sports hall facilities (ie. ten badminton courts) and fitness facilities (ie. circa 475 fitness stations) in the area. The supply of and demand for swimming facilities is calculated to be approximately balanced As a reflection of this balance of supply and demand, the Indoor Sports Facilities Strategy has identified a number of opportunities for improving the facilities by means of capital investment. These opportunities include the following: Hundred of Hoo Swimming Pool - increase of the size of the health and fitness facility by converting the adjacent squash court (although a separate consideration is the potential relocation of the entire pool complex onto the adjacent school site) Stirling Centre - development of an indoor tennis facility to encourage the development of the tennis programme - increase of the size of the health and fitness facility

19 SECTION 2 THE CONTEXT Black Lion Leisure Centre - double the size of the health and fitness facility by relocating it to the first floor (the expansion of the nearby barracks may increase demand for its facilities, as would the proposed merger of Mid Kent College, Greenwich University and the University of Kent which would bring an additional students to the Gillingham area) - development of a purpose-built five-a-side football facility - refurbish wetside changing facilities - relocate the bar and catering facilities to the ground floor - redesign and refurbish the main entrance and associated areas - identify designated University student areas - replace the main sports hall floor and bleacher seating - add treatment room and dance studio facilities Strand Leisure Park - development of multiple opportunities 2.33 The success of the relatively recent development of the Echoes fitness facilities within Strood Sports Centre and Deangate Ridge Golf and Sports Complex appears to indicate that such targeted capital investment can prove worthwhile We understand that the Head of Leisure is pursuing a range of different routes to raise the necessary capital to invest into these potential developments. These routes include potential partnerships with private sector partners, the Lawn Tennis Association and the University of Greenwich. Accordingly, there appears to be no immediate demand for additional development capital through other routes.

20 SECTION 3 REVIEW OF DELIVERY OPTIONS Review of Delivery Options 3.1 In this section of the report, we identify and assess a range of potential options for the future delivery of the Council s leisure facilities. These potential options are representative of the range of delivery mechanisms currently being employed to deliver leisure services across the country. Description of Delivery Options 3.2 The options considered are as follows; In-house management Transfer to a newly-established Not for Profit Distributing Body (NPDB or leisure trust ) - including implementation of a hybrid option ( Hybrid A ) whereby the Council could create a new NPDB and then subcontract the management of selected facilities to a private leisure management contractor Transfer to an existing NPDB Partnership with a private leisure management contractor - including implementation of a hybrid option ( Hybrid B ) whereby the Council enters into a partnership with a private leisure management contractor who manages the contract by means of a not for profit operating arm 3.3 In the paragraphs that follow, by way of further introduction, we provide additional detail of each of these options and, in broad terms, set out the general advantages and disadvantages in each case. In-house Management 3.4 The key advantages associated with in-house management are as follows; The Council has complete control over all aspects of the delivery of the leisure service The Council has complete flexibility in the nature and scope of the facilities and services delivered The Council has, within the organisation, the professional and operational expertise and experience associated with the management and staff directly delivering the service The workforce delivering the service are employed within the local government framework The Council would incur only limited costs associated with any transfer of management

21 SECTION 3 REVIEW OF DELIVERY OPTIONS 3.5 The key disadvantages associated with in-house management are as follows; The Council will miss out on opportunities to substantially reduce annual revenue subsidy levels by gaining relief on National Non-Domestic Rates and through the treatment of VAT The Council will retain liability for capital maintenance costs and risk of the operational performance of the leisure facilities The management of the leisure service may be hindered by the relatively slow decision-making processes of the local government framework The restraints and controls inherent in the local government framework may mean that the workforce delivering the service are not empowered sufficiently Transfer to a newly-established NPDB 3.6 An NPDB is a not for profit distributing body. Whilst operating surpluses can be made in the general operation of the facilities, these must be re-invested in the service and not distributed to shareholders or other outside bodies. 3.7 There are typically three types of NPDB, as follows; Company limited by guarantee (CLG) Industrial and Provident Society (IPS) Unincorporated association 3.8 An NPDB is independent from the Council and will usually require a grant from the Council to subsidise the operation. The Council would typically grant a lease to the NPDB for any facilities managed. 3.9 The key advantages associated with transfer to a new NPDB are as follows; The NPDB is likely to benefit from significant savings on current National Non Domestic Rates costs The NPDB will probably benefit from savings generated by the different treatment of VAT within the NPDB management arrangement The NPDB is likely to enjoy greater financial and managerial autonomy than the Council s in-house management team The NPDB may well benefit from additional grant and sponsorship opportunities as external organisations are probably more likely to grant-aid and / or sponsor a charitable trust than the Council itself NPDB management arrangement can offer the opportunity for significant community and staff involvement in the management of the service The NPDB would benefit from having a single issue focus (i.e. a basic core objective of managing the leisure facilities)

22 SECTION 3 REVIEW OF DELIVERY OPTIONS The NPDB may be able to gain access to private capital for investment into the facilities and services, subject to its balance sheet strength or future cash flow projections 3.10 The key disadvantages associated with transfer to a new NPDB are as follows; The Council would lose direct control of the delivery of the leisure services, such that the nature of the contractual arrangement between the Council and the existing NPDB will be crucial A newly-formed NPDB would not necessarily be able to easily demonstrate the track record of expertise and achievement which would give potential customers and investors confidence (although this may be mitigated by the transfer of existing staff) Transfer to NPDB management involves the creation of a Board onto which trustees of suitable calibre would need to be recruited The NPDB may well find it difficult to attract significant levels of external capital investment, because of its lack of assets Transfer to NPDB management would involve a transition process which can be lengthy and therefore relatively costly Ultimate liability for capital maintenance costs at the facilities and risk of the failure of the NPDB will remain with the Council Transfer to NPDB management would involve a formal transfer of the staff currently delivering the leisure service Hybrid A Option 3.11 PMP are aware of a relatively new model for a trust structure which has been successfully piloted by a small number of local authorities According to the model, the Council would establish a new NPDB in the form of a company limited by guarantee. The Council would lease the leisure facilities to the NPDB and the NPDB would appoint a private leisure management contractor specifically to manage the selected centres via a management agreement. The Council would grant to the NPDB an annual grant and the NPDB would pay the management contractor an annual management fee to cover the cost of operating the facilities (including any costs of capital investment) Under such an arrangement, the management contractor might indemnify the NPDB (and therefore the Council) for not meeting financial performance and/or for failure to meet contractual obligations The key potential advantages of this arrangement are as follows; The Council would benefit from significant savings both from relief on National Non Domestic Rates costs and from the different treatment of VAT within the NPDB management arrangement The Council would be able to transfer major areas of financial risk onto the NPDB via the management contractor

23 SECTION 3 REVIEW OF DELIVERY OPTIONS The Council could benefit from the opportunity of capital investment provided by the management contractor as part of the management agreement 3.15 PMP understand that this new structure is being promoted by at least one of the main private leisure management contractors. We understand that the model has already been implemented in a number of local authorities and, as such, would appear to have been subject to review by financial and legal experts However, we have not been able to review specific legal structures pertaining to the model and our initial view is that clarification would be required around a number of key areas: How does the NPDB retain the ability to claim rateable occupation of the facilities when those facilities are being managed by a private contractor who is taking risk on their income performance? How can the Council enforce the contract if its financial and non-financial objectives are not being met by the NPDB and/or the private contractor? Transfer to an Existing NPDB 3.17 Many local authorities have already transferred the management of some or all of the leisure services to a bespoke NPDB. Many of these NPDBs have now established considerable and impressive operational track records and have expanded their operations by undertaking to manage facilities and services for other local authorities Some of these organisations now operate multiple contracts with a large number of local authorities (e.g. Greenwich Leisure, Wycombe Leisure, Aquaterra Leisure, Community Leisure Services), whilst other single-contract organisations are increasingly looking to expand their business by taking on new contracts (e.g. Impulse Leisure, Hertsmere Leisure, Gravesham Leisure Limited) The key advantages associated with transfer to an existing NPDB are as follows; The NPDB is likely to benefit from significant savings on current National Non Domestic Rates costs The NPDB will probably benefit from savings generated by the different treatment of VAT within the NPDB management arrangement The NPDB is likely to enjoy greater financial and managerial autonomy than the Council s in-house management team The Council is likely to benefit from the expertise and experience inherent in the management and staff of the existing NPDB The NPDB may well benefit from additional grant and sponsorship opportunities as external organisations are probably more likely to grant-aid and / or sponsor a charitable trust than the Council itself An NPDB management arrangement can offer the opportunity for significant additional community and staff involvement in the management of the service The NPDB may be able to gain access to private capital for investment into the facilities and services

24 SECTION 3 REVIEW OF DELIVERY OPTIONS 3.20 The key disadvantages associated with transfer to an existing NPDB are as follows; The Council would lose direct control of the delivery of the leisure services, such that the nature of the contractual arrangement between the Council and the existing NPDB will be crucial It may be difficult to recruit individuals of sufficient calibre from the local area to act as trustees on the local NPDB Board The existing NPDB will be answerable to other Boards and may therefore be subject to conflicts of interests There may be some leakage of surpluses away from the Medway facilities and back to the partner NPDB organisation The NPDB may well find it difficult to attract significant levels of external capital investment, because of its lack of assets A transfer to an existing NPDB may be a lengthy, complex and costly process for the Council Ultimate liability for capital maintenance costs may well remain with the Council There is the potential for a loss of local focus of the leisure service The workforce delivering the leisure service are likely to undergo some instability during the transfer to the existing NPDB Partnership with a Private Contractor 3.21 There are a number of leisure management contractors currently operating contracts for local authorities around the country. Approximately 20% of the country s leisure facilities are managed in this way. The main management contractors are DC Leisure Management, Leisure Connection, Serco Leisure and Parkwood Leisure and Sport and Leisure Management, although there are also a larger number of smaller, often single-contract, organisations The key advantages associated with a partnership with a private contractor are as follows; The management contractor is likely to be in a position to gain greater access to significant levels of capital investment The Council is likely to be able to transfer considerable areas of operational risk to the management contractor Major management contractors can draw benefit from the breadth of expertise and experience across the portfolio of their managed facilities Management contractors can be effective in maximising opportunities for income-generation and economies of scale The Council has the potential of entering into a long-term contract, with performance guarantees incumbent on the management contractor

25 SECTION 3 REVIEW OF DELIVERY OPTIONS The Council can benefit from greater certainty regarding the likely annual cost of the delivery of the leisure service 3.23 The key disadvantages associated with a partnership with a private contractor are as follows; The Council would lose direct control of the delivery of the leisure services, such that the nature of the contractual arrangement between the Council and the management contractor will be crucial The management contractor is likely to be prone to concentrate on commercial targets rather than the social objectives of the leisure service. Therefore, the nature of the contractual agreement between the Council and the private contractor will be crucial in protecting the social objectives. There is the potential for a loss of community focus of the leisure service. The Council may miss out on the opportunity to increase community and staff involvement in the management of the leisure facilities The procurement process required to set up such a partnership arrangement is likely to be lengthy, complex and costly for the Council The workforce delivering the leisure service are likely to undergo considerable instability during the transfer to the private contractor The Council will miss out on opportunities to reduce annual revenue subsidy levels by gaining relief on National Non-Domestic Rates and through the treatment of VAT Hybrid B Option 3.24 Most of the leisure management contractors have established a not for profit operating arm which enables them to offer an alternative management option. Under such a hybrid trust option, the Council would be likely to contract directly with the management contractor who would effectively sub-contract the actual operational responsibilities to their not for profit arm. The key additional advantage associated with management via a hybrid structure is that, subject to the Council s agreement, the hybrid trust is likely to benefit from significant savings on current National Non Domestic Rates costs The key disadvantage associated with management via a hybrid structure is that the legal viability of the hybrid structure is currently subject to formal Audit Commission challenge and may not therefore represent a sustainable future delivery solution. Further, there may be some leakage of surpluses back to the private contractor, via the application of central and/or administration costs.

26 SECTION 4 ANALYSIS OF IMPLICATIONS OF DELIVERY OPTIONS Analysis of Implications of Delivery Options 4.1 In this section of the report, we re-examine the advantages and disadvantages of the different delivery options (as outlined in section 4) and specifically apply them to the leisure facilities under consideration in Medway in the context of the current performance of the facilities and the assumed objectives of the Council. 4.2 Our understanding of the Council s objectives in this respect are set out below; The Council wishes to minimise annual revenue subsidy levels and indeed maximise annual revenue surpluses in respect of the leisure facilities The Council wishes to secure the long-term sustainability of the leisure facilities The Council wishes to ensure that the leisure facilities are managed in a coordinated and integrated manner, following clear strategic objectives The Council wish to ensure the highest possible standards of quality in the management of the leisure facilities 4.3 In the paragraphs that follow, we explore the implications of the different delivery options, taking full account of the key objectives as set out above. We explore the various implications in the following categories; Financial implications Non-financial implications - Service delivery implications - Staffing implications - Legal implications Financial Implications 4.4 In considering the financial implications of each of the potential delivery options, we have specifically considered the following issues; National Non-Domestic Rates (NNDR) VAT Central Support Costs Process Set-up Costs Operational Performance Capital Investment

27 SECTION 4 ANALYSIS OF IMPLICATIONS OF DELIVERY OPTIONS National Non-Domestic Rates (NNDR) 4.5 There is mandatory relief of 80% in respect of national non-domestic rates on property which is wholly or mainly used for charitable purposes and occupied by an institution or organisation established for charitable purposes only. Local authorities also have discretion to grant additional relief to charities in respect of all or part of the remaining 20% of which only 25% is funded from the central pool thus involving a potential net 85% saving overall to the Council. 4.6 The local authority also has power to grant discretionary NNDR relief up to 100% to voluntary organisations which are not charitable at a net saving of approximately 75%. This would be appropriate for the non-charitable company limited by guarantee or IPS. 4.7 We understand that the Council do not have a written policy regarding rates relief, but treat each individual case on its own merits. 4.8 Table 4.1 below sets out the full NNDR costs projected in financial year 2005/2006 in respect of each of the leisure facilities. Table 4.1 NNDR Costs FACILITY NNDR COSTS ( ) Strood Sports Centre The Hundred of Hoo Swimming Pool 120,983 Stirling Centre 41,868 Black Lion Leisure Centre 117,577 The Strand Leisure Park 1,333 Deangate Ridge Golf and Sports Complex 23,011 Splashes Leisure Pool 100,206 TOTAL 404, For the purposes of our calculations, we have assumed that the Council would grant a newly-established charitable NPDB or an existing NPDB 100% relief from NNDR costs and would therefore benefit from a net 85% saving of these costs, whilst a notfor-profit arm of a private management contractor would qualify for 80% mandatory relief only. Neither in-house management nor a private management contractor would qualify for any relief from NNDR costs Thus, based on the levels of rates costs for financial year 2004/2005 the potential savings available to a new or existing NPDB would be approximately 344K per annum, whilst the not-for-profit arm of a private management contractor would benefit from relief amounting to approximately 324K per annum across all facilities.

28 SECTION 4 ANALYSIS OF IMPLICATIONS OF DELIVERY OPTIONS 4.11 It should be noted that these calculations are based purely on the anticipated NNDR costs for the financial year 2005/2006 and do not take into account any potential revaluation of the rateable values of the centres. VAT 4.12 For VAT purposes it is important to identify: who is the principal in the supply of leisure services and/or cultural services to the paying customers, as this will dictate the VAT liability of these supplies, and the other supplies being made between the parties to the arrangements to identify whether any VAT charge on these supplies will be non recoverable by the parties There should be a VAT saving on normal operations in an NPDB arrangement, due to the status of the organisation. VAT Law allows for the exemption of sports services provided by a leisure Trust and therefore, provided the NPDB can meet the conditions set down by HM Revenue & Customs (HMRC), it will be able to exempt most of its income. Therefore, where previously the Council would have had to account for VAT on most of its income in this area, in future prices can be held at previous levels without the requirement to pay VAT across to Customs. Table 4.2 Analysis of VAT Saving on Income using NPDB Total Income Exempt Income NPDB % of Exempt Income Exempt Income Inhouse Additional Exempt Income using NPDB VAT Saving (a) (b) (c) = b/a (d) (e) = b-d (f) = e x SSC 757, , % 161, ,703 50,523 HHSP 341, , % 105, ,530 25,993 E 350, , % 0 350,866 61,402 SC 293, , % 42, ,914 26,935 BLLC Gym 638, , % 0 636, ,400 BLLC (No Gym) 1,027, , % 386, ,120 64,596 SLP 222, , % 0 114,629 20,060 DRGC Golf 775, , % 0 532,635 93,211 DRGC Athletics 34,056 7, % 0 7,521 1,316 VAT Saving on Income using an NPDB 455,436

29 SECTION 4 ANALYSIS OF IMPLICATIONS OF DELIVERY OPTIONS 4.14 Based on the figures provided (and these exclude operational figures for Splashes Leisure Pool), from Table 4.2, we have estimated this VAT saving on income to be approximately 455K per annum. Table 4.3 An analysis of the Non Recoverable VAT element Expenditure Standard Rated Costs 17.5% Non-rec VAT SSC 884, ,673 26,728 15,868 HHSP 359,087 56,807 9,941 7,393 E 207,179 65,481 11,459 11,459 SC 293,848 52,768 9,234 6,157 BLLC Gym 375,841 43,646 7,638 7,618 BLLC (No Gym) 1,289, ,268 50,797 37,381 SLP 222,854 52,580 9,202 4,733 DRGC Golf 775, ,152 25,927 17,818 DRGC Athletics 34,056 13,335 2, Non Recoverbale VAT on running costs 108,942 Non Recoverable VAT on Management Fees 29, As a consequence of being a partly exempt business, the NPDB will suffer restriction on its recovery of VAT on costs, including management fee costs. This will result in a significant proportion of its VAT on costs not being recoverable. This will need to be offset against the VAT saving on income to arrive at the net VAT saving. Based on the figures in Table 4.3, we have estimated these additional irrecoverable VAT costs to amount to approximately 139K per annum Accordingly, our estimate of the likely benefits from the alternative treatment of VAT under an NPDB management arrangement is 316K per annum. It is stressed that these figures can only be indicative at this stage and, for the purposes of the calculations, we have included a buffer contingency of 25% and therefore assumed an annual saving of 237K per annum A NPDB management arrangement also typically includes a lease/licence of the facilities between the Council and the NPDB. The VAT liability of these property transactions will also need to be dealt with carefully, as further irrecoverable VAT could occur here.