Here's how Cambridgeshire County Council was persuaded to allow lucrative commercial contracts to be awarded to FACT - even though procurement rules were broken
PUBLISHED: 15:32 27 July 2018 | UPDATED: 15:32 27 July 2018
A 288 page report by forensic accountants PKF Littlejohn for Cambridgeshire County Council into the March based Community Transport triumvirate FACT, HACT and ESACT (hereafter FHE) lifts the lid on the lack of scrutiny and disregard to procurement regulations that went on for many years.
The first striking thing about the report is the chronicling of the breadth and scale of FHE manager Joe Philpott’s negotiations that secured hundreds of thousands of pounds worth of grants, on the grounds that they would support the transport needs of the elderly and disadvantaged in remote rural areas.
In reality – while domestic services for the needy were carried out – Ms Philpott secured a vast and growing number of lucrative commercial transport contracts from Cambridgeshire County Council.
When FACT took over the running of the struggling Huntingdonshire based Nene and Ouse community bus group in 2013 she threatened to withdraw key community transport services. The new organisation was called HACT (Huntingdonshire Association for Community Council) and straightway it was awarded nine commercial contracts from the county council worth £250,000 per year without having to go to tender and without any advertising to other potential bidders.
Over the last few years the Cambridgeshire Bus, Coach and Taxi Association (CBCTA) has repeatedly pointed out that the generous (and largely unapproved) grants and commercial contracts have mostly funded not community transport but the rapid growth of a fleet of minibuses used to service commercial contracts.
At the same time demand for community transport services (FHE’s raison d’être), has remained more or less static.
FACT and HACT had 33 more vehicles at the end of 2016 than three years earlier. These are net increases, so taking disposals into account actual purchases will be correspondingly higher.
A cursory look at the modest surpluses of income over expenditure make it unclear where HACT and FACT found the funds to make that sort of net increases to their fleet (£241,000 additions in 2016 for FACT alone).
The second striking theme in the report is how funding and commercial contracts were effortlessly secured by FHE, with little or no evidence of going through a formal or transparent procurement process. Where the authorities do not deny the procurement rules were overridden, documents are unavailable and records have gone missing.
The PKF report shows there is no formal audit trail for the set-up funding for HACT or Ely based ESACT (£202,000 and £86,000 respectively). The county council was responsible for drawing up the grant application documents but one is missing and the other unsigned.
The £202,000 set up payment to HACT in 2013 was paid on March 26, 2013, two days before it was registered with the Charity Commission.
The £85,923 set up payment for ESACT appears nowhere in Cambridgeshire County Council’s supplier spend data, nor is any evidence held of authorisation for ESACT’s start-up funding by the Cambridge Future Transport Governance Group or the council leadership.
There is also no grant agreement or a loan agreement for the £20,000 working capital loan within the seed funding that was supposed to be paid back. Quentin Baker, the county council’s former director of law (he quit suddenly in May) is shown in the report to have warned county council officers about the likelihood of funding being in breach of state aid regulations. His warnings were apparently ignored.
PKF prints a copy of an email in which Mr Baker set out the risks facing the county council in short cutting procurements and also threw into the mix the possibility of a legal challenge and judicial review.
In one part he warns of a “risk of loss of reputation” if word got out that commercial contracts for HACT had been automatically extended without going out to tender.
And he also questioned whether the county council was going against the principles of “competition, transparency and clarity” which were part of an EU directive on procurement.
PKF’s report suggests that LGSS lawyers overseeing the county council’s contracts with the FHE had little or no idea of the state aid rules applicable.
The county council’s community transport officer is also shown to have been unaware of the auditing requirements for FHE.
He told investigators he read the FHE annual accounts but admits to not being experienced in interpreting them.
He also told PKF he did not know how to check for cross subsidisation (grant money for community transport services being diverted to support commercial activity).
PKF also reveal that the county council, in contravention of the annual grant agreements, failed to receive budgets or action plans from FACT or HACT, did not undertake an annual review nor have sight of the statistics required by the agreements are provided.
Many of the issues raised in the PKF report have been highlighted repeatedly in Cambs Times articles going back to 2012 – each time councillors and officials and crucially FHE itself has denied any wrong doing.
There will be much now for the county council to inspect – not least the awarding of contracts to that were labelled ‘emergency’ and so therefore outside normal procurement rules whereas in fact PKF has shown they weren’t.
Senior county council officials from the top down (former chief executive Mark Lloyd declined to even respond to a comprehensive report handed to him by this newspaper four years ago) failed to take any action for years on serious abuses of the contract procedure rules.
Councillors have been aware of CBCTA’s campaign for several years and have received stark evidence of the alleged irregularities on numerous occasions.
It raises uncomfortable questions about scrutiny and accountability under the government’s localism policy.
The FHE business model has clearly been extremely successful.
But as PKF has confirmed the community transport empire created by Ms Philpott and her board of management – many of them ironically local councillors -will face inevitable challenge.