Sport & Leisure Facility Strategy 2007-2012 : Environment and Leisure Overview and Scrutiny Committee on 19/06/2007

Waverley Borough Council Committee System - Committee Document

Meeting of the Environment and Leisure Overview and Scrutiny Committee held on 19/06/2007
Sport & Leisure Facility Strategy 2007-2012

APPENDIX D

Waverley Borough Council

ENVIRONMENT AND LEISURE OVERVIEW AND SCRUTINY COMMITTEE –
19th JUNE 2007

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Title:

SPORT AND LEISURE FACILITY STRATEGY 2007-2012

[Wards Affected:All]

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Summary and purpose:
This report, sets out for Members the background to the Council’s Leisure Facilities Strategy which was adopted by the Council in December 2006. The purpose of the report is to inform new Members and refresh existing Members of the main features of the Leisure Strategy and the key issues arising from it ahead of the decision-making reports coming to Members in July.
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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 as part of the refurbishment of the mechanical and electrical plant in some of the centres to improve the impact of these buildings on the environment by installing more effective and efficient equipment.

Social / community implications:
Sport & leisure makes 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. It is essential that all sectors of the community can therefore access affordable good quality leisure facilities.

E-Government implications:
The new management contract seeks to develop new methods of communication with users. The internet will be an important medium through which to promote activities and enable customers to book on line. Improved management information will be a requirement on the operator under the new contract.

Resource and legal implications:

The resource implications arising from the Strategy are significant. A full and detailed financial appraisal was conducted as part of the Strategy formation based on the estimated impact of the changes that identified that it was likely that the cost of running the leisure facilities would increase significantly under the new contract. This is explained in more detail later in the report and the Medium Term Financial Strategy has been updated on the basis of the estimates reported in December. It is possible, however, that the actual cost of the bid is materially different to these estimates when the contractor has assessed all of the factors relating to the contract.

The Capital Programme includes Ł1.8m for a basic refurbishment of Farnham Leisure Centre and Ł0.8m for the Godalming centre. Approximately Ł0.2m has been spent or committed already to deal with urgent works.

Given the nature of the information contained in the Strategy and the fact that officers are currently in negotiation with the leisure contractor, if Members wish to discuss detailed figures it may be necessary for the meeting to move to exempt session. Full financial details of the outcome of the negotiations will be presented to Members in July with estimates for capital investment options. Decisions taken by Members in July on any additional revenue or capital costs will have to be balanced against Waverley’s other priorities and financial pressures.
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Background
1. The Council has for some time been considering what to do with its leisure facilities. Two different operators currently run the Council’s five major leisure centres under different management contracts. Some of the centres are in need of major refurbishment and the Council is facing significant costs to ensure that the facilities are kept in a healthy and safe condition and provide the level of services expected by users. As a result of the varied provision, the community is experiencing differing levels of service in the four main population centres of Farnham, Godalming, Haslemere and Cranleigh.

2. In light of the age and condition of some of the leisure centres and the increasing costs associated with this element of service provision, Officers recognised the need to develop a clear and comprehensive leisure strategy for the future. The purpose of the strategy was to consider the needs of residents as a whole and to set out a clear long term plan for delivering improved services which would meet the needs of residents in the most effective and efficient way.

3. In April 2006 the Council 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 2006 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.

4. A project group containing members of a Leisure Special Interest Group (SIG), Heads of Service and Senior Officers developed the Strategy during 2006, supported by Capita Symonds.

5. The Council resolution from its meeting in December is attached at Annexe 1. Given the nature of the subject the Strategy document is comprehensive and detailed. The detailed Strategy report is available for Members in the Members’ room. Members wishing to research the detailed background to the Strategy are also advised to read the summary report to the meeting of the Executive in December 2006 which includes the detailed financial appraisal in an exempt annexe. An overview of the key findings and recommendations is set out below.

Strategy Development – The Process

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

Stage 1 – Development of a Vision for Sport and Leisure in Waverley

Stage 2 – Leisure Needs Analysis – to understand supply and demand for

services

Stage 3 – Development of Options for:

§ Facility Provision to meet needs of Waverley residents
§ Management arrangements for services
§ Procurement processes to deliver services

Stage 4 - Leisure Strategy Production

A summary of the Key Findings identified in the Approved Leisure Strategy

Facilities
7. 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.

8. 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.

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

10. 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

11. 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.

12. 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

13. 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 (the current management operator of four of Waverley’s leisure centres) 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.

Strategy Outcomes

14. 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.

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

· facilities
· management
· procurement

16. 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 – Desirable Capital Investment

17. Initially the Strategy set out a preferred option for consideration, which is described as option 3b below. However given the potential risks associated with this option the Council resolved at its meeting in December to include an additional option to be worked up in parallel and is referred to as Option 2b and is also set out below. A separate report on the issue of progressing discussions on the Rugby club site proposals was considered by the Executive on the 12th June 2007 and more detail is given later in this report.

18. Option 3b- Replacement of Godalming (in partnership with a commercial health and fitness operator). Significant Upgrade at Farnham and Cross Borough Improvements

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.

Members should note that the Council decided that the provision of affordable health and fitness facilities, with access all day should be available for the public in Godalming. Therefore the option of locating the health and fitness facilities on the school site was dropped in favour of locating these facilities alongside the community pool on the rugby club site.

19. Option 2b - Deliver Currently Planned Future Investment in Farnham and Godalming plus a significant additional improvements at Farnham and Godalming and Cross Borough Improvements

This option would include the addition of a teaching pool, spectator seating and catering at the existing Godalming Leisure Centre. It also includes a significant upgrade of Farnham, to improve customer-facing areas, as well as smaller scale improvements to Haslemere and Cranleigh.

Management

20. 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

21. 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 potential NNDR revenue savings associated with the external Trust option.

22. The continuation of private sector management was clearly the preferred route identified in the Strategy. 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.

23. The contract for the management of the facilities at Farnham, Haslemere and Cranleigh will be subject of a single negotiation process. The Council instructed officers to work up proposals for the management of facilities at Godalming in parallel. Officers are negotiating with DC Leisure and are in discussions with the a private sector health and fitness operator that would operate the new 25-metre swimming pool and the fitness facilities at the Rugby Club site. Members were keen for officers to develop discussions with the commercial operator and the Rugby Club because of the potentially attractive financial position. This would mean that the Godalming centre would be operated by a different organisation to the other facilities and there are other risks associated with this option that Members were advised of, more detail is provided later in this report.

Procurement

24. The Council was faced with a decision on which procurement route to follow in order to achieve best value and improve services to the community. The management contract alone is likely to be a significant sum, currently over Ł0.5m in 2007/2008 and expected to increase significantly under the new contract. The procurement also involves a commitment to a long-term partnership (15 years+) with the chosen operator.

25. Following detailed consideration, the Council agreed that the chosen procurement route was to initially seek to negotiate a contract with the existing contractor DC Leisure which it was felt would provide best value to the Council.

Preferred Option – Negotiated Contract

26. 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.

27. Officers are currently negotiating 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 may either be subject to negotiated contracts between a private health and fitness operator and Guildford Rugby Club or may be included in the DC Leisure negotiated contract depending on the chosen facility option for Godalming. In working up the detailed specification officers have allowed in the form of tender or DC Leisure to include fee bid proposals with and without Godalming included.

28. The contract negotiations will be supported by a thorough benchmarking exercise. This will provide a robust external 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.

29. 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. The list would include private sector operators only.

30. Given that the current contracts are due to expire in 12 months time (July 2008) it is imperative that officers conclude negotiations with DCL in June and that the Council make a decision on the outcome of these negotiations in July. This should just allow sufficient time should the negotiations fail to bring about best value for the Council to go out to the market to seek alternative proposals. If the Council cannot reach a decision in July temporary extensions to the existing contracts may have to be considerd and it is likely to face significant cost increases which recent experience has shown.

Financial Implications

Base position:

31. Section 5.7 of the Sport and Leisure Facility Strategy report considered by Members in December (copy held in the Members’ room) 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 have drawn to Members’ 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 (Ł1.8m and Ł0.8m respectively). By July 2008, it is likely that annual costs will rise significantly above the current base budget position. Officers estimated the possible scale of this increase and the Medium Term Financial Strategy was updated to reflect this potential future pressure.

32. The estimates presented to members to date are based on discussions with DC, Serco and Capita during 2006. The figures are indicative only and assumed a continuation of current trends in usage at the centres. The estimated base position is made up of increased management fees, which officers were 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 are currently seeking to achieve the best value outcome for Waverley through solo negotiations with DC Leisure. Key evidence to support the assessment of DC Leisure’s bid will come from detailed benchmarking being undertaken by the Council’s consultants, Capita. This will be presented to Members in July.

Further Capital improvements:

33. The Leisure Strategy identifies the Council’s wish 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. Decisions taken by Members in July on any additional revenue or capital costs will have to be balanced against Waverley’s other priorities and financial pressures.

Negotiation:

34. The Council agreed that its preferred procurement option is a negotiated route and officers are currently coming to the end of lengthy negotiations with DC Leisure and will report the outcome to Members in July. Officers are hoping to negotiate a financial position that is within the estimates reported to Members in December for the ‘as-is’ management of the facilities. However, the benchmarking will prove critical in assessing whether the bid offers the best value solution.

Trust status/NNDR:

35. The Council agreed that the preferred management option is a commercial trust operation. This method of operating the leisure facilities helps the operator to focus on the community-based facilities by separating the profit-making part of the business. One financial 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 reported to Members so far take account of any NNDR savings as they cannot be guaranteed in the long-term. The current level of NNDR for the 5 centres is Ł349,000 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 (part of which Waverley bares). Any proposed trust model would have to satisfy Waverley’s policy requirements in order to received discretionary NNDR relief. Waverley will be reviewing its policy in 2007 and, as neighbouring authorities have done, Members will be asked to consider extending the policy to cover the community-focussed model proposed to operate the Council’s 5 leisure facilities.

Borrowing:

36. The figures presented to Members for the desired capital investment options included in the Strategy are all based on Waverley borrowing sufficient capital to finance the identified improvements. Although this approach enabled a like for like comparison of each of the schemes, and effectively converted 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. Any borrowing decisions would be subject to a thorough evaluation of affordability and risks.

Cranleigh Leisure Centre

37. At its meeting on 26th April 2006 the Council instructed officers to discuss with Serco Leisure Ltd an early surrender of the Cranleigh Leisure Centre contract to enable the start date for all centers to be co-terminus, and report back with any terms identified by Serco. Officers met with the Director of Leisure for Serco who has confirmed that the company is prepared to terminate the existing management contract early to allow the Council to enter into a new contract.

Risks:

38. A detailed analysis of risk associated with the strategy is included in the report considered by Members in December. However, officers would highlight some key areas where the impact may be most significant:

§ There is a risk that the preferred capital investment options that Members identified in the Strategy will be unaffordable or not economic to pursue.
§ There is a risk that any major capital works at leisure facilities disrupt service continuity and it is possible that regular users may transfer memberships to other facilities
§ Negotiated route may not provide value for money for Waverley
§ A position of increasing risk has emerged with the proposal to provide new leisure facilities at Godalming in conjunction with the Guildford Rugby Club and the commercial leisure operator. It is now unlikely that discussions will be concluded to bring options to Members in parallel with the plans to develop the exiting JSJ site which is an outcome that Members requested.
§ 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. This could also lead to a revenue operating cost that is competitive but higher than Members are prepared to afford in the revenue budget going forward.

Progress on Negotiations with the Commercial Operator and Guildford Rugby Club

At its meeting in February, the Leisure Special Interest Group considered revisions to the proposals put forward by Guildford Rugby Club and a commercial developer for developing and operating a new community pool and fitness facilities in Godalming. The revised proposal, which differed from the original option set out in the Leisure Facilities Strategy (adopted by the Council in December), located the new rugby Club House on land owned by Guildford Borough Council with the remaining facilities located on Waverley land. In addition the rugby clubhouse had increased in size from 10,000sq ft to 13,000sq ft. Members were alerted to the greater cost and risk attached to the revised proposals. The SIG advised the Executive to request officers to continue with discussions with the Rugby Club and the commercial operator.

In order to progress with discussions, the Rugby Club were tasked with approaching Guildford Borough Council to consider the revised option, to test whether this proposal would be more favourable in both landlord and planning terms.

Representatives from the Rugby Club, having met with GBC, informed Waverley officers that the response from Guildford had been more favourable to the revised plan from a landlord perspective as there were no covenants on the site that would preclude the site from being used for such a purpose. In addition, planning officers recognised the many planning constraints but also recognised the leisure merits and did not dismiss the idea of a potential planning application on the site.

Whilst the meeting with officers from Guildford was helpful in providing a steer to the Club, the Club at that point in time was reluctant to progress discussions with both Waverley and the commercial operator. The reason given was the pending local Council elections and the perceived uncertainty around the commitment of a new Council to developing a new leisure centre for Godalming.

There was also a continuing view amongst some members of the Club’s Executive that their own proposals to develop their clubhouse in line with the planning permission they had previously gained and within the funding they have available would be a more viable and deliverable option for the club to consider.

The Club and the commercial operator have been made fully aware from earlier meetings about the need to progress discussions swiftly in order that alternative proposals could be tabled alongside proposals for Godalming emerging from negotiations with DC Leisure Ltd, as the Council has requested. However, officers have struggled to bring about further discussions with the Rugby Club and the commercial operator with neither party showing a clear commitment or urgency to agreeing headline proposals.

The Executive considered a report on this matter at its meeting on the 12th June. Officers will update Members of ELOS on any decisions reached.

Progress on Negotiations with DC Leisure Ltd (DCL)

The Leisure Special Interest Group, at its meeting on 26th February, received a presentation from the Capita Symonds Project Manager who summarised the contract process and key dates leading through the committee process to Council in July this year. To date progress with negotiations with DCL has been in line with the planned timetable.

Officers have compiled a detailed output specification and contract documentation in line with the Council’s requirements and, in response to this, DCL has submitted proposals setting out how they would go about meeting the requirements of the Council identifying both the capital and revenue costs associated with the various options.

Officers, in conjunction with the Council’s professional advisors Capita Symonds and technical advisors Scott Wilson, have been working up the evaluation criteria against which DCL’s submission will be evaluated and assessed.

In line with the original timetable, the evaluation and final negotiations with DCL will conclude in June with the outcome of these negotiations and initial capital estimates being prepared in a detailed report to be brought to the 10th July Executive and then full Council on the 17th July.

Previous reports have stressed the importance of concluding negotiations with DCL by July 2007 in order to allow sufficient time, prior to the end of the current management contracts (July 2008), to agree terms. Also, in the event that the negotiated procurement route with DCL does not provide the best value solution for Waverley, sufficient time will be required to tender the contract on the open market.

It is anticipated that the initial proposals and estimates being presented in July will enable the Council to determine whether or not to continue with DCL as the Council’s agreed management contractor for a new 15 year contract. In addition the report will also outline the estimated capital costs for various investment proposals for each of the five leisure centres and the resultant revenue impact for the management contract over the 15 years. Members will be requested to determine the scope of the capital refurbishment and additional facilities it wishes to include in the new management contract so that officers can progress with working up detailed capital proposals and definitive costs with DCL.

Once the works have been tendered and exact prices can be identified the Council will be in a position to agree to the final terms of a new management contract some time later in the year.

Recommendation
It is recommended that the Committee:

· note the background to the Strategy;
· note progress made to date on implementation of the Strategy;
· receive the officers’ presentation, ask questions and make comments; and
· forward any observations to the Executive ahead of the final report in July.
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Background Papers (D of E&L)

There are no background papers 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