The Royal Borough of Kensington and Chelsea. Key Decision Report dated 26 July 2005

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1 The Royal Borough of Kensington and Chelsea Key Decision Report dated 26 July 2005 For Decision by Councillor Nicholas Paget-Brown, Cabinet Member for Community Safety, Environmental Management and Regeneration Report by the Interim Director of Transportation and Highways PROCUREMENT OF PENALTY CHARGE NOTICE DEBT COLLECTION SERVICES 1. Introduction 1.1 This report requests approval to award contracts to two Bailiff Companies who were successful in the procurement of Debt Collection Services after a Bailiff trial finishing early 2001 (Part 1) and approval to continue with a Pre-Registration Debt Recovery Service (Part 2). 2. Background 2.1 Registration at Court is a recognised part of the process to recover PCN payments. Since the implementation of the Compex Notice Processing system, it has not been possible to complete this part of the process due to software problems. Officers have now developed workarounds, which will enable the Council to implement the registration at Court process. 2.2 In 2000, Parking Operations carried out a trial with four Bailiff companies, Drakes Group Ltd, Collect Services Ltd (Now Phocol Limited), Equita Ltd, and Commercial Collection Services Limited, with the aim of awarding a contract for Debt Collection Services to the two most successful companies. The trial concluded that the two best performing bailiff firms were, Drakes Group Limited and Collect Services Limited. However, due to the unforeseen circumstances with the Council s Notice Processing system, resulting in Parking Operations being unable to register any Penalty Charges Notices at Court, the two contracts have never been awarded, and this element of the debt recovery process was put on hold. 2.3 Because of the problem, Parking Officers undertook a pilot preregistration debt recovery exercise in The aim was to establish a process for the recovery of aged debt due to the Council that would otherwise potentially remain un-recovered. The pre-registration debt collection exercise was instituted as a means of trying to minimise the build-up of unpaid PCNs that would normally have been registered at Court if the software had been able to do so. After receiving 1

2 quotations, a contract was awarded to Newlyn Collection Services, a firm of Bailiffs acting as Debt Collection Agents, as they had bid the lowest rate for their services (20% of the collected debt). 2.4 Over the duration of this initial exercise, the Council sent three separate batches of cases to Newlyn Collection Services. The criteria used to select the trial cases varied for each batch, as the intention was to also identify the criteria most likely to provide successful recovery in the future. 2.5 The first trial batch sent to Newlyn consisted of 3106 cases all of which were at the registration at Court stage as the offender had 10 or more Penalty Charge Notices (regardless of debt age). The age of PCNs at the time ranged from 12 months to 25 months. 2.6 The second batch sent to Newlyn consisted of 1000 cases that had progressed to the registration at Court stage within the previous 6 months for vehicles with registrations X or newer. The age of PCNs at the time ranged from 6 months to 28 months. 2.7 The final batch sent to Newlyn consisted of 4947 cases that had progressed to the registration at Court stage within the previous 6 months for all vehicle registrations. The age of PCNs at the time ranged from 6 months to 8 months. Table of Recoveries Batch Cases Value ( ) Recovery* Recovery (%) ( ) ,240 17, % ,000 26, % , , % * Includes the 20% paid to Newlyn Collection Services 2.8 The results of the pilot demonstrated that even aged debts were capable of a degree of collection without the formal registration at Court. The Bailiffs were paid for their services by retaining their fee of 20% of the total debt collected. The pilot study showed that carrying out this type of recovery is suitable for older cases that are likely to cost more to register at Court than the amount that would be recovered. Each PCN needs to be individually registered at Court at a cost of 5 prior to any recovery action being initiated by the Court. 3. The Current Situation 3.1 The existing backlog of unpaid PCNs has been divided into two categories, based on the experience gained from the pre registration debt recovery pilot exercise. It is proposed that all PCNs issued after 1 April 2003 be registered at Court, and collected by the two bailiff firms, Drakes Group Limited and Phocol Limited (formerly Collect Services 2

3 Limited) following award of this contract. Each of the PCNs will require a 5 registration fee to be paid in advance, but by law, all collection costs incurred by the bailiffs are added to the original sum owed by the motorist to the Council. Therefore the Council will receive the full amount owed to it, if the debt is collected. Current experience from other Councils using this process suggest that an overall collection rate of about 10% of the outstanding PCNs should be possible depending on the age of the PCN. This will show a positive return to the Council, even after the 5 registration fees are taken into account. Net recovery is estimated to be 679,250 for the backlog of PCNs and 29,000 per month on an ongoing basis. See Appendix 1 for details. 3.2 It is proposed that those outstanding PCNs issued before 1 April 2003 be allocated to Newlyn Collection Services on the basis of their previous quotation. Normally, as the fees that may be earned by this exercise will exceed 60,000 when added to the fee previously earned by this company, a new tendering/quotation process would be required so as to comply with Standing Orders. However, given that all new outstanding PCNs will now be dealt with via the Court registration process, this collection arrangement is a limited and finite exercise. It is a sensible commercial decision to proceed with this debt collection as soon as possible rather than delay the process by going through a separate new exercise obtaining updated quotations which are unlikely to differ very greatly from those obtained in the initial round of bids. Net recovery is estimated to be 287,040. See Appendix 2 for details. 4. Options 4.1 Part 1 - Registration at Court Process Option 1 Proceed with the award of the Bailiff Contracts The Council s Legal Department has confirmed that the Council can legally proceed with an agreement with the two Bailiff companies and arrange for the signing of both contracts for Debt Collection. Both companies have confirmed they would be happy for this to occur. The contract will not commit the Council to a specific number of transactions to be passed to either of the bailiff companies. This option could be implemented immediately Option 2 New Tender for Bailiffs The Council could carry out a full procurement of new Bailiff contracts for Debt Collection. This would, however, require resources for a project team for the purposes of evaluation etc. Parking Operations are currently in the process of carrying out three other procurement exercises and resources are already extremely stretched within the department. 3

4 This option would delay the Debt Collection process and will continue to restrict our ability to recover income for the Council until the conclusion of the procurement. The Council may also be open to challenge from either of the two bailiff companies who believe they have submitted valid tenders for a contract with the Council Option 3 Do Nothing This option would require the write-off of debts with a significant potential for a recoverable value. 4.2 Part 2 Pre-Debt Recovery Process Option 1 New Quotations The Council could initiate the procurement of a new contract for Bailiff s acting as Debt Collectors for Pre-Debt Recovery. Whilst this would require minimal resources for the duration of the contract it would, however, require resources to carry through the quotation process. The whole re-tendering process of the Pre-Debt Recovery contract would take approximately two months from the date approval is received Option 2 Do Nothing This option would require the write-off of debts with a significant recoverable value Option 3 Extend the existing arrangement with Newlyn Collection Services This option would allow the aged debt recovery project to proceed with the minimum delay and the minimum allocation of resources by the Council, while at the same time maximising the amount of debt recovered by avoiding delay. It does, however, require a waiver of Standing Orders. 5. STAFFING IMPLICATIONS 5.1 Part 1 Registration at Court Process Parking Operations will establish a debt recovery team of two existing staff within Parking Compliance Services. A provision for these costs has already been made in the 2005/2006 Revenue Budget. 5.2 Part 2 - Pre-Debt Recovery Process 4

5 Any additional staffing requirements will be accommodated by existing compliance staff or the debt recovery team above. 6. Group Finance Manager s comments 6.1 It would be realistic to assume that the recommendation would, at least, cover the registration and any other recovery costs and generate additional income, though this cannot totally be relied upon. 7. Comments by the Director of Law and Administration 7.1 This type of contract is not currently regulated under EU procurement rules and a cabinet member may authorise an exemption from competition under paragraph 2.12 of the Councils Contract Regulations if he considers that adequate information is provided in the report to allow the decision to be made. Section 135 of the Local Government Act 1972 allows a Council to exempt any contract from competition if the exemption is justified by circumstances reasonably distinguishable from others of its kind. 7.2 Relevant facts in the case of pre-registration services are; the same specification is being used and the services required are within the scope of the previous contract which was extendable but has lapsed. They are also a repetition of similar services provided through a competitive procedure and the same contract may be used if this continues to offer value for money. 7.3 It is arguable that contracts already exist for post-registration services but the companies have not been asked to perform any services. Time considerations for collecting outstanding debt may also be relevant in this case but not competing pressures on officer time. Whilst it may be argued that post registration contracts are automatically exempt from tendering because no valuable consideration is given by the Council, this would not normally be a good enough reason by itself to negotiate a contract with a single supplier. It is, however, a relevant factor in distinguishing this contract from others of its type let by the Council. 8. Equalities Implications 8.1 There are no equalities implications associated with the report. 9. Recommendations 9.1 Waive Standing Orders I recommend that standing orders be waived for the pre debt project in accordance with the advice given by the Director of Law and Administration. 5

6 9.2 Part 1 Registration at Court Process I recommend that the Council appoints Drakes Group Limited and Phocol Limited (formerly Collect Services Limited) as the two Bailiff contractors for the recovery of PCN debt following registration at Court. 9.3 Part 2 Pre-Debt Recovery Process I recommend that the existing contract with Newlyn Collection Services be extended to cover all the PCN debt collection for PCNs issued prior to 1 April 2003 by the pre-registration at Court method. Graeme Swinburne Interim Director of Transportation and Highways Paul Morse Interim Executive Director Environment Services 6

7 FOR COMPLETION BY AUTHOR OF REPORT: Date of first appearance in Forward Plan: 26 July 2005 Key Decision reference identifier from Forward Plan: 02021/05/R/A Background papers used in the preparation of this report: None Contact Officer: Marya Lee Tel: and FOR COMPLETION BY GOVERNANCE SERVICES: Report published on: 28 July 2005 Report circulated to the Public Realm OSC on 28 July

8 Appendix 1 - Estimated Revenue Recovery Registration at Court There are approximately 65,000 unpaid PCNs issued since 1 April 2003 that could be registered at Court. These cases will be registered at Court over a 6 month period. In order to not overload resources. The plan is to start at 1 April 2004 and take 2 months at a time working both forwards and backwards. For example, initial batches will cover period 1 February 2004 to 31 May Assumptions made in calculating expected review recovery based on experiences of other London Boroughs. 1. Total value of outstanding PCNs based on a PCN value of Approximately 2.8% of PCNs are paid after Registration at Court. 3. Approximately 25% of PCNs are not lodged with bailiffs due to statutory declaration, cancellations, payments, etc. 4. Assume bailiffs achieve average collection rate of 10%. 5. Cost of registration at Court is 5 per PCN. Total no. PCNs Value (1) Collected after Registration at Court (2) Collected by Bailiffs (4) Total recovery Cost of Registration Net Recovery 65,000 9,750, , ,250 1,004, , ,250 In addition there are approximately 2,800 PCNs per month that can be Registered at Court. Using the same assumptions as above, this will generate an additional revenue of 29,000 per month on an ongoing basis. 8

9 Appendix 2 Estimated Revenue Recovery Pre Debt Programme There are approximately 65,000 PCNs issued prior to 1 April 2004 that remain unpaid. This will be a one-off programme based on the Council s experience from the pre-debt trial. Assumptions 6. Value of each PCN is Average recovery rate from pre-debt collection is 4.6%. 8. Pre Debt Collection fee is 20% of monies collected. Total no. PCNs Value (1) Value Recovered (2) Debt Collection Fee (3) Net Recovery 65,000 7,800, ,800 71, ,040 As a comparison registration at Court would cost 325,000 as against the Debt Collection fee of 71,760. Due to the age of some of the PCNs the average collection rate may not reach the target rate of 4.6%. However, there is no risk to the Council as the Debt Collection fee is charged against revenue recovered. 9