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Waverley Borough Council Committee System - Committee Document

Meeting of the Environment and Leisure Overview and Scrutiny Committee held on 27/11/2006
Sport and Leisure Facility Strategy 2007 - 2012



APPENDIX B
Waverley Borough Council

ENVIRONMENT AND LEISURE OVERVIEW AND SCRUTINY COMMITTEE – 27th November 2006
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Title:
SPORT AND LEISURE FACILITY STRATEGY 2007-2012
[Wards Affected:All]
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Note pursuant to Section 100B (5) of the Local Government Act 1972

Annexes to this report contain exempt information by virtue of which the public is likely to be excluded during the item to which the report relates as specified in Paragraph 3 of the revised Part 1 of Schedule 12A to the Local Government Act 1972, namely:-
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Summary and purpose:
The purpose of this report is to present to Members the Draft Sport & Leisure Facility Strategy 2007-2012, the development of which has been overseen by the Leisure Special Interest Group (SIG) with the assistance of consultants and to seek endorsement of the recommendations made by the SIG contained within the Strategy. ________________________________________________________________________

Environmental implications:
Some of the Council’s existing leisure facilities are deteriorating due to their age. Undertaking the recommendations of the Leisure Strategy will have an impact on the local environment in which these facilities are located. There will be opportunity if the Council chooses to accept the proposed recommendation to improve the mechanical and electrical plant in such a way as to improve the impact of these buildings on the environment.

Social / community implications:
Sport & leisure is recognised nationally and locally as making a key contribution to improving the health and well being of communities. Sport and Leisure can also contribute to improving educational attainment, creating greater community cohesion and assist in addressing crime. If good quality leisure provision is not made available to all sectors of the community, especially to those who cannot afford to access facilities because of cost, then attendances will fall and the benefits, which could arise, will not be realised.

E-Government implications:
Information on available leisure opportunities needs to be made more available a key priority recognised by the SIG. The strategy outlines this as a key need and information technology can be used as an effective tool to provide greater access to information.


Resource and legal implications:

The resource implications arising from the Strategy are significant. A full and detailed financial appraisal has been conducted as part of the Strategy formation. Given the nature of the information contained in the Strategy it has been necessary for the purpose of reporting to Members to present certain financial and procurement information in Exempt. A summary of the key financial implications arising from the Strategy is set out in this report with the full details of the financial appraisal and the arising implications set out in the Exempt sections of the Strategy document attached.
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Background

1. Waverley Borough Council recognises the potential to shape the future direction of sport and leisure opportunities in the Borough, through a long-term strategy. In April of this year members agreed to the principle of consolidating the leisure management contracts into a single contract by July 2008 and to a review of leisure centre provision with the formation of a long term Leisure Centre Procurement Strategy. Following the agreement of these recommendations In April the Council commissioned Capita Symonds Sport and Leisure Consulting (Capita Symonds) to develop a clear vision and strategy for the future of sport and leisure provision in the Borough. Specifically, the Strategy focused on:


the management of leisure facilities in the future
the level of leisure facility provision that should be provided in the future
procurement issues associated with management and facility options.

Specific actions the Council wanted to explore through the Strategy were to:


commence the development of a clear vision for leisure in Waverley
establish an understanding of the community’s needs in the future
develop a clear understanding of the corporate priorities that leisure contributes to and the development of a strategy to achieve them
determine how the Council will procure the services it seeks to deliver within its strategy and which management option would provide the best approach
set out an implementation plan for the chosen procurement route.

2. A project group containing members of the Leisure Special Interest Group (SIG), Heads of Service and Senior Officers has developed the strategy, supported by Capita Symonds. The Special Interest Group agreed the final recommendations contained in the Strategy, following consideration on the 22 September 2006.

3. The comprehensive and detailed Strategy report is attached at Annexe A. Given the nature of the subject the Strategy document is full and detailed. Members are directed to the Executive Summary at the beginning of the report, which provides an overview of the recommendations being supported by the Project Group. In addition an overview of the key findings and recommendations is set out below.


Strategy Development – The Process

4. In developing the strategy the following process was followed:

Facility Provision to meet needs of Waverley residents
Management arrangements for services
Procurement processes to deliver services
A summary of the Key Findings

Facilities

5. The Godalming centre is in poor condition and requires significantly upgraded or new facilities. While no need was identified for a large multi sport centre in Godalming, there is a clear strategic commitment, customer demand and political will, supporting Waverley’s continued provision of leisure facilities in the Godalming area. This should include the following, as a minimum:


a six lane 25 metre pool with spectator seating
a teaching pool
community health and fitness provision
access to a sports hall.

6. Farnham Sports Centre is dated and requires upgraded, customer facing, facilities. Extension of the health and fitness facilities and improvements to reception areas are key improvements identified.

7. Facilities at Cranleigh and Haslemere are generally in good condition, with some need for improvements to customer facing areas in the coming years.

8. All investment decisions should be based on improving the quality of facilities and service for the community over the long term and should address the need to improve the financial sustainability of the centres and ensure the facilities remain focussed on customer needs in the future.

Management

9. The Council has previously taken the decision to outsource day-to-day management and delivery of sport and leisure facilities to management partners. The Council has made a clear commitment to continue to act as an enabler of sport and leisure. In addition to its strategic role leisure services will be responsible for:
contract management
support to the voluntary and education partners
sports development
performance monitoring and management.

10. The Council should also be cognisant of the significant number of sport and leisure opportunities offered by the education, voluntary and commercial leisure sectors in the Borough. These providers form an integral part of the leisure offering for residents. Waverley should seek to maximise the benefit offered by these providers by complimenting the rather than competing with them.

Procurement

11. The needs analysis focussed on the current and future management of facilities. Procurement is the means by which these management and facility needs will be developed and implemented. The key findings from the leisure needs analysis, relating to the procurement of management contractors, can be summarised as follows:


the existing management of all facilities is generally seen as good by users, although there is some room for improvement, which can be addressed in a new contract
the relationship with DC Leisure is regarded as successful and one that Council Members and Officers would be willing to consider extending in the future
there is recognition that there are significant potential benefits from entering in to a single contract for all centres for a longer term than has previously been the case.
a decision has been taken to negotiate co-terminous contracts to enable the procurement of a future single management contract across all facilities.

Recommended Options

12. The options appraisal was the most significant part of the analysis in determining the future strategy for Waverley Borough Council. A shortlist of options was created to keep the process manageable.

13. There are various options to consider, under three main areas are listed below:

facilities
management
procurement

14. The options were developed using high-level estimates, reasonable assumptions and summary data. A full analysis of all of the options considered is set out in the body of the Strategy Report. The preferred option, selected under each of these areas forms the basis of the strategy and are set out below.


Facilities

Preferred Option - Replacement of Godalming (in partnership with a commercial health and fitness operator). Significant Upgrade at Farnham and Cross Borough Improvements

15. Significant facility improvements would take place across the Borough. This would include building new facilities at Godalming, in partnership with a private sector health and fitness operator. A new 25-metre pool would be built on the site of the existing rugby club. Health and fitness facilities will be added to the school site in an existing building to compliment the newly refurbished sports hall. There will be an early significant upgrade of Farnham, to improve customer-facing areas, as well as smaller scale improvements to Haslemere and Cranleigh over the period of the contract.

16. The improvements will provide the residents of the Borough with an enhanced and improved range of facilities at each of the main population centres. The long-standing shortcomings at Godalming and Farnham will be addressed.

17. A significant funding contribution from a private sector health and fitness operator, in terms of capital and revenue in Godalming, will help deliver facilities that may otherwise have been unaffordable. However, a significant amount of funding will still need to be committed by the Council to provide the capital required across all facilities.

18. The facility options recommended are outline proposals at this stage and much work will be involved in developing these proposals further. This delivery of this option is dependent upon the co-operation and agreement from the Rugby Club and the School. If the option of working in partnership with a commercial leisure operator in Godalming does not materialise then it will be necessary to revisit the options presented to find an alternative solution, which is affordable and deliverable. Members of the SIG agreed a preference for Option 2b (an extension to the existing Godalming Leisure Centre, to undertake moderate improvements as per the capital programme at Farnham and Cross Borough Improvements) as an alternative however this may require a reduction in the scope of the refurbishment proposals to produce an affordable alternative solution.

Management

19. The Council is currently working towards a position whereby each of the existing management contracts is aligned to create a co-terminus position. The date for co-termination is July 2008. This approach will enable the Council to procure one management contractor for most, or all, Council owned leisure centres, under a single contract. The benefits of this approach have already been considered and agreed prior to the development of this strategy. The preferred management option, to deliver the new management contract, is summarised below.

Preferred Option – Private Sector Management Contractor

20. The preferred management option is private sector management contractor (hybrid trust model). The additional financial benefits associated with the private sector Trust vehicle is the key benefit making it the preferred option over a private sector option. This route combines the benefits of a private sector approach to management and the NNDR revenue savings associated with the external Trust option. It is assumed that NNDR savings can be achieved at Waverley however in order to achieve these savings the Council may need to change its current policy in relation to rate relief and this may have wider financial implications which will need to be assessed.

21. The continuation of private sector management was clearly the preferred route identified in the option appraisal workshop. The reasons for this were the fact that it would have least impact on the service continuity and, as a result, would be the most deliverable option. It is a tried and tested option that has generally worked well for Waverley in recent years. The commercial approach to management and the economies of scale associated with the large-scale leisure operator are also attractive as is the potential for private investment in facilities in return for a long-term contract.

22. The contract for the management of the facilities at Farnham, Haslemere and Cranleigh will be subject of a single tender process. The management of facilities at Godalming will be split between a private sector health and fitness operator that will operate the new 25-metre swimming pool, and Broadwater School that will manage the health and fitness as part of the dry side dual use facilities, located on the school site.

Procurement

23. The Council is faced with a decision on which procurement route to follow in order to achieve best value and improved service to the community. The management contract alone is likely to be a significant sum, details of which are included in the Exempt Report (depending on which facility options the Council chooses) and will involve a commitment to a long-term partnership (15 years+) with the chosen operator.

24. Following detailed consideration, a recommendation was provided by senior officers, and agreed by members of the Special Interest Group, as to which option will provide best value to the Council. The SIG’s preferred procurement route is to initially seek to negotiate a contract with the existing contractor DC Leisure. This option is summarised below.

Preferred Option – Negotiated Contract

25. Securing a negotiated contract is the least complex option and allows more flexibility than other procurement options in terms of negotiating timescales for implementation and levels of investment over the term of the contract. This is particularly important where these may not be fully agreed at the start of the contract. Given the scale of the costs associated with the preferred facility options identified in the Strategy the Council may benefit from this flexibility as part of the procurement process.

26. Waverley Borough Council will seek to agree terms for the future management of facilities across the Borough. The facilities that will be included in this contract will be Farnham, The Edge, Herons and Cranleigh. Facilities at Godalming will be subject to negotiated contracts between a private health and fitness operator, Broadwater School and Guildford Rugby Club.

27. The contract negotiations will be supported by a thorough benchmarking exercise. This will provide a view on whether the outcome of the negotiations represents value for money to the Council in relation to the wider market. This will ensure that negotiations are underpinned by an element of market testing.

28. If the Council is not satisfied it is achieving a good outcome and best value through the negotiations with DC Leisure it is proposed to open up the tender process to the market via a select list (Option 2). The list would include private sector operators only.

29. Given that the current contracts are due to expire in 19 months time (July 2008) it is imperative that the Council determines which procurement option it wishes to pursue with a view to starting the process as soon as possible to allow sufficient time to secure the best deal for Waverley. If a new contract is not secured in time and the Council is forced to seek an extension to the existing contracts then it is likely to face significant cost increases which recent experience has shown. The process and timetable associated with each procurement option is set out in the Exempt Strategy report.

Financial Implications

Base position:

30. Section 5.7 of the draft Sport and Leisure Facility Strategy report sets out the financial implications associated with running Waverley’s sports centres over a 15-year period. Waverley’s current policy is to operate a sports centre in each centre of population (two in Haslemere) and Waverley’s Financial Strategy identified the financial implications of continuing to operate 5 centres. Officers would draw to your attention that there will be a significant increase in annual cost to Waverley, of maintaining 5 centres, even without undertaking any of the improvement options set out in the report – save for those basic refurbishments at Farnham and Godalming which are currently part of Waverley’s capital programme (1.8m and 0.8m respectively). By July 2008, it is possible that annual costs could rise significantly above the current base budget position. This figure is included in the exempt report and is identified as Waverley’s base position.

31. Officers would point out that this increase is based on discussions with DC, Serco and Capita, is indicative only and assumes a continuation of current trends in usage at the centres. The estimated base position is made up of increased management fees, which officers are advised may be required for the future running of the centres, as well as substantial increases in landlord maintenance costs – derived from condition surveys of the centres. Officers would endeavour to significantly improve this position through negotiation. The figure includes an increase from 01/04/2007 for the extension to the Farnham contract (already approved by Council on 26/04/2006) and the supplementary estimate for 06/07 of 136,500 for Godalming also approved by Members on 26/04/2006.

Further improvements:

32. The analysis of key findings in section 3.10 of the draft strategy also identifies the need for further improvement at Farnham and Godalming in the short term (in addition to the current capital programme commitment) whereas Haslemere and Cranleigh require only moderate improvements over longer term.

33. The Leisure Strategy report identifies what is known as Option 3b as the preferred option – see paragraph 11 of the Executive Summary of the draft strategy for further details. The figures for this option are based on the assumption that Waverley can work with a private sector partner to assist the financing of the identified improvements. Because of the opportunity to lever in private funds into this option, the additional revenue cost to Waverley (over and above the base position) is estimated to be relatively low at around 134,000 pa. This includes the revenue cost of any borrowing necessary to finance the capital outlay.

Negotiation:

34. The report identifies the preferred procurement option as a negotiated route and officers will be seeking to improve the financial position from the estimates set out in the exempt report during that negotiation process. It is possible that the estimate of future management fees referred to in the report can be reduced during the negotiation process. Officers will endeavour to secure benefits from some economies of scale in the event that the operation of 4 or 5 centres is being negotiated rather than single site tender arrangements.


Trust status/NNDR:

35. The preferred management option identified in the draft strategy is that of a commercial trust operation and the benefit of that arrangement over the more usual commercial operation is the potential to avoid a large proportion of NNDR costs, which trust status makes possible. None of the costs in this report or the draft strategy take account of any NNDR savings. The current level of NNDR for the 5 centres is 349,000 pa. A commercial trust operation is not eligible for mandatory NNDR relief but Waverley’s current policy enables certain types of organisation to receive up to 80% discretionary NNDR relief. Any proposed trust model would have to satisfy Waverley’s policy requirements in order to received discretionary NNDR relief. It is open to Waverley to review its policy, as neighbouring authorities have done, and make changes, which may enable such organisations to benefit from such relief. The disadvantage of such change is that it may open up NNDR relief (part of which Waverley bears) to more organisations, which might partially or totally offset any financial benefit achieved via the sports centres.

Borrowing:

36. The figures set out for each option in the draft strategy are all based on Waverley borrowing sufficient capital to finance the identified improvements. Although this approach enables a like for like comparison of each of the schemes, and effectively converts capital costs to annual costs, in reality, borrowing would probably be a last resort. As far as possible, other methods of funding such improvements through Waverley’s own resources would be sought.

Timing:

37. Members are advised that not all the costs identified in the base position, and the additional costs of option 3b, will arise all at once, or even in the same year. Whereas the financial model sets out at average costs over 15 year period commencing in July 2008, some of the additional costs identified will have already arisen and be able to be incorporated within base budgets by then. For example, a supplementary estimate for 136,500 in 2006/07 for Godalming has already been approved and included within the draft 2007/08 budget and a further amount has been included in draft 2007/08 base budget for Farnham Sports Centre. The process of managing any future capital spend on sports centre improvements will also look to timetable such expenditure to the best advantage.

Cranleigh Leisure Centre

38. Officers have made an approach to Serco Leisure Ltd to seek an early termination of the current contract at Cranleigh by July 2008. Serco have responded to this request setting out the terms they would wish to secure in return for an early termination. Officers are currently in discussion with Serco regarding these terms and the outcome of these discussions will be the subject of a future report to members in due course.

Risks:

39. There is a detailed analysis of risk associated with the strategy set out in para 5.11 of the report. However, officers would highlight some key areas where the financial impact may be most significant:

If Waverley is unable to find a private partner for the improvements identified in option 3b. The impact, if 3b becomes unachievable, is that option 2b becomes the preferred option. This option is some 350,000 pa more expensive and provides fewer health and fitness facilities and considerably fewer other community benefits at Godalming.
Further risk relates to NNDR if, as experienced at the Edge, the change of occupier at Godalming from a Trust to a commercial operator may generate an increase in NNDR payable. Members may recall the increase was threefold at The Edge.
It is possible that if Waverley goes down the route of management by commercial trust and succeeds in achieving NNDR savings, the government may in the future close this ‘loophole’ and it is possible that they may seek to claw back NNDR retrospectively, and other NNDR relief claims.
The final risk to which Members’ attention is drawn to in this report relates to the 15 year period of the proposed contract and the more market driven approach to contract conditions that operators now require. In effect, operators are not willing to take on as much risk as they have been previously and future contract conditions will reflect this approach. Break clauses, management fee reviews, expenditure caps and competition clauses are likely to feature in any new contract and these increase the risk to Waverley of further increases in cost during the period of the contract.

Conclusion

40. The Council recognises that it must determine the scale and level of investment it wishes to make in its sports and leisure facilities over the next 15 years. These decisions must be based on identified needs and take into account affordability, deliverability and sustainability. It is a complex process to develop a strategy of this scale. However the findings of the needs analysis have provided a clear steer from which a range of options have been developed and considered. Having completed a detailed appraisal of the options available clear recommendations have emerged, which are set out in this report.

Recommendation

It is recommended that the Committee considers the attached Draft Sport & Leisure Facility Strategy and the recommendations contained within it, and makes any observations to the Executive.
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Background Papers (D of E&L)

There are no background papers (as defined by Section 100D(5) of the Local Government Act 1972 relating to this report.


CONTACT OFFICERS:
Name: Julie Maskery Telephone: 01483 523432
E-mail: jmaskery@waverley.gov.uk

Graeme Clark Telephone: 01483 523236
E-mail: grclark@waverley.gov.uk

Comms.o&s3.2006-07.156