Repairs and Maintenance

15 Jan

This morning Newham Council published the papers for its extraordinary meeting next week on the mismanagement of the repairs and maintenance service.

Anyone who takes the trouble to read the report will be appalled by the scale of financial and project mis-management, which has resulted in a loss of AT LEAST £8.78 million.

The vast majority of this was in the RMS Highways Services, in particular after it started to undertake the work on the Council’s Keep Newham Moving programme in early 2016. Poor practice was also found in other areas, but RMS was – overall – financially viable; the £8.78M overspend was caused by using external contractors to deliver the Keep Newham Moving programme at a higher cost than the price agreed with RMS.

Keep Newham Moving was one of the previous mayor’s flagship initiatives, supposedly a ‘prudent investment’ of the council’s resources to improve the lives of residents. It was a ten year, £100million capital programme to “improve the quality of roads, footways and street lighting in Newham…”

The council decided to put the work through RMS, on the grounds that this would deliver “efficiencies of around 25-30% as compared to the previous contractor.”

Clearly, this was a risk, but it was agreed that a Risk Register (a common tool in project management) would be compiled with the Cabinet Member for Building Communities, Public Affairs, Planning and Regeneration (Cllr Ken Clark) and the Mayoral Adviser for Environment & Leisure (Ian Corbett, who is no longer a councillor). This would be monitored and updated throughout the life of the project.

So £100 million was allocated to RMS despite there being no evidence they could manage the work and no serious assessment of how they could outbid Conways by 30%. It turned out they couldn’t:

[The] significant overspend of £8.78m was a result of RMS under-pricing its Keep Newham Moving Highways activity and then failing to manage contractor costs resulting in increased capital costs to that originally budgeted for. This was a very serious and significant mismanagement of public money. None of the investigations found sufficient evidence of criminal activity to bring proceedings but the Council remains willing to consider any further evidence brought to its attention.

The report describes how RMS managers avoided proper financial controls by splitting invoices so they fell below the procurement threshold and within the level of authority granted under the Scheme of Delegation. The accounts were seriously misrepresented, so that it appeared RMS was making a profit, when in fact it was running a substantial loss.

It is worth noting that although RMS was an in-house service it was being considered for outsourcing under the previous administration’s Small Business Programme or (CSSB, as it was known). This programme looked to outsource Council services into Council-owned companies.

RMS operated with significant autonomy over the management of its accounts, payments to staff and contracting with external businesses ostensibly for it to work on a “commercial” basis as part of Mayor Wales’s CSSB outsourcing programme.

Whether their ability to operate in this fashion was explicitly supported or encouraged by very senior officers and by a Mayor / Cabinet member decision or whether it simply evolved through weak internal controls is unknown. It is also possible that this was an element of the CSSB outsourcing programme encouraging services to begin to operate with a more commercial mind set as they were progressing towards outsourcing.

On 2 February 2017, approval was given by Mayor Wales to outsource RMS following an options appraisal. This was later suspended and RMS didn’t rejoin the programme. Rokhsana Fiaz abolished the CSSB programme following her election in May 2018.

Timeline

  • 2011 RMS was brought in-house. It carried out repairs to Newham’s housing stock. 
  • 2014 (Oct) RMS started taking on highways work from external company Conways on a two year pilot (no evidence of evaluation/review of pilot being carried out)
  • 2016 (Feb) Cabinet commits to (mainly) borrow £100m to ‘Keep Newham Moving’ delivered by RMS which it states is 25/30% cheaper than Conways. Cllr Clark and Corbett are lead members and named as agreeing and monitoring risk register (this is before two year pilot due to end)
  • 2016 to 2018 RMS is unable to deliver work itself and is subcontracting out work resulting in it being charged more than they were receiving per job (and definitely not making 25/30% savings)
  • 2017 RMS misrepresents 2016/17 accounts
  • 2017 (June) Whistleblowers make allegations, resulting in an internal investigation
  • 2017 (July) External auditors (Mazaars) appointed
  • 2017 (Aug and Dec) Mazaars reports does not find any criminal fraud
  • 2018 (Jan) QC advises insufficient evidence to meet criminal fraud
  • 2017/18 RMS overspent by £8.748m in 2017/18 accounts (in highways contracts; housing repairs is profitable)

So, where in all of this was the Audit Board?

In the 2017/18 financial year RMS was only discussed once. As appendix 1 (Chronology) makes clear, requests by councillors for an update were regularly fobbed off. Finally, inNovember 2017

Briefing and documents presented by internal Audit in closed session [of the Audit Board]. Chair LH [Lester Hudson] declined requests for further discussion at meeting. Concerns raised and recorded in minutes by Cllr’s Paul and Fiaz that item could not be debated

Lester Hudson was both Cabinet member for Finance and, simultaneously, chair of audit board. This is generally not regarded as best practice in local government finance.

Audit Board finally got to discuss RMS in March 2018 and the minutes have now been published, with some redactions to protect whistleblowers. They show councillors were absolutely furious about what had gone on. As a footnote to the minutes notes

At this stage in the proceedings, Cllr Paul resorted to expletives and offensive language to underscore the point he was making, informing the clerk he could minute his comments “in any way you like”.

and Cllr Julianne Marriott stated that

… in her view, the Audit Board was complicit in the failings of the Council as there had not been a meeting of the Audit Board since November 2017. If the Audit Board was not meeting on a regular basis, the public could not have any confidence that Members of the Board were holding the Council to account on their behalf, as residents.

It is hard to argue with that assessment.

In May the new mayor commissioned the Chartered Institute of Public Finance and Accountancy (CIPFA) to conduct a financial health check on the council (report). It found

There is a lack of Member involvement in financial reporting and budget control; Audit Board is non-decision making. Overview/Scrutiny has had almost no impact

This is no surprise to anyone who has been paying attention over the past few years.The Olympic stadium ‘investment’, the unbudgeted cost overruns on the East Ham Town Hall campus project, Newham Collegiate 6th Form, the London Pleasure Gardens fiasco, sleight of hand over the funding of ‘free school meals’… the list goes on.

Despite attempts to distract attention elsewhere, all of £8.748m overspend happened during administration under Sir Robin Wales – which included his cabinet member for Finance (and chair of audit) Cllr Lester Hudson and the Statutory Deputy Mayor and lead member for the £100m Keep Newham Moving Cllr Ken Clark. If either of them has any sense of shame or decency they’ll stand up next Tuesday, apologise for their failure and resign.

I’m not holding my breath.

5 Responses to “Repairs and Maintenance”

  1. Birdman January 15, 2019 at 18:29 #

    I now view these matters from a distance and I must admit to being confused. I spent many years of my working life investigating fraud including internal fraud in large government organisations. It usually came down to saying to someone, ‘you are either incompetent or you committed fraud’. A bit simplistic but when there are a great number of issues, as there appear to be here, it points to serious organisational incompetence perpetrated within a culture of slackness and a disregard for process. My confusion arises from earlier reports that there were significant losses caused by people who were not entitled to fuel cards being given them so they could fill up for nothing at the depot. That is unequivocal fraud by those taking the fuel and those knowingly handing the cards out. I have yet to read the full audit report but in the basis of earlier reports I fail to understand why charges have not been brought.

    As to the position of Ken Clark and Lester Hudson, whilst I have no respect for either of them, I cannot see how charges of fraud would apply to either of them. That leaves incompetence.

  2. Basil January 16, 2019 at 13:37 #

    I too am confused:

    You state: 2018 (Jan) QC advises insufficient evidence to meet criminal fraud.

    LBN states in the pack for the extraordinary meeting:

    26.01.2018 – Daniel Fenwick (DF) Director of Legal and Governance, EV and Mandeep Mehat, LBN principle lawyer consult external counsel to review if sufficient evidence of criminal conduct (legally privileged information).

    08.03.2018 – SL asks monitoring officer if there is sufficient evidence to support an offence of Malfeasance in public in relation to RMS and previous Director.

    LBN have not put in the public domain that the legal advise was that there was insufficient evidence to meet criminal fraud so how did you get that information if according to Newham it is ‘privileged’ ?

    I also cant believe that no-one has pointed out the obvious glaring management failure under everyone’s noses. Despite all reports from members and officers that ALL of RMS alleged problems are because of the Highways department (contained within RMS) that once the Operations Director at RMS was suspended that the service Director (SL) appointed the Head of Highways – Graham Cox as interim Operations Director of RMS. A sublime appointment and probably the reason that very little has been done to fix anything………

    Just saying…….

    • Martin Warne January 16, 2019 at 14:23 #

      I quoted from the council report: “none of the investigations found sufficient evidence of criminal activity to bring proceedings.” It seems pretty clear to me, when combined with the entry in the chronology, what Counsel’s advice was.

    • Clifford Gormley January 26, 2019 at 14:21 #

      Graham Cox may have become Head of Highways but was for years the Council’s RPZ man. Not a Highways engineer or contract manager. May have done little or not but he is a bureaucrat who would not have broken any regulations.

  3. Clifford Gormley January 26, 2019 at 14:30 #

    The roads work was given to RMS by the Environment Department because of dissatisfaction with the existing contractors in terms of price/quality of work on responsive , or dissatisfaction with the tendering process or…or..dissatisfaction with the nature of the detailed relationship between LBN and the contractors. Check out relevant Councillors declarations of Interest 2010-2018 maybe ?.

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