Finance: Whoops. Another pounds 1m gone

Times are hard for local councils' own contractors

Eighteen years after the first compulsory competitive tendering laws were introduced, many councils are still breaking the law by running losses on activities won against private-sector competition. Last month Cardiff City Council revealed that it had made a loss of pounds 1m-plus last year in managing its housing stock, after a new computer system failed to monitor spending.

Also in July, the Secretary of State for Scotland, Donald Dewar, intervened to close down the works departments of North Lanarkshire and East Ayrshire councils, which were running deficits between them of more than pounds 7m. In Lanarkshire, weak management had allowed 2,000 manual workers to earn more than pounds 20,000 a year each; one plumber earned bonuses of pounds 43,500 on top of his basic wage of pounds 10,600.

Meanwhile, in Liverpool, there have been a series of financial failures by the council's works departments. This led last week to a crisis meeting between Hilary Armstrong, the local government minister, and Mike Storey, leader of Liverpool Council. The Government has instructed the council to close its grounds maintenance department and award the contract to the private sector. The council is asking for a period of grace to transfer its parks into the hands of newly formed trusts, to award maintenance contracts to commercial businesses.

This year, 15 councils in England alone were told to take urgent action to stem losses on contracts awarded to in-house teams, usually called direct service organisations (DSOs), or sometimes direct labour organisations (DLOs). Under compulsory competitive tendering (CCT) legislation - to be replaced by potentially stricter new Best Value laws - DSOs must break even after putting aside 6 per cent of costs as a capital financing charge.

The Department of the Environment, Transport and the Regions argues that, with only 15 local authorities given notice to put right failures this year - and with just eight of these given further directions for failing to make sufficient progress - this is an improvement. Last year, 31 councils failed to hit their financial targets.

The Association of Direct Labour Organisations agrees. Nick Walkley, ADLO's principal adviser for Best Value, says: "They are not in as bad a mess as they appear, and it is resolvable. Things have gone wrong, but there is an opportunity for councils to put their own houses in order. Treatment of them has sometimes been heavy-handed. If you look at the number of DSOs in difficulty, it has gone down significantly over the last five or six years. There are a lot of good-performing DSOs: some can compete with the best of the private sector."

A different view is taken by their competitors. Cliff Davis-Coleman represents the Public Contractors' Association, and says: "DSOs are in this mess because the last government decided, for reasons best known to themselves, not to pursue them, and because these authorities, with the connivance of the Labour Party, were looking the other way. There is a certain irony that it is now a Labour government that is jumping all over them.

"It is going to create problems for Best Value. That is why the Government is talking about creating regional performance indicators, because many of these services have never been properly subject to market testing, and therefore there are no real benchmarks to test them against. It will take five years before these things are sorted out.

"These problems are widespread. I would say that two-thirds of local government has not looked at the costs in their DSOs since 1988."

Mr Davis-Coleman believes that the traditionally close relationship between trade unions and the Labour Party has led Labour-controlled councils to feather-bed their works departments, protecting them against competition. However, it is not only in Labour councils where DSOs have performed badly.

Surrey County Council has been Conservative-controlled for most of its history, except for a short period recently when it had no overall control. Yet Surrey's DSO, called Surrey Operational Services, was found to be illegally cross-subsidising its loss-making grounds maintenance division from its profitable waste disposal division. The managing director of Surrey Operational Services, Norman Allison - who has since died - was found to have falsified accounting returns to the council for three years.

Mr Allison was arrested and subject to a Serious Fraud Office investigation, which concluded that while he was guilty of improper accounting, it was not for personal gain, and that there was not sufficient evidence to prosecute him.

A report by Surrey's auditors, KPMG, concluded that the council would have saved pounds 27m if it had externalised its rubbish disposal service, though this is disputed by the authority.

Since the crisis in its DSO, Surrey has carried out major organisational reforms. This led to its externalising the grounds maintenance operation to the contractors Sita UK, and its highways construction division to Balfour Beatty, and it will transfer out its waste disposal service to the private sector later this year when it lets out a 25-year contract, for which the DSO will not be allowed to bid.

Surrey council has concluded that the game is up for DSOs. A spokesman, Tim Edwards, says: "Public sector companies simply cannot compete. The private sector can cross-subsidise. The illegal practice conducted by Norman Allison was no more than he would have done legally in the private sector. But he ran it as if it was his own private company, and as a result discredited a lot of legitimate DSOs."

The Association of Direct Labour Organisations, naturally enough, is less pessimistic. Nick Walkley, a spokesman, does agree, though, that DSOs cannot compete evenly with private sector contractors. A recent government White Paper indicates that councils will be empowered to enforce contract compliance on contractors, preventing their winning work by employing staff on worse conditions of employment. But ADLO also wants the Government to permit DSOs to carry out work outside their own areas, which they are prevented by law from doing. ADLO says the Government is currently dithering on whether to implement this change.

The risk is that if DSOs are unable to achieve economies of scale by winning more contracts, they will simply die slowly anyway.

Arts and Entertainment

photography
Arts and Entertainment
Adolf Hitler's 1914 watercolour 'Altes Rathaus' and the original invoice from 1916

art
Arts and Entertainment
Scare tactics: Michael Palin and Jodie Comer in ‘Remember Me’

TVReview: Remember Me, BBC1
Arts and Entertainment
Carrie Hope Fletcher
booksFirst video bloggers conquered YouTube. Now they want us to buy their books
Arts and Entertainment
Damien Hirst
artCoalition's anti-culture policy and cuts in local authority spending to blame, says academic
PROMOTED VIDEO
Arts and Entertainment
Jake Quickenden and Edwina Currie are joining the I'm A Celebrity...Get Me Out Of Here! camp
tvThe two new contestants will join the 'I'm A Celebrity' camp after Gemma Collins' surprise exit
News
The late Jimmy Ruffin, pictured in 1974
people
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment

ebooksNow available in paperback
Arts and Entertainment

ebooks
News
Northern Uproar, pictured in 1996
people

Jeff Fletcher found fame in 1990s

Arts and Entertainment
A scene from the new Paddington bear review

Review: Paddingtonfilm
Arts and Entertainment
Tony stares at the 'Daddy Big Ears' drawing his abducted son Oliver drew for him in The Missing
tvReview: But we're no closer to the truth in 'The Missing'
Arts and Entertainment
Henry Marsh said he was rather 'pleased' at the nomination
booksHenry Marsh's 'Do No Harm' takes doctors off their pedestal
Arts and Entertainment
All in a day's work: the players in the forthcoming 'Posh People: Inside Tatler'

tv
Arts and Entertainment
Eddie Redmayne plays Stephen Hawking in new biopic The Imitation Game

'At times I thought he was me'

film
Arts and Entertainment

books
Arts and Entertainment
One Direction go Fourth: The boys pose on the cover of their new album Four

Review: One Direction, Four

music
Arts and Entertainment
'Game of Thrones' writer George RR Martin

Review: The World of Ice and Fire

books
Arts and Entertainment
Sean Bean will play 'extraordinary hero' Inspector John Marlott in The Frankenstein Chronicles
tvHow long before he gets killed off?
Arts and Entertainment
Some like it hot: Blaise Bellville

music
Arts and Entertainment
A costume worn by model Kate Moss for the 2013 photograph

art
Arts and Entertainment

music
Arts and Entertainment
Len Goodman appeared to mutter the F-word after Simon Webbe's Strictly performance

Strictly
Arts and Entertainment
Jamie T makes his long-awaited return to the London stage
musicReview: Alexandra Palace, London
Arts and Entertainment
S Club 7 back in 2001 when they also supported 'Children in Need'
arts + ents
Arts and Entertainment
Sir Bruce Forsyth rejoins Tess Daly to host the Strictly Come Dancing Children in Need special
arts + ents
Arts and Entertainment
Jamie Dornan plays Christian Grey getting ready for work

Film More romcom than S&M

Arts and Entertainment
Keira Knightley and Benedict Cumberbatch star in the Alan Turing biopic The Imitation Game

Review: The Imitation Game

film
Arts and Entertainment
The comedian Daniel O'Reilly appeared contrite on BBC Newsnight last night

comedy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?

ES Rentals

    Independent Dating
    and  

    By clicking 'Search' you
    are agreeing to our
    Terms of Use.

    In a world of Saudi bullying, right-wing Israeli ministers and the twilight of Obama, Iran is looking like a possible policeman of the Gulf

    Iran is shifting from pariah to possible future policeman of the Gulf

    Robert Fisk on our crisis with Iran
    The young are the new poor: A third of young people pushed into poverty

    The young are the new poor

    Sharp increase in the number of under-25s living in poverty
    Greens on the march: ‘We could be on the edge of something very big’

    Greens on the march

    ‘We could be on the edge of something very big’
    Revealed: the case against Bill Cosby - through the stories of his accusers

    Revealed: the case against Bill Cosby

    Through the stories of his accusers
    Why are words like 'mongol' and 'mongoloid' still bandied about as insults?

    The Meaning of Mongol

    Why are the words 'mongol' and 'mongoloid' still bandied about as insults?
    Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

    Kenyans still waiting for justice over Mau Mau uprising

    Thousands join class action over Britain's role in the emergency
    Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

    The last Christians in Iraq

    After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
    Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Britain braced for Black Friday
    Bill Cosby's persona goes from America's dad to date-rape drugs

    From America's dad to date-rape drugs

    Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
    Clare Balding: 'Women's sport is kicking off at last'

    Clare Balding: 'Women's sport is kicking off at last'

    As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
    Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

    Oh come, all ye multi-faithful

    The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
    Dr Charles Heatley: The GP off to do battle in the war against Ebola

    The GP off to do battle in the war against Ebola

    Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
    Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

    Flogging vlogging

    First video bloggers conquered YouTube. Now they want us to buy their books
    Saturday Night Live vs The Daily Show: US channels wage comedy star wars

    Saturday Night Live vs The Daily Show

    US channels wage comedy star wars
    When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

    When is a wine made in Piedmont not a Piemonte wine?

    When EU rules make Italian vineyards invisible