Revealed: How four companies turned down ‘loss-making’ Norwich City Council Fountains contract

Four companies expressed a 'serious interest' in taking on the �4.6m contract which collapsed company Fountains had with Norwich City Council: but turned down the chance because it was losing money, it has emerged.

More than 150 workers lost their jobs last month when the environmental management company went into administration and the revelation that a string of companies turned their noses up at the Norwich deal has led a city MP to accuse City Hall of failing to properly manage its contracts.

But city council leaders hit back and criticised Norwich North MP Chloe Smith for 'sitting on the sidelines' instead of helping find solutions.

Fountains Group, based in Mile Cross, had a �4.6m a year contract with the city council to clean streets and maintain parks, plus a �3.3m a year contract to collect rubbish.

While administrator BDO sold a number of similar Fountains contracts to OCS Group, the Norwich contracts were not snapped up and city MPs Chloe Smith and Simon Wright asked the administrators to explain why.

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In a letter, the administrators revealed, in addition to OCS Group, three other companies expressed a 'serious interest' and 'undertook certain levels of due diligence'.

The letter added: 'As a result of due diligence, all potential purchasers advised that they would be unwilling to take on any of the Norwich contracts as part of a sale agreement, due to their loss-making nature.'

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The contracts have their roots in the �125m deal Norwich City Council signed with Connaught in 2010, which ended later that year when the Exeter-based company went bust, leading to 300 city redundancies.

At that time, the environmental management contracts were salvaged by administrators KPMG which deemed that Fountains, then called Connaught Environmental, remained a viable business.

However, Miss Smith said the revelation that four companies subsequently decided not to take on the contract because it was losing money raised fresh questions about the council's own handling of contracts.

She said: 'It demonstrates the importance of doing due diligence and doing your homework in determining whether a firm is suitable and represents a good proposition.

'We have a group of good, skilled workers in Norwich. The question is whether people have any confidence in the city council's ability to manage those workers. This is a question of management and, to my mind, the management has failed.'

But Alan Waters, deputy leader of Norwich City Council and cabinet member for resources, performance and shared services, hit back.

He said: 'When the administrators took over Connaught, we were able to transfer a couple of hundred jobs to the new entity which became Fountains and there was no question then that it was not a viable concern.

'It had been through the proper procurement process and it was the best contract in terms of quality and price. It was not the cheapest and nobody, including Chloe, complained about the jobs which were saved.'

He said Miss Smith had made 'no effort' to engage with the city council over the issue and had failed to help the council to lobby for a change to procurement law, which recently saw leader Brenda Arthur write to the Local Government Association.

He said of the Conservative MP: 'She stands by on the sidelines making ill-informed political points. I'd welcome her coming in so we could explain how the system works, because we have got a very good procurement process.'

He said the council was looking to retender the contract, but part of the problem was that councils were being 'squeezed' by central government, at a time when private companies were also going into administration in a tough economic climate.

At a recent council meeting Ms Arthur criticised Miss Smith and Mr Wright for not lobbying for a review of procurement law after Connaught went into administration.

But Miss Smith said she had made inquiries at that time about how the situation could be helped, but added: 'I do not think changing the procurement rules is the most sensible action to look at.

'In fact, I think it is a red herring. Most councils manage perfectly well in the modern world and there is no reason why our fine city should be so badly served.'

Fountains had a second contract to collect rubbish and recycling and Biffa has taken on that work.

• What do you think of what has happened at Fountains? Write to Evening News Letters, Prospect House, Rouen Road, Norwich NR1 1RE or email

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