FIFE COUNCIL

FIFE COUNCIL

Policy, Finance and Asset Management Committee

Agenda Item No.

2^nd August 2007

ESTABLISHMENT OF A SPORT AND LEISURE TRUST

1.0 PURPOSE OF REPORT

1.1 The purpose of this report is to consider the establishment of a Sport and Leisure Trust to manage the Council's sport centres and swimming pools.

2.0 BACKGROUND INFORMATION

2.1 A cross-party member/officer working group was established in 2004 to consider the 'future of leisure' in Fife and bring forward options to ensure that quality sport and leisure provision was available.

2.2 The group undertook an extensive exercise between 2004 and 2006 which examined the existing sporting infrastructure and its current and likely future investment needs. The initial conclusion to this work was to recognise that there was an immediate and urgent requirement to prioritise addressing the declining facilities at Carnegie Leisure Centre, Fife Institute and Kirkcaldy Swimming Pool. All three facilities required significant and urgent investment to remain in operation. The group also recognised the need to identify a longer term strategy for the renewal and development of other, more recent sporting facilities. Work to complete a Fife-wide Sports Facility Strategy is now nearing completion.

2.3 The member officer group appraised a range of options in considering how best to achieve the renewal of provision. These included consideration of the potential for new facilities to be externally funded - either by the private sector, through external sources of funding including lottery, or through public private partnership. Consideration was also given to Fife Council wholly funding the programme through its existing Capital Programme. None of these options were considered to provide a deliverable solution. A range of options were also considered which explored the potential to utilise the new Prudential borrowing regime - through generating a sufficient revenue stream to support the necessary additional Capital borrowing. Consideration was given to increasing the Council tax for this purpose; to developing a Trust mechanism and thereby taking advantage of significant VAT and rates savings; and to achieving significant operational efficiency savings. The member officer group concluded that, utilising Prudential borrowing - through creation of a Leisure Trust and through realising significant efficiency savings - combined with some commitment from the Council's existing Capital Plan, provided the most feasible solution.

2.4 At its meeting on the 27^th October 2006, the Adult Services Committee agreed to the redevelopment or replacement of its three major facilities, namely, the refurbishment of Carnegie Leisure Centre; the replacement of the Fife Sports Institute (FIPRE) with a new facility on the existing campus (preferably in partnership with Adam Smith College); and the replacement of Kirkcaldy Swimming Pool on a site yet to be decided.

2.5 It was also agreed in principle to establish a community sport & leisure trust to manage and operate the Council's sport centres and swimming pools and it was remitted to the Heads of Community Services and Law & Administration and the Executive Director (Finance & Resources) to produce a detailed report on this matter for future consideration.

2.6 These two decisions are inextricably linked in that the revenue savings which would accrue to the sport & leisure trust in terms of business rates and VAT - estimated at £1.1 million - would help to fund, through prudential borrowing, a proportion of the capital funding needed to deliver this major investment programme.

2.7 This report proposes how the sport & leisure trust should be structured and managed, the agreement with the Council and looks in detail at its financial plan for the first five years of operation. The latter is important in helping to determine the overall contribution that the proposed trust could make to the funding required for the new and enhanced facilities.

CONSIDERATION OF TRUSTS

3.1 The use of trusts for the management and operation of sport & leisure facilities is now the predominant approach in Scotland, with more than two thirds of local authorities delivering their sport and leisure provision using this model. While a major impetus has been the significant financial advantages gained by using the trust model there are a number of other factors to consider:

Council Influence; the experience across Scotland highlights that the development of Service Level Agreements as a mechanism to manage the relationship between trust and local authorities is well-established and has ensured a continuing & direct democratic input to determining the key services to be delivered and the standards and policies across a number of key areas, including access, pricing and inclusion. In Fife the Service Level Agreement would be an annual agreement which would set the level of financial support to the Trust and define the services and standards to be delivered by the Trust. This would be considered by the appropriate Fife Council Committee and would ensure both scrutiny of previous years performance and a very significant mechanism to influence and indeed set key Trust policies on pricing, access, programme and community engagement.

Business Focus; there is significant evidence from across Scotland that the trust model has provided a positive 'single issue' business focus, greater financial scrutiny and management arrangements which have generally had an improving impact on business performance.

Customer Focus; this clearer business focus has also provided a performance & service culture more locally focused on the customer. In a number of trusts, the potential for much stronger community involvement & engagement has been realised. Where local authorities have set clear priorities on social objectives through their SLA's, there has generally been a more explicit demonstration of socially inclusive outcomes.

Facility Enhancement; the evidence from elsewhere is that the trust model has supported the protection and enhancement of facilities and services (due in part to the financial advantages and a growing trend to re-invest these resources). The model has also been seen as opening up the potential for external funding from a wider range of sources to support the trust's activities.

In conclusion, there is now significant experience across Scotland of trusts managing and operating sport and leisure facilities, with those trusts continuing to deliver a wide range of high quality services that are positively regarded by local communities.

4.0 TRUST OPTIONS

There are a number of options in relation to the scale and number of trusts with at one end of the scale, trusts being established to manage individual facilities and, at the other, local authorities creating trusts to deliver significant elements of leisure and cultural provision (e.g. Glasgow Culture & Sport creating a whole service Trust).

There are a range of factors to be considered regarding scale and number including:

Economies of scale
Business focus
Financial viability
Community engagement

In Fife, the proposal previously agreed in principle is to create a single trust to operate all fourteen sport and leisure facilities. Equally, it would be possible to consider a larger trust that has responsibility for a wider range of provision or to look at a number of smaller, more locally-based trusts.

In weighing up the issue of scale and number, consideration has been given to each of these factors:

Economies of Scale

A single management structure for one trust is likely to be less expensive than trusts for individual centres or trusts operating on an area basis. Each trust also requires its own financial, legal and human resources support and these costs would rise with multiple trusts.

Financial Viability

Sport & leisure trusts are significantly dependent upon earned income, which can be, by its very nature, unpredictable. The risks associated with this are reduced when a number of facilities are brought together. Whilst local fluctuation can still occur, the predictability of overall income is likely to be more stable (with potential to cross-subsidise to manage any peaks and troughs). Small single facility trusts are more likely to be affected by fluctuations in income and the viability risks attached to this.

Business Focus

There are benefits in creating a `single focus' sport & leisure trust given its ability to bring together sector expertise & apply best practice across Fife. Conversely, smaller trusts can often provide potential for a more localised focus on provision.

Community Engagement

Small Trusts provide the potential for a very localised and focused relationship with the local community they serve. Larger Trusts require to define clear mechanisms to ensure local community engagement.

Taking these various factors into account, a single sport & leisure trust offers the combined benefits of business focus, greater financial stability & economies of scale. It is important however to ensure that there are strong mechanisms to ensure more local community input to the Sports Trust. It is therefore proposed to establish Area Advisory Management groups - similar to those currently existing at some sports centres - to enable local elected members, sports and community groups to influence local sports delivery. It is anticipated that this would form a key part of the Trust mechanism.

5.0 TRUST VEHICLE

In keeping with other trust arrangements developed by the Council, it is proposed to establish the sport and leisure trust as a 'Company Limited by Guarantee'. A draft Memorandum and Articles of Association have been prepared, the key elements of which are highlighted below.

5.2 Board of Directors

It is proposed that a Board of Directors be appointed, with a maximum of thirteen Directors. Fife Council would appoint up to six Directors (this comprising four elected Members, the Executive Director (Finance and Resources) and the Head of Community Services). A further seven Directors, to give a total of 13, would be recruited via advertisement and would be expected to have a wide range of skill and experience which would add value to the trust. It is anticipated that Directors would serve for between three and five years, although this is ultimately a matter for the Board. Once incorporated, the Board would have responsibility for negotiating the terms of the working relationship with the Council, including the transfer of staff, budgets, assets, leases and the Service Level Agreement.

5.3 Establishment of Trust

The trust is legally formed by the signing of a Memorandum & Articles of Association and, thereafter, incorporation of the Company. Pending incorporation, it is possible for a shadow Board to be established, but the preference would usually be for the Company be fully incorporated as soon as practicable, initially with the six Council appointees. They would be responsible for recruiting the seven non-Council Directors.

5.4 Charitable Status

In order to secure charitable status, the company would have to apply for registration via the Office of the Scottish Charity Regulator (OSCR). This process usually takes around three months.

6.0 PROPERTY AND LEASE ISSUES

6.1 The property issues are relatively straightforward in that the proposed trust would take on responsibility for the management and operation of the Council's main sport centres and swimming pools. These facilities would remain in the ownership of the Council, but would be the subject of a long-term lease to the trust. The lease will, however, need to reflect the proposed replacement of FIPRE and Kirkcaldy Swimming Pool. The facilities involved are as follows:

Beacon Leisure Centre, Burntisland

Bowhill Swimming Pool

Bruce Street Sports Centre, Dunfermline

Carnegie Leisure Centre, Dunfermline

Cowdenbeath Leisure Centre

Cupar Sports Centre

Dalgety Bay Sports & Leisure Centre

East Sands Leisure Centre, St. Andrews

Fife Institute of Physical & Recreational Education, Glenrothes

Kirkcaldy Swimming Pool

Levenmouth Swimming Pool & Sports Centre

Waterstone Crook Sports Centre, Newport-on-Tay

6.2 Furthermore, two new facilities will open in August 2007: Duloch Park Centre and Pitreavie Athletics Training Centre, both in Dunfermline. It is proposed that the trust manage and operate both of these facilities on behalf of the Council, although for the time being, it is unlikely either would be included in the lease agreement with the trust.

6.3 One of the key issues for both the Council and the trust is the approach taken to the lease for the buildings, particularly with regards to VAT. It is proposed that the lease should be granted on a peppercorn rent of £1 per annum and provide for no other service or charge, for example, insurance. In this way, the lease would be regarded as a non-business activity for the Council and the VAT on any costs which the Council, as landlord, might incur would be recoverable in full.

6.4 It is proposed that the following "Heads of Terms" form the basis of the lease:

Date of Entry 1^st April 2008

Length of Lease 30 Years

Rental £1 if asked

Rent Review None

Insurance Council

Assignation No assignation permitted

Sub-Letting Yes for non-charitable activities

Repairs & Maintenance Landlord

Moveable Property Tenant

Specialist Equipment Tenant

Heating & Lighting Tenant

Water Tenant

Rates Tenant (relief granted)

7.0 STAFFING ISSUES

7.1 The transfer of staff to the trust has been investigated and the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) would apply in this case. This would ensure that terms and conditions of service in place at the point of transfer would continue via the trust.

7.2 To ensure the continuation of pension rights via the Local Government Pension Scheme (LGPS) and, where applicable, the Scottish Teachers Superannuation Scheme (STSS), the trust will require to apply for and secure 'Admitted Body' status. Preliminary discussions with both LGPS and STSS suggest that this should not be a problem and that the costs involved would be the same as for employees of the Council.

7.3 There has been consultation with Trade Unions regarding the proposed establishment of a trust, including the setting up of a joint Staffing and Communications Working Group to address the key issues for staff and to ensure that there is regular and ongoing communication. In addition, a management briefing for Trade Union Officials & Shop Stewards has been held, and further staff briefings have been made available to all staff affected, in advance of Committee.

8.0 FINANCIAL ISSUES

8.1 An initial five-year financial plan has been developed for the proposed sport & leisure trust and this demonstrates that the trust should be able to operate successfully and build up a satisfactory level of balances. The plan makes provision for pay and other inflation over the five years and an above-inflation increase in income. A summary financial plan is attached as Appendix One.

8.2 The total net budget in 2007/2008 for the sports centres and swimming pools (including the two new facilities) is £10.85 million. Given that the Council will be retaining responsibility for the buildings and will continue to deliver central support services to Community Services, an element of the budget is retained by the Council. The balance is essentially the management fee paid to the trust for operating the facilities on behalf of the Council.

8.3 The detailed workings that sit behind this arrangement are described in the trust financial plan at Appendix Two, but can briefly be summarised as follows:

£ million

Budget for Sports Centres/Swimming Pools 10.85

Budget Retained by Council 3.87

Management Fee to Trust 6.98

8.4 The net business rates payable for 2007/2008 total £916,561. Fife Council operates a mandatory/discretionary rate relief scheme, so the trust can expect to secure 100% rate relief once it has secured charitable status following registration with OSCR.

In addition to the business rates saving, there would also be significant VAT benefits accruing to the trust. After consultation with the Council's VAT Accountant, it is estimated that the trust would save £200,000 per annum due to its charitable status. This sum, together with the savings derived from the business rates relief would significantly help offset the cost of prudentially borrowing the capital funding required to deliver the proposed facility investment programme.

There will be some new costs associated with the establishment of the trust and these have been factored into the trust financial plan. These include the provision of legal, financial and human resources advice, establishing the company and registering with OSCR, advertising for Board members, drawing-up the lease and ongoing work to support the trust's access to the OneWorld financial management system. These costs are estimated at £100,000.

8.7 Given the establishment of the trust represents a significant change in the way that the Council would manage and operate its sports centres and swimming pools, a risk analysis has been undertaken. This concluded that any changes to the current VAT arrangements would need to be monitored carefully and that any future additional savings required from Community Services in relation to sport and leisure management - beyond the efficiency savings identified in paragraph 9.4 - could not be sustained by the Trust.

9.0 FACILITY INVESTMENT AND DEVELOPMENT

The original preliminary and indicative build costs for the three major facilities was estimated at £36 million (based on August 2006 prices). Costs have been developed and refined as work continues towards the development of detailed designs for all facilities. Taking into account an annual inflationary uplift of 5% and reflecting overheating in the building industry, it is now estimated that the capital cost will be £42.5 million. A further allowance of £7.5 million will provide for all professional fees, external works and fixtures, fittings and equipment. The total cost is estimated at £50m.

Appendix Three sets out the current predicted construction programme and indicates proposed start dates for Carnegie Leisure Centre, Fife Sports Institute and Kirkcaldy Swimming Pool of April 2008, April 2009 and April 2010 respectively.

Whilst Carnegie Leisure Centre is a straightforward proposition in that it is a refurbishment of an existing facility, the location of a replacement FIPRE has to be agreed with Adam Smith College within the context of a new shared campus Masterplan and there is, as yet, no agreed site for a replacement Kirkcaldy Swimming Pool. Consultation on a town centre site is currently underway as part of Kirkcaldy Town Centre Masterplan proposals - although there are also wider aspirations for further sports facility development outwith the town centre.

The establishment of both the Trust and new and more efficient facilities will provide significant ongoing revenue savings. It is estimated that savings on VAT and business rates of £1.1m p.a. will accrue, and that in addition more efficient modern facilities will reduce current operating costs by a further £800,000. This will provide a total recurring saving of £1.9m by 2012/2013. It is further proposed to utilise these savings to support additional Prudential borrowing, contributing approximately £29.4m of the Capital Investment required. It is further anticipated that external funding (sportscotland lottery) would be pursued to support the investment programme and following informal discussions with sportscotland it would be prudent to assume a modest level of support (working figure of £2m). It is proposed that the remaining £18.6m of Capital funding (which would be a combination of existing planned and new resource) is built into the Capital Plan over the period 2008/9 to 2012/13.

10.0 FIFE COUNCIL INFLUENCE & THE MANAGEMENT AGREEMENT

In addition to the formal lease arrangements, a management agreement will also be put in place between the trust and the Council. This will define the responsibilities of both parties and will articulate what the Council expects from the trust in terms of key outcomes/outputs, how these will be monitored, reported and reviewed and, crucially, details of the funding arrangements, including the annual management fee. The Management Agreement provides the key mechanism through which Fife Council can continue to set service delivery standards, and also ensure the widest access through pricing strategies and other mechanisms to ensure social inclusion. The Management Agreement would be subject to annual agreement on targets and pricing.

10.2 It is proposed that the initial Management Agreement with the proposed trust operates for a period of five years, from 1^st April 2008 until 31^st March 2013. As with any new business venture, it has to be recognised that the trust may be exposed to a degree of uncertainty in terms of its income and expenditure in early trading. To alleviate any possible difficulties and to ensure that the trust is successful, the Management Agreement would be subject to quarterly review in its first year of operation.

11.0 RECOMMENDATIONS

11.1 It is recommended that the Policy Finance & Asset Management Committee:

(a) Confirms its agreement to the establishment of a single trust to manage and operate the Council's sports centres and swimming pools;

(b) Agree to form a Company Limited by Guarantee to be known as the 'Fife Sport & Leisure Trust';

(c) Agrees to appoint four elected Members, the Executive Director (Finance & Resources) and the Head of Community Services as Directors of the Fife Sport & Leisure Trust;

(d) Agree to the TUPE transfer of the staff employed in the sports centres and swimming pools to the trust upon commencement of trading;

Remit it to the Heads of Community Services and Service Support, and Executive Director (Finance and Resources), to conclude the lease and management agreements with the trust on the basis outlined in this report and otherwise on terms and conditions to the satisfaction of the Head of Law & Administration.

Steve Grimmond

Head of Community Services

Brian Lawrie

Executive Director

(Finance & Resources)

Report Authors:

Grant Ward/Steve Grimmond/Eileen Rowand

Community Services/Finance