Decision Maker: Cabinet Procurement and Insourcing Committee

Outcome: For Determination

Is Key Decision?: Yes

Is Callable In?: Yes

Date of Decision: March 24, 2025

Purpose:

Content: RESOLVED:   a)  Approve the variation to the Leisure Management Contract (“the Contract”) between the Council and Greenwich Leisure Limited (“GLL”), for GLL to run the leisure centres as an agent rather than a principal for the remainder of the Contract term and to extend the Contract’s term by 5 years to 31 March 2034 (based on Options 2A or 2B outlined below);   b)  Approve the variation to the Contract between the Council and Greenwich Leisure Limited, so the operation of Clissold Park Splash Pad is formally included in the Contract;   c)  Approve the variation to the Contract between the Council and Greenwich Leisure Limited, to update the Classification of Maintenance so it reflects recent changes that have been made to the facilities; and   d)  Delegate authority to the Group Director - Climate, Homes & Economy in consultation with the Group Director - Finance and Resources and the Director - Legal, Democratic & Electoral Services to agree the terms of and enter into all necessary legal documentation in relation thereto.   Reasons For Decision   5.1   Leisure Management Contract - Contract Variation   5.1.1   The Council commenced the Contract with GLL on 1 April 2009 for a period of 15 years, after being in an interim arrangement with them since 2005. The Contract was extended in 2016 until 31 March 2029, as part of a wider renegotiation, which now means under normal circumstances that the management of the Council’s sports and leisure facilities is delivered at nil cost to the Council (excluding costs associated with meeting landlord maintenance responsibilities for the sports and leisure facilities).   5.1.2  Over the last twenty years, the partnership with GLL has significantly improved sport and leisure provision in the borough, transformed the financial performance of the sports and leisure facilities and has also resulted in a strong and trusted relationship developing between the two organisations.   5.1.3  A change to HMRC VAT policy in 2023 in relation to leisure services, provided the Council and GLL with an opportunity to implement an arrangement, the ‘Agency Model’, with benefits to both parties by way of reduced costs, whilst protecting the Council’s risk position.   5.1.4  Following the CPIC decision on 6 January 2025, the Council has reached agreement with GLL on the terms for the implementation of the Agency Model / Agreement (as outlined in the attached Exempt           Appendix 1 to this report).   5.1.5  However, as part of the negotiations with GLL, four alternative and potentially attractive options for the Council have also been put forward for it to consider. The new options presented by GLL offer the Council more financial certainty for the Contract, at a time of significant financial uncertainty - presenting a choice between more certainty (with further financial protection if there is over performance) for the next 7 or 9 years or the unknown potential of the surplus share until 2029 and / or a new contract procurement:   ·  Option 1A & 1B: In Option 1A, in return for extending the Contract under the Agency Model / Agreement by 3 years to 31 March 2032, GLL proposes that from 2025/26 to the end of the extended contract it will guarantee the annual payments outlined in the attached Exempt Appendix 1 to this report to the Council.   In Option 1B, in return for extending the Contract under the Agency Model / Agreement by 3 years to 31 March 2032 and the Council committing to providing alternative temporary health & fitness provision during the closure of Kings Hall Leisure Centre, GLL proposes that from 2025/26 to the end of the extended contract it will guarantee the annual payments outlined in the attached Exempt Appendix 1 to this report to the Council.   In both options, the Kings Hall Leisure Centre adjustment from 2030/31 assumes the closure of the facility in September 2025 and the full re-opening of the facility (following refurbishment by the Council) from October 2028. Should this change, the adjustments in 2030/31 and 2031/32 will be delayed and start when Kings Hall Leisure Centre reaches a mature year (the year following 18 months of operation).   Any financial over performance of the Contract will be shared with the Council as it currently is via the existing Surplus Share mechanism.   The guaranteed payments outlined in the attached Exempt Appendix 1 to this report and the existing surplus share thresholds would be subject to inflationary increases based on the existing Contract clauses. The first inflation increase would be applied on 1 April 2026.   ·  Option 2A & 2B: In Option 2A, in return for extending the Contract under the Agency Model / Agreement by 5 years to 31 March 2034, GLL proposes that from 2025/26 to the end of the extended contract it will guarantee the annual payments outlined in the attached Exempt Appendix 1 to this report to the Council.   In Option 2B, in return for extending the Contract under the Agency / Model Agreement by 5 years to 31 March 2034 and the Council committing to providing alternative temporary health & fitness           provision during the closure of Kings Hall Leisure Centre, GLL proposes that from 2025/26 to the end of the extended contract it will guarantee the annual payments outlined in the attached Exempt Appendix 1 to this report to the Council.   In both options, the Kings Hall Leisure Centre adjustment from 2030/31 assumes the closure of the facility in September 2025 and the full re-opening of the facility (following refurbishment by the Council) from October 2028. Should this change, the adjustments in 2030/31 and 2031/32 will slip and start when Kings Hall Leisure Centre reaches a mature year (the year following 18 months of operation).   Any financial over performance of the Contract will be shared with the Council as per the existing Surplus Share mechanism.   The guaranteed payments outlined above and the existing surplus share thresholds would be subject to inflationary increases based on the existing Contract clauses. The first inflation increase would be applied on 1 April 2026.   5.1.6  The proposed Options transfer most of the financial risk of generating surpluses to GLL and provide an assurance to the Council that proposed savings from the Contract will be achieved. The Council still benefits should significant surpluses be generated via the existing surplus share mechanism.    5.1.7  The Council now needs to determine how it wishes to proceed with the implementation of the Contract Agency Model / Agreement.   5.1.8  In addition to the above, it is proposed to use this opportunity to address a number of other minor amendments that are required to the Contract. These include:   ·  A variation to the Contract so the operation of Clissold Park Splash Pad is formally included - with the additional costs being met from the Council’s surplus share as they are currently; and   ·  A variation to the Contract to make minor updates to the existing Classification of Maintenance, Repair and Replacement Responsibilities so it reflects recent changes that have been made to the facilities i.e. the new Britannia Leisure Centre.     Alternative Options Considered and Rejected   5.6.1  The following alternative options have been considered and rejected for the reasons outlined below:   a)  Do nothing: GLL would continue to operate the Council’s leisure facilities for the remaining 5 years of the current Contract i.e. up to 31st March 2029, at nil cost to the Council. However, the Council would not benefit from the significant financial savings to be achieved from implementing the ‘Agency Model’ or the guaranteed annual payments from GLL as outlined in the Exempt Appendix 1 to this report.   The delivery of the Kings Hall Leisure Centre refurbishment at the same time as procuring a new leisure management solution from 2029 would present significant resourcing challenges for the Council that need to be carefully considered.   In addition, the refurbishment of Kings Hall Leisure Centre is due to be completed in September 2028, if everything goes according to the current programme. This would mean that GLL would be opening the new facility with only six months of the existing Contract remaining - a less than ideal situation, particularly if GLL has been informed at this point that they didn’t win the tender for the new contract (this would have to be announced at a minimum of six months prior to the end of the Contract to allow adequate mobilisation time for a new operator). This challenge would be exacerbated further if the Kings Hall Leisure Centre refurbishment programme was delayed in any way beyond September 2028.   b)  Termination of the current contract and procurement of a new operator: Termination of the current Contract was considered but rejected as an option for the following reasons:     I.  The operational and financial performance of the incumbent operator (GLL), together with service improvements over the years, would not support termination on the grounds of deficiencies in quality or service provision;   II.  The potential risk of legal challenge by GLL due to the early and potentially unsubstantiated termination of the Contract;   III.  The financial implications of compensation payments to GLL for early termination of the contract; and   IV.  The risks associated with the appointment of a new and essentially unknown leisure operator, together with the additional and unbudgeted procurement costs.   c)  Implementation of Agency Model / Agreement Only: At its meeting on 6 January 2025, the CPIC approved a variation to the Contract between the Council and GLL, for GLL to run the leisure centres as an agent rather than a principal for the remainder of the current contract term. The Council has reached agreement with GLL on the terms for the implementation of the Agency Model / Agreement (as outlined in the attached Exempt Appendix 1 to this report). However, the financial benefit of implementing the Agency Model / Agreement isn’t guaranteed.   In addition, the factors relating to the Kings Hall Leisure Centre refurbishment outlined above in a) would not be addressed.   d)  Implementation of Agency Model / Agreement with 3 year Contract extension: Implementation of the Agency Model and extending the Contract by 3 years to 31 March 2032 for a guaranteed annual financial payment from GLL to the Council (as outlined in the attached Exempt Appendix 1 to this report) was considered. However, given the financial challenges currently facing the Council and the refurbishment of Kings Hall Leisure Centre taking place (subject to planning permission), a longer guaranteed annual payment period is considered more attractive.   5.6.2  As this is an existing long term contract and the proposed Agency Model / Agreement implementation with a Contract extension will secure guaranteed savings for the 2025/26 financial year and ongoing until 2033/24 (as outlined in the attached Exempt Appendix 1 to this report), without adversely affecting the on-going delivery or quality of service to local residents, no further options were explored.