An earlier Barnet Joint Venture?

Which Councillor would you vaporise first Mrs Angry?

Dear reader

As you will have seen from the joint blogger letter to the "leader" of Barnet Council, Richard Cornelius, the long in the gestation One Barnet programme, about which Mr Mustard has read dozens of interminable reports, was basically the out-sourcing of £1bn worth of vital services over a 10 year period (+ a possible 5 year extension). Suddenly last week, Pam Wharfe, the interim Director of something or other and with possibly the least firm future employment prospects, was passed the poisoned chalice of slipping out to staff in an internal email the startling news that the out-sourcing was now going to become a Joint Venture. Stone the crows, something has gone seriously wrong in the process somewhere if after over a year of every report saying that out-sourcing is definitely the way to go. The Mars Rover shown above, called Curiosity (how apt for this One Barnet change of mind, which is a curiosity) took over 8 months to reach its destination. If Barnet Council had been in charge they would have re-routed to Venus after 6 months of travel.

Now we need to think about a Joint Venture. Has Barnet Council been in one before? In effect yes as Barnet Homes, the arms length management company, or ALMO, entered into one in the recent past and although called an arms length company the arms are not that far from the body of the council as Barnet Homes is housed in Barnet House a council building (the old Ever Ready building at Whetstone) and as the funding is from Barnet Council for the specific purpose of looking after council house stock there is zero prospect of a JV being entered into without the council knowing about it and endorsing the decision on the quiet.

So back in 2005 the company called the London Area Procurement Network Ltd (LAPN) was formed and it changed its name in June 09 to Cyntra Ltd (what a vague name). The owners of the company are listed in the attached link and you can see that it contains our local ALMO, Barnet Homes Ltd. That link also tells you that the purpose of the company was that it could, by joint buying, save 13% on the procurement cost of building works for its members. The Directors were from each of the participating local authority housing members so our very own Tracey Lees was a Director.

Savings are very elusive beasts and a saving of 13% on building works can be demonstrated if comparing to a very inefficient company or one that doesn't really want the work. Mr Mustard is completely unconvinced by the figure of 13% as an ALMO that manages 15,000 homes already has enough work to give out to obtain good quotes so maybe the negotiating skills of the buyers at Barnet Homes just weren't good enough or maybe the possible savings were over-stated. For every building job the material cost is about the same whoever you buy through and the labour cost should not vary much because there are recognised daily rates for each trade. The saving can only come from better administration or doing a job a radically different way and if the job is fitting double glazing or a new kitchen or bathroom there really is not going to be much difference in method between 5 different firms.

How was Cyntra doing finance wise? You would think that with a £1bn sloshing about (ooh look the same sum as quoted for One Barnet) that Cyntra could easily make a turn on that but no, its finances were pretty sick from the start

Thank you to Duedil

The blue line is turnover. Most of the 06/07 turnover was probably the annual fees paid by members which were about £40,000 p.a. at the start and these reduced to a maximum £25,000 as extra members were signed up.

Net assets (the orange line) remained stubbornly in the negative. It is harder to increase profitability than turnover.

One of the changes was to move to a paid board of Directors. This meant saying goodbye to Lesley Meeks who had served on behalf of a different authority from October 08 to May 09. This will be the same Lesley Meeks who is now the Assistant Director of Commercial Assurance (Town Hall Tax Dodgers branch) at Barnet Council. Mr Mustard is sure that if he had been on the recruiting board he would have looked more closely at her history and had some testing questions for her at interview although as Craig Cooper claimed to have poached her from Westminster Council, Mr Mustard supposes that her interview, if there even was one, was not that probing and probably just consisted of a phone call, something not at all like this one "when can you start, yes that is fine, part time at first and then full, OK, off payroll, no problem, £772 a day, a bargain. Bye, see you soon, Craigie xx"

Here are the minutes from a Barnet Homes board meeting in May 09 when the changes to Cyntra were taking place:

Proposed changes to London Area Procurement Network (LAPN) Board Structure.

The report outlined proposed changes to the governance arrangements for LAPN to make it more businesslike and robust and for which the Board’s approval (as one of the Beneficial Owners of LAPN) was sought. It also advised the board of a proposal to review BH’s continued

involvement over the longer term.

TL (Tracey Lees) explained that all other ALMO Beneficial Owners had approved the changes (so you lot had better do so) and Barnet Homes was the last such meeting to take place. TL further advised that the formal arrangements of the new structure would be decided at the last LAPN Board meeting on 17th March 2009.

AS (Angela Spooner) asked if there would be any costs to Barnet Homes as a result . MW (Mike Wiffen) advised that the proposed introduction of board remuneration would be £50k a year but it was not clear how this would translate into fees although this was expected to be self financing in the future (the future never comes). MW outlined the benefits that BH had gained from membership to date and the further benefits that may result from the distribution of surpluses to the beneficial owners who remained in LAPN (a cracker Mike, surpluses, would that be why Barnet Homes are now filing a claim as a creditor in the Liquidation, i.e. you lost money).

EM (Eric Misewe) asked what kind of business LAPN were thinking of developing. MW confirmed that this would mainly be based on construction services for Registered Social Landlords and ALMOs.

JM (John Macfarlane) commented that this had come about the wrong way round since the LAPN Board meeting is on 17th March and the review would not complete until 2009/10.

MW (Mike Wiffen) said that as a founder member of LAPN, Barnet Homes has had the most benefit with considerable efficiencies achieved. He also informed the board of the significant benefits in remaining with LAPN. (Could you explain these at the next board meeting please Mike. Are they public? Mr Mustard might come along to watch you explain this one away).

The Board considered the recommendations and approved the proposed changes to the LAPN Board Structure.

The Board noted a review of LAPN and the outcomes from the review will be reported at the next Business and Resources Sub Group.

AS had the right idea to look at costs. The whole progress of Cyntra had evidently not been well enough thought through or closely enough managed because there were 7 or 8 owners at the beginning and later on there were other junior partners added which took the membership up to 30, imagine trying to manage anything with even only 8 owners, they were never all going to agree. The founding partners were all local authority based and their funding is secure and profitability is not something that they have had to grapple with.

Cyntra came before the Board again in September 2010.

Barnet Homes Board Meeting Re Cyntra Sept 10

There is lots to be gleaned from this set of minutes.

A loan extension is agreed before the review of Cyntra has taken place. It is now self evident that calling in the loan would have been a better choice.

Para 1.1 is the sort of thing Richard Cornelius is saying about One Barnet savings. "It was felt" that goods "could" be bought more efficiently. Hardly a ringing endorsement.

Para 3.4 shows the problem of getting things done the way that you want in a JV with 6 out of 9 members needing to agree something and then it goes ahead whether you like it or not. Barnet Council may only have 1 or 2 partners in its JV but they will have to agree. If they are 50/50 partners in profit share then some interesting and difficult discussions will inevitably have to take place in the future.

Para 4.1 Barnet Homes have lost at least £35,000 in Cyntra.

The Teckal exemption workaround is a bit like investing in a pyramid scheme because of the tax advantage. The fact that you are going to lose all of your money should not be over-looked but of course in Barnet Homes and Barnet Council they lose someone else's money when they take bad decisions, ours.

There is hell to pay with Cyntra Ltd going into liquidation, as you can read here. Creditors, amount to £1,600,000 and the ALMOs have been happy to dump Cyntra Ltd into liquidation and leave creditors to see what can be recovered off the carcass and the answer will be not a lot. Fees for the liquidator will be paid first and employee claims are higher than unsecured creditors. Now there is a moral question here. If the joint venture company had simply been eight councils acting together without the umbrella of a Limited company and they decided that the time was past for their informal joint buying group and stopped using it they would have had to pay all of the creditors including the  £173,000 of VAT.

One of the dangers of being a Town Hall Tax Dodger is illustrated in this case. If you are not an employee paying PAYE then you do not get preferential status for your pay as it isn't pay. In this case Hann Barton Ltd are listed as owed £10,500 presumably for the services of Robert Hann, a non-exec Director, Sallet Consulting Ltd are owed £11,340 which presumably is for the services of Paul Orrett, the Chief Information Officer at Cyntra (sounds very much like an employee post) and those are just the two cases that can be easily identified. There will be more. There is no reason why the ALMOs will have checked if Town Hall Tax Dodging was going on in the companies they own because they are at it themselves.

So now that we hear that the DRS out-sourcing is going to be a Joint Venture company just like Cyntra.

Lessons for Barnet Council before they go ahead with another JV are that there is a loss of control and there can be a loss of investment. Internal audit will not be as strong as in the council (and theirs needs beefing up as it is) and there are costs. Cyntra's cost of sales + administration costs came to £3.3m in their 2010 accounts. The extra layer of management in a JV will need to be replicated by a client side at the council to keep an eye on them and whether you call it a thin client or not it will cost money. There will be delay in implementing any service changes that the council wants to implement. If it all goes wrong I don't think that when c.£275million over 10 years is at issue and there are maybe £10m or £20m of losses and unsecured creditors that a council will be able to simply dump a JV company in which it holds a 50%+ stake and not expect to be sued to the ultimate as a shadow director or whatever other way the creditor can find to get their money back. With his credit consultant hat on Mr Mustard would advise any company offering its services to an ALMO or a JV to get a parent company guarantee from the council itself before agreeing to supply anything.

It is early doors yet but if the council think that politically they can present the same partner, BT or Capita, in a JV rather than as a provider of outsourced services and that this will suddenly become acceptable to the luddites, whingers and complainers (Mr Mustard is not any of those) and to the Barnet Bloggers, then they are as is so often the case sadly mistaken.

Yours frugally

Mr Mustard