Committee and date Cabinet 26 th June pm. Strategic Contract between Shropshire Council and ip&e Ltd

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1 Committee and date Cabinet 26 th June pm Item No 12 Public Strategic Contract between Shropshire Council and ip&e Ltd Responsible Officer: Clive Wright Telephone: Summary The strategic contract sets out the basis for the relationship between Shropshire Council and its wholly owned company, ip&e. It sets out requirements for key aspects of business operation including proposals to transfer council business areas and financial and business planning requirements on the company. This report updates cabinet on progress since its agreement to approve a draft strategic contract and ip&e business plan on 20 February 2013 and seeks agreement to the finalised version. Advice has been taken to determine how best to protect the Council and maintain ip&e s Teckal status into the future, whilst allowing it to trade in the best way possible to suit the business needs. Also appended to the report is an Executive Summary of the finalised business plan for ip&e Ltd as approved by their Board. Recommendations That Cabinet agrees the strategic contract between Shropshire Council and ip&e Ltd That Cabinet notes the Executive Summary of the Annual Business Plan prepared by ip&e That delegated authority is given to the Chief Executive Officer in consultation with the Leader to establish a Trading Company, operating in parallel to ip&e Ltd. 1

2 That delegation is given to the Chief Executive Officer and Portfolio Holder to approve amendments made by ip&e to the Business Plan during the year, to ensure it is always current and able to be monitored. That approval is given to allow the relevant Portfolio Holder to agree and approve the specification and any subsequent contracts between the Council and ip&e for all transferring services, with Financial Implications approved within the Financial Strategy. Report 1. Risk Assessment and Opportunities Appraisal 1.1 The creation of ip&e Ltd has been approved by Cabinet and Full Council. The governance arrangements set out in the strategic contract are designed to manage the financial and reputational risk to the Council by ensuring ip&e Ltd operates effectively and within the law. 1.2 At the commencement of this Agreement, ip&e will benefit from the Teckal exemption meaning that there will be no need for formal procurement by the Council for contracts that it awards to the company. 1.3 A Trading Company will also be created to enable services to be provided to third parties, which, if undertaken by ip&e directly would affect ip&e s Teckal status and therefore prevent the Council awarding contracts directly to ip&e without a procurement process. 2. Financial Implications 2.1 The Council agreed in May 2012 that in order to achieve its strategic outcomes and deliver the medium term financial plan, it must be able to commission outcomes differently, to trade in order to gain new sources of income and partner with others to reduce costs and increase effectiveness. 2.2 Throughout 2012/13, the Financial Strategy recognised the potential benefits of ip&e but no financial implications were established. In the Financial Strategy final report in February 2013, a separate Appendix identified clearly that before any business areas are transferred to ip&e a clear understanding of any financial impact would be achieved. The Council s starting point would be that any transfer should not have any adverse effect on the Council s remaining budgets and that any service contracts between ip&e and the Council should reflect the Council s projected financial position going forward, i.e. reducing resources. 2.3 As business areas are identified for potential transfer to ip&e, a robust process has been established to ensure an accurate understanding of the service budget including income streams and interdependencies with other Council budgets. Further to this process, as business area transfers are recommended for approval the financial implications will be clearly identified 2

3 and included in the Council s Financial Strategy. This would include a financial appraisal of the impact on the residual council. 3. Background 3.1 A report went to Cabinet in February 2013 approving a draft Strategic Contract and considering the draft Business Plan for ip&e. The report indicated that the final Strategic Contract and Business Plan would then come before Cabinet in the summer. 3.2 The Strategic Contract is the mechanism for managing the relationship between the Council and Company at a strategic level. It enables the Council to place expectations and requirements on ip&e, determine how business will be transacted and how, if necessary, the contract could be terminated by the Council. 3.3 The February report indicated that advice was being taken to determine how best to protect the Council and maintain ip&e s Teckal status into the future, whilst allowing it to trade in the best way possible to suit the business needs. 4. Strategic Contract 4.1 The agreement includes the following key components in order to effectively regulate the relationship between Shropshire Council and ip&e: Enabling Services Giving both the Company and Council the opportunity to bring ideas forward for new ways of working for example in respect of local commissioning. Annual Business Plan Requiring submission of a plan setting out company strategy, key deliverables, financial information and other key matters (Executive Summary - Appendix A) Performance and Financial Reviews Providing an expectation for monthly financial and quarterly financial reviews and an annual joint review to the Council with appropriate safeguards. These will enable any necessary corrective action to be initiated. General provisions These govern dispute resolution, termination arrangements, requirements to respond to Freedom of Information requirements, and Intellectual Property. It also covers issues around data protection, indemnities, publicity and audit access. 4.2 Attached schedules cover the following issues in more detail: 3

4 Schedule 1: Reserved Decisions Schedule 2: Annual Business Plan (its content) Schedule 3: Employment and Pensions (concerning arrangements for transfer of staff, subcontractors and pensions) Schedule 4: Council s policies (requiring ip&e to comply with agreed specified council policies such as the Equality Strategy) Schedule 5: Expert Determination Procedure (arrangements for involving experts in the event of any dispute resolution) 4.3 All services transferring to ip&e will require a specification and contract to be drawn up by the appropriate officer commissioning the service, and this will be agreed and approved by the relevant Portfolio Holder for that area. 5. Annual Business Plan 5.1 The report that went to Cabinet in February 2013 indicated that ip&e's final Business Plan would come back before Cabinet in the summer. The Business Plan, prepared by ip&e, sets out the intention of ip&e for the forthcoming year. 5.2 Each individual proposal for transfer will be considered individually by Cabinet, through the production of a Business Case by ip&e. 5.3 Ip&e's Business Plan is classed a 'live' document and as services are identified and approved for transfer, the Business Plan will be updated. 5.4 That delegation is given to the Chief Executive Officer to approve amendments, made by ip&e, to the Business Plan during the year, to ensure it is always current and able to be monitored. 5.5 A full Business Plan is contained within Item 15. This information is considered to be commercially sensitive and therefore exempt and not for publication by virtue of Category 3, paragraph 10.4 of the Council s access to information procedure rules. 6. Teckal Considerations and a Trading Company 6.1 The ip&e structure is based on it qualifying as a Teckal company - a company that is controlled by an authority with which it does the essential part of its business, meaning that the controlling authority can award contracts to it without an open procurement process. 6.2 Where ip&e s business development could involve trade with third parties, either because of the transfer of work which the Council already undertakes for external bodies, or through ip&e growing its business outside the council, there is a risk that the accepted thresholds of the Teckal principle could be exceeded and thus be open to legal challenge. 4

5 6.3 To mitigate against this risk, it s recommended that a parallel trading company [Trade Co] be set up, with the same legal company structure as ip&e with the Council as its sole shareholder. Its Articles of Association will provide for the Council to have rights of appointment to the Board, again mirroring arrangements for ip&e. It will have separate management arrangements and Board, albeit with the same Managing Director and separate funding arrangements with the Council. 6.4 Service areas could transfer direct to TradeCo where appropriate, but in practice it could be difficult when transferring services to separate the staff and resources for those elements that are traded externally from those which will provide services to the Council. In this instance the Council could transfer all staff and resources to ip&e and also commission ip&e to support Trade Co to provide the services to the third parties by assisting TradeCo with the provision of the necessary staff, information and materials. 6.5 There may also be circumstances where a contract with a third party that can t be carried out by ip&e isn t dealt with by TradeCo and in those instances the council will use other options depending on the circumstances of the service area for transfer. List of Background Papers: Draft Strategic Contract vs 6 Cabinet Member (Portfolio holder): Cllr L Chapman Local Member: All Appendices: Appendix A: Business Plan Executive Summary Appendix B:Strategic Contract 5