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PAPER J Purpose: For Decision

Committee EXECUTIVE Date THURSDAY, 14 MAY 2015 Title PROPOSAL TO ENTER INTO A PARTNERSHIP WITH

PRIVATE SECTOR PLC FACILITATING LTD (PSPF) TO ASSIST WITH THE UTILISATION OF PROPERTIES

Report to EXECUTIVE MEMBER FOR RESOURCES

EXECUTIVE SUMMARY 1. To consider that the Council enters into a joint venture limited liability partnership (LLP)

with a private sector partner, Public Sector Plc Facilitating Ltd (PSPF).

2. PSPF is a company formed in 2007 between the Winston Group, the William Pears Groups and BVSF. PSPF works in partnership with authorities whereby the council brings to the partnership some of its property assets and PSPF bring technical, financial and legal resources to unlock the value of the property. The partnership requires no prior commitment or guarantee of work by the Council. It provides the Council with an additional option over and above those currently available to it with regard to the disposal, sale or use of its assets to maximise income and opportunity. The relationship brings funding opportunities which are not traditionally available and the formed LLP will be required to demonstrate its value to the Council before projects are agreed for delivery.

3. This approach is already operating successfully in places such as Bolton, Dudley, Dorset, Southend, Scarborough, Southampton and Warwick.

BACKGROUND 4. As one of the outcomes following the LGA Corporate Peer Challenge and Productivity

Plus work following the peer review, officers have been discussing with various LGA recommended experts ways in which the Council can maximise its property base to help support the Council’s objectives.

5. Part of these discussions have been with PSPF, who are a private company with strong local authority connections who specialise in enabling local authorities to maximise their land opportunities, have been in discussion with Council officers for a number of months. Given their background and experience and that this is to be a true partnership it is considered that this is a very unique proposal that only PSPF can offer.

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6. The proposal is that the Council and PSPF form a Limited Liability Partnership (LLP) with each owning 50% share of the intended LLP whose main purpose would be to: (a) Invest private sector funds in projects of mutual benefit;

(b) Facilitate comprehensive regeneration projects on the Island where appropriate

and the opportunity exists;

(c) Provide potential capital receipts and/or revenue income streams (over and above that which would normally be expected) for the Council from the ongoing development of surplus land and buildings (the Council would share net profits 50:50 with PSPF with the Council’s share exceeding existing anticipated return);

(d) Provide opportunities for any in-house surplus capacity to be deployed on

development projects, thus generating a further fee income opportunity; (N.B. This is unlikely for the Council, as there is no surplus capacity at present)

(e) Support the Council in its strategic review of its property portfolio, particularly in

relation to its service property holdings;

(f) The acquisition of private property by PSPF adjacent to Isle of Wight Council land holdings (or indeed other public sector land holdings) could facilitate an aggregation of sites for development purposes to deliver enhanced receipts; and

(g) Provide further tools to maximise the return from the Council’s land and property

portfolio, interests and potential interests.

7. A clear driver of this initiative would be the desire to review and establish alternative approaches in relation to the current disposals programme. This could be from a robust review of service properties within the service property portfolio. It is also suggested that as part of this discussions are held between the partnership and colleagues in other public sector organisations on the island (most notably the NHS and the Police) to see of other public sector owned land could be included in any detailed proposal.

8. In many cases the partnership may well be able to respond more quickly than the Council using normal development processes to market opportunities and drive greater value through its commercial approach. The LLP is a commercial entity and is capable of taking risks that a local authority might not. The LLP sits outside the Council and does not carry the balance sheet risks for it. It is essentially “Opening an Account” with entrepreneurs, who have the skills and resources to look at individual problems and make creative suggestions, and then implement them if agreed. It is an alternative to “Asset Backed Vehicles”.

9. Initially the LLP would focus on the service property portfolio and allow the Council to explore opportunities for sharing properties between service areas (and other public sector bodies where possible), improve service delivery by co-location of services, generate revenue savings, and generate capital receipts.

10. The risks of establishing the partnership and facilitating any subsequent projects will be met by the private sector partners although it would require input from existing staff resources within the property, finance and legal teams to set up the LLP initially. It is

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also worth noting that the Council will not be obliged to use the LLP should it choose not to do so, nor will it in any way be compelled to dispose of or transfer any assets to the joint venue company. All proposals, if they are to be taken forward, will be determined on the basis of unanimity between the public and private sector participants in the LLP and assets will only transfer when the necessary conveyancing documentation (usually preceded by an option agreement) is entered into.

11. The Council, in committing sites through an option agreement while they are investigated, would be limiting dealings on these sites for a period of time however the Council already enters into option agreements from time to time. Providing the initial feasibility results suggest it is worth progressing further, the risk in this respect should be limited.

12. Appendix 1 is a Prospect Review prepared by PSPF that sets out more detail as to how the partnership will work.

13. It is proposed that the LLP will be governed by an LLP Members’ Board, made of three Council members and three PSPF members. In parallel to this will be an Operations Board made of five Council officers and five PSPF directors. The Operations Board would have close links to the Council Management Team as well as the Council’s Capital Board.

14. Assuming the Executive adopts this approach then there will be a need to conclude the detail of the formal partnership documentation and a process to agree who will be the elected members on the Members Board. It is suggested that the Deputy Managing Director, in consultation with the Executive Member for resources be delegated to approve the final partnership documentation and that the members on the board be the Executive Member for Resources and a member from each of the largest groups on the Council and that these be nominated by the respective group leaders.

STRATEGIC CONTEXT 15. The proposed partnership fits well with the following 2 priorities of the council.

16. Priority 1 - Supporting Growth in the Economy, Making the Island a Better Place and

Keeping it Safe – in particular the desire (as set out in the Corporate Plan) to develop asset management strategies which support local communities where there is a demonstrable need and which also maximise the benefits to the council from holding an asset portfolio.

17. Priority 4 – Ensuring that all the Resources Available to the Island are used in the most effective way in achieving the Island’s Priorities – in particular this approach will help us maximise the income from our property portfolio, release additional capital funds for various necessary and desirable capital projects whilst identifying and enabling assets of community value to be utilised by the communities.

CONSULTATION 18. This proposal relates to the establishment of a partnership as a mechanism to deliver

outputs. At this stage there is no direct impact on any of our stakeholders and hence no external consultation is needed.

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19. Once established and when the partnership is considering specific landholdings of the

council then these proposals will be subject to the council’s usual consultation processes and these will be reflected in any final decision.

FINANCIAL / BUDGET IMPLICATIONS 20. At this point there are no direct financial costs as the costs of establishing the LLP are

met entirely by PSPF. Although there will be some indirect costs for the council (mainly officer time) in terms of the discussions to date and the discussions to the conclusion of the partnership if it is agreed.

21. The PSPF model is unique as it seeks to share net development returns 50:50 between the public and private sector partners. The basic premise of value created less costs (costs accounting for any facilitation fee) = profit = profit share is central to the proposition. The aim of the LLP is to generate value using Council assets which is above and beyond that which the Council would be able to generate itself. This could be achieved by, for example, the LLP acquiring assets and improving them, or changing their use. It should be noted that the Council’s existing asset value will be protected and it is only the value that is achieved above this figure that will be shared, after the deduction of the associated costs.

22. Once the partnership is established then the accounts of the partnership will be reported as part of the Council’s overall accounts.

23. There will be financial and budget implications for any specific projects that the partnership may wish to take forward. These will be detailed in the reports on those specific proposals as they emerge.

LEGAL IMPLICATIONS 24. It is considered that the Council has the legal powers to enter into a limited liability

partnership, under the general power of competence of section1 Localism Act 2011, or under the general incidental power of s111 Local Government Act 1972. While the power of the Council to enter into an LLP is not expressly stated in the legislation (and indeed the general power of competence refers to companies as being the vehicle through which local authorities should operate commercially), the thrust of the general power of competence is to empower local authorities to have the same powers as an individual person, and importantly there is no express prohibition on a local authority entering an LLP. There are already a number of existing LLPs involving local authorities.

25. A limited liability partnership is a corporate entity in which two or more partners agree to go into partnership with a view to making a profit. LLPs are regulated by legislation in the same way as for a company, an LLP must file annual accounts and details of membership with Companies House. In an LLP the members (and the individuals appointed to represent the members) have the benefit of limited liability - that is, protection from personal liability for any debts or claims made against the LLP, provided they act within the powers of the constitution of the LLP.

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26. To enter into this proposed LLP it will be necessary to enter into a binding partnership agreement with PSP Facilitating Limited. This partnership agreement, commits both parties to a number of obligations in terms of establishing management and decision-making structures, but it does not commit the Council to make any financial commitment to the LLP.

27. Entering into the LLP does not give rise to any EU procurement implications since there are no works or services contracts being awarded through establishing the LLP. The LLP will be dealing with property disposals which will be dealt with in accordance with section 123 of the Local Government Act 1972 which places a duty on the council not to dispose of land for a consideration less than the best that can reasonably be obtained. When considering value, this can include things that have a commercial or monetary value.

28. The council will retain control over its assets, determining which assets should be disposed of via the LLP.

29. Legal and financial checks on the Partnership Agreement and associated documents will be completed to support the Deputy Managing Director and Executive Member for Resources before the documentation is completed.

EQUALITY AND DIVERSITY 30. The establishment of the partnership does not in itself contain any equality and

diversity issues. But again once individual projects are identified then the equality and diversity impacts of these will need to be assessed and taken into account when they are considered by the Council.

PROPERTY IMPLICATIONS 31. There will be direct property implications once individual projects are identified and

progress, but at this stage, as the paper is about establishing the partnership there are no direct property implications.

OPTIONS 32. The Executive could choose not to enter into the proposed partnership.

33. Alternatively the Executive could agree to enter into the partnership and in so doing:

(a) That the creation of a limited liability partnership (LLP) between the Council and

Public Sector Plc Facilitating Limited (PSPF) be approved;

(b) That the final terms of the necessary agreements be agreed by the Deputy Managing Director, following consultation with the Executive Member for Resources;

(c) That the Council representation on the Members Board be the Executive Member for Resources and one member from each of the largest groups on the council to be determined by the respective group leaders;

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(d) That it be noted that the LLP will be an additional option for the Council to use to deal with its property portfolio; and

(e) That it be noted that further reports will be submitted to the Executive in respect of relevant proposals to pursue a property related project through the LLP.

RISK MANAGEMENT 34. The risk of not entering into this partnership is that the Council, and indeed the Island,

will not maximise some of the property benefits that could be achieved by such an approach (as has been demonstrated in other areas that have entered into such a partnership).

35. The main risk of entering into the partnership is that the envisaged benefits do not accrue to the Council. This will be mitigated by the council being part of both the member board and the operational board, as well as all proposals being considered by the Executive before they are progressed. Thus any such risks will be managed and will be fully understood. In the partnership the Council will still retain the ownership of its property assets and hence will not jeopardise its long term position without understanding the full implications of doing so.

EVALUATION 36. Given the Council’s overall financial situation and the objectives as set out in the

Corporate Plan the proposed partnership offers a significant route by which the property assets of the Council can be maximised for the benefit of the Council, the community and service users, and uniquely without the Council losing control of its assets (unless it ultimately chooses to do so).

37. The benefits from any scheme that does progress through the partnership will be shared equally between the Council and PSPF, this is a key difference to traditional land deals whereby the developer tends to make a one off payment but retains all future benefits.

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RECOMMENDATION 38. That the Executive agree to enter into the partnership and in so doing:

(a) That the creation of a limited liability partnership (LLP) between the Council and

Public Sector Plc Facilitating Limited (PSPF) be approved; (b) That the final terms of the necessary agreements be agreed by the Deputy

Managing Director, following consultation with the Executive Member for Resources;

(c) That the Council representation on the Members Board be the Executive Member for Resources and one member from each of the largest groups on the council to be determined by the respective group leaders;

(d) That it be noted that the LLP will be an additional option for the Council to use to deal with its property portfolio; and

(e) That it be noted that further reports will be submitted to the Executive in respect of relevant proposals to pursue a property related project through the LLP.

APPENDICES ATTACHED 39. Appendix 1- Isle of Wight Prospect Review Report 2015. Contact Point: Chris Mathews, Strategic Manager for Organisational Change and Corporate Governance, 01983 821000 e-mail chris.mathews@iow.gov.uk

JOHN METCALFE Deputy Managing Director

COUNCILLOR IAN STEPHENS Executive Member for Resources