South Kesteven District Council - Transfer of leisure service to council

The council had previously assessed the leisure management options on the expiry of its leisure contract, and had decided to extend the contract in place for a period of 15 months in order to procure a new contract arrangement. As a result of COVID-19 this position proved unviable, as the council were providing significant financial support to their contractor, and a procurement during the pandemic was not likely to produce a beneficial result. The council therefore reassessed the options available, and as a result Cabinet agreed to transfer the leisure service to a wholly-owned council company called LeisureSK Ltd.

The challenge

The council had originally decided to procure a new leisure contract arrangement which would generate an income for the council and transfer the financial and operational risk to the new contractor.

To allow sufficient time for the necessary procurement, the council had agreed in principle to extend their current contract arrangement for a period of fifteen months.

The impact of COVID-19 resulted in the council being responsible for the operational deficit of their leisure provider, with very little operational control over how the facilities. This was not a sustainable position for the council, especially as a deficit funding arrangement would most likely be required for the whole of the contract extension period.

In addition to this, the council had received intelligence from the market that a leisure contract procurement at that time was unlikely to result in a positive outcome. Many procurement opportunities were either being withdrawn as a result of little or no interest from bidders.

The option to transfer the leisure service to a local authority trading company had previously been discounted, mainly due to the costs involved in setting up the company. In addition, under such an arrangement the financial risk would remain with the council as the owner.

The council has four leisure facilities across the District, all of which require investment. In addition to the work being undertaken to secure a future management arrangement for the facilities, the council were also progressing feasibility work to identify a programme of redevelopment and refurbishment of its leisure stock.

The solution

The council revisited the leisure management options appraisal that had previously been carried out to identify what alternative options were available. Given the circumstances at that time the most favourable option was to establish a Teckal company to manage the leisure facilities.

Given the impending end of the leisure contract, the council had only four months to fully establish LeisureSK Ltd and for the company to be operationally capable. This work included the establishment of the company, developing a business plan together with appropriate governance and structure arrangements, embedding policies and procedures, and arranging for the transfer of the existing staff under TUPE regulations.

The Teckal status of LeisureSK Ltd allowed the council to directly award the leisure contract to the company, therefore negating the need for a lengthy procurement process. In addition, as the staff were transferred under TUPE to the local authority trading company, this removed the risk around additional salary and pension costs, which has also future proofed the council’s position if a decision is made to outsource the service at a later date.

This arrangement has also provided the council with time to complete the leisure feasibility work, and to develop an investment plan and timeline for the necessary improvements. This may also provide the council with an improved outcome if a leisure contract procurement is undertaken in the future.

The impact

A five-year financial plan has been developed for LeisureSK Ltd which has demonstrated that, although the company will still require a significant amount of financial support from the council for the first year, this is projected to be less than the deficit funding that was being provided under the previous contract arrangement.

The enhanced level of funding that LeisureSK Ltd will require from the council in year one is as a direct result of the ongoing impact of COVID-19. If the leisure centres recover in line with the business plan, the service is projected to provide a surplus for the council from year two.

How is the new approach being sustained?

The business plan for LeisureSK Ltd, which was agreed by council, clearly sets out the annual subsidy or surplus that is anticipated.

The council have appointed a Board of Directors who are responsible for providing strategic direction to LeisureSK Ltd. The Board also monitor the company’s financial and operational performance against the leisure contract which has been entered into by the council and LeisureSK Ltd.

The council’s leisure team are responsible for performing the client role and are tasked with ensuring the council achieves the value for money and level of service envisaged as part of the relationship.

Lessons learned

The project had the full endorsement of the Leader, Deputy Leader and Chief Executive. This proved invaluable in pulling together the resources required to undertake the significant amount of work involved within the four-month timeframe.

A further key to achieving this was the establishment of a cross departmental project team which included colleagues from finance, legal, IT, HR, and property. A detailed mobilisation plan was developed which clearly mapped out the tasks required to be undertaken and the timeframe. This was accompanied by a risk register which detailed any project risks and mitigating actions, and a communications plans which set out how the council would engage with all stakeholders, the media and the leisure centre staff.

Early engagement with the staff involved in the TUPE transfer also proved vital, resulting in them being positive about the new arrangement and the transfer to LeisureSK Ltd. As there were a significant number of staff involved this was especially challenging, given the social distancing guidelines in place, and the impact of a further national lockdown. Different methods of communicating with staff had to be developed, on-line meeting platforms were utilised, and staff champions were elected to ensure an effective two-way flow of information between the council and the staff involved.


Karen Whitfield