Could the city council have predicted Connaught collapse?

Those are the words of city councillor Alan Waters on criticism levelled at Norwich City Council over the award of a contract to fix and maintain some 17,000 council homes to a company which subsequently went into administration.

More than 300 workers lost their jobs as a result of Connaught Partnership's collapse and the council is locked in talks with a company it hopes could offer a lifeline to those workers by taking on the housing repairs contract on the same conditions for the remainder of the five-year deal.

The council says 'a thicket' of legal issues surrounds that process, so a deal they hoped would be struck last week has yet to be done.

The council's contracts working party - which also oversaw the award of the contracts in the first place after the 10-year contract with CityCare came to an end - met last week to consider the way forward. If the mooted deal cannot be struck then interim contracts for up to 12 months will need to be let ahead of a full contract re-let.

But questions remain over how and why the council chose Connaught in the first place. Were there already warning signs that the deal - with Connaught saying it could deliver the housing and maintenance contract for �17.5m a year - was too good to be true?

Morrison, the parent company of CityCare, certainly thought so - and sought an injunction in February this year to prevent the award of the contract, claiming the process by which it had been awarded was unlawful.

The court documents relating to that injunction bid list the prices submitted by the various bidders as being mainly within a range of �23m to �26m, though there were two higher bids - one of about �31m and one of around �47m.

That means Connaught's bid was around �5.5m lower than the lowest of the other bidders - and the city council this week confirmed it had saved 30pc on the cost of the housing contract by going with Connaught.

In seeking the injunction, Guy Wakeley, chief executive of Morrison, said once materials were bought the workforce were paid, a depot secured and vehicles provided, just over �184,000 would be left for the capital programme itself.

Given that programme included replacing 1,544 windows, 2,214 external doors, 1,183 bathrooms and 484 kitchen installations, he said it was simply impossible for this programme to be properly delivered for that much money.

Morrison claimed Connaught's bid was 'abnormally low' and the council had come under a duty to investigate it to see whether it was a properly sustainable bid - but had failed to carry out the requisite investigations.

The council told the court it had never considered Connaught's bid 'abnormally low', but had, in any case, carried out investigations - twice quizzing Connaught about it and asking for confirmation.

And, after deciding in principle in November last year to accept the Connaught bid, the council also carried out a 'due diligence exercise' to verify the pricing ahead of a meeting of the executive in February this year.

As it was, the case never made it to the High Court, with a settlement being reached with Morrison, believed to include a financial package.

But the judge Mr Justice Arnold, who had awarded the injunction, made clear he believed there was a 'serious issue to be tried as to the pricing of the Connaught bid and as to the investigations that the council undertook to assure itself that it was a properly sustainable bid.'

And Brian Rye, from trade union UCATT, said: 'We were quite clear in setting out at the time the contract was awarded that the contract was approximately 25pc below anybody else.

'Nobody was going to offer to do it at the same price as it was not making a profit. The city council allowed themselves to be conned, when they saw the savings they could potentially make.

'The reason why the contract was awarded was because it was the cheapest - that's it. The blame for this rests with Norwich City Council, we have told them that.'

So who took the decision to award the contract to Connaught? A 15-page document produced by deputy chief executive Bridget Buttinger for this week's council meeting - the first since the crisis unfolded - attempted to explain that.

It showed that in December 2008 and January 2009 the contracts working party - made up of Alan Waters, Brian Morrey, Roy Blower (Labour), Samir Jeraj. Adrian Holmes (Green), Judith Lubbock (Lib Dem) and Niki George (Conservative) - started to consider the way forward.

In April 2009 they recommended a set of pre-qualification criteria, including questionnaires and almost 60 completed ones were received, assessed and shortlisted by officers from consultants Tribal Consulting and city council officers.

Teams of people in the council were then established to draw up contract specifications, supported by Tribal Consulting and Norfolk Property Services - and 38 contractors were invited to submit bids.

Nineteen were received and on October 17 and 19 2009 they were opened and evaluation began. According to the council's documents: 'Price and quality were evaluated separately... and the teams of people who carried out the assessment on price were not aware of the quality score and vice versa.

'Executive members were engaged in reviewing the evaluation of the quality aspects and the bids and tenants and leaseholders were involved in the evaluation of the quality aspects of the housing contracts, while a financial evaluation was conducted by Tribal Consulting and the finance team.' Before making recommendations to the contracts working party, Tribal Consulting carried out mathematical checks to ensure marks for price had been awarded correctly and reviewed the scores for quality to ensure those marks had been awarded correctly.

The contracts working party was advised of detailed assessments in November last year and a tender evaluation report was prepared for each contract showing details of the process, bids submitted and the evaluation of them, along with the outcome of the evaluation and a recommendation to award the contract.

Those recommendations by officers were endorsed by the contracts working party and passed on to executive, which approved the award of the contracts, including the housing contract to Connaught.

The report stated: 'Given the scale of savings in the housing contracts, the Connaught business model was rigorously tested to assess its deliverability.

'The business model was assessed as deliverable and relied on substantial changes to working practices, in particular the introduction of new ICT systems to accurately diagnose repairs problems and arrange timely appointments, organise work more effectively, anticipate supply needs and skills requirements.

'It also showed the company would make investment in the contract in the early stages before moving into profit as productivity increased and the new ways of working took effect.'

The injunction delayed Connaught's ability to mobilise the contract, the council says, which was why there were difficulties with ensuring workers had kit in the early months of the contract after April this year.

It was not until June 24, the report says, that the council became aware of 'significant issues' with Connaught when it issued a profit warning, which led to meetings between council chiefs and Connaught bosses.

These meetings continued as the company's share price fell and the council prepared contingency plans to move contracts to other companies - which was the action they had to resort to when Connaught Partnerships went into administration.

At the council meeting this week calls for an independent inquiry into the initial awarding of the contracts were rejected by the city council, although its scrutiny committee has agreed to look at the process by which contracts are awarded, with particular reference to the Connaught contracts.

But Judith Lubbock, Lib Dem councillor for Eaton, who was on the contracts working party, still wants an independent inquiry.

She insisted: 'Concerns were certainly raised about how they could do it at such a low bid and the fact it was a lot cheaper than the next best bid.

'We were kept at arms length and perhaps not taken much notice of. No votes were taken and one felt perhaps one's concerns weren't being passed to the executive which took the final decision.

'At the end of the day we were a bit of a sounding board. You are advised by the officers that it's going to be okay, it's very difficult to say it's not going to be okay, when they are saying it is.

'We did ask questions and raise concerns. We didn't jump up and down and say don't do it, because we received reassurances that they could do it for that money. I think the officers have got something to answer for as well as the executive and the consultants.'

She said the contracts working party meetings were held in private and the minutes of the meetings which went to the executive do not record which councillors raised concerns.

But Alan Waters pointed out that the executive - which had the final say - only acted on the recommendations of the working party and the councillors criticising now had not been worried enough to take the issue to scrutiny at the time.

He told the councillors: 'If you had doubts, you had the means by which to challenge the executive and you did not use it because you were convinced this was a thorough process, so don't give us this retrospective stuff.

'Don't conjure up a series of questions that apparently shows a more fundamental truth about the process. You need to understand how the process works.

'This is a risky business and we do the best we can within the rules. Even if we brought everything in-house, if it was possible at the moment and it is not, there is no guarantee that would somehow be immune from public spending decisions which will be made in a few weeks time.'

He added: 'We tested and tested and tested to make sure it was robust and financial rigorous. What came through was that this was a company in the FTSE 250, with a turnover of �650m, which had strong and robust accounts, which triple A rated with an endorsement for its accounts from a big consultants - Price Waterhouse Coopers.

'But the contract fell. It wasn't that contract which caused the collapse of Connaught. In fact that was a robust business model. Connaught's problems were at the national scale, just as we are dealing with the national effects of the recession and the financial crisis.

'If there is to be an independent inquiry then it should be at the national level. What were the board doing? How is it that the accounts were accepted when perhaps there was contrary evidence about their robustness?'

He also said the CityWide Board - made up of tenants groups - had given the council a vote of confidence for the way they have handled the crisis, although the Norwich Leaseholder's Association, which says it also raised concerns over the process, has called for an independent inquiry.