Revealed: 11 mistakes council made in business centre scandal
© ARCHANT NORFOLK 2016
A "naive" council made a catalogue of errors when it loaned a controversial group millions of public pounds to build a business centre, a new report has revealed.
A group of councillors at King's Lynn and West Norfolk Borough Council has spent the last 10 months investigating how the authority loaned enterprise agency NWES more than £2.5m for the scheme.
It found "many weaknesses" in the project to build the King's Lynn Innovation Centre (KLIC).
Its report, published on Wednesday, supported a series of concerns raised in this newspaper last year.
The building, which opened in 2016, is almost full, giving the council rental income; but in 2018, NWES defaulted on the £2.5m loan. It left the council with a building which cost £6m to construct but is worth £2.4m.
The report, which goes before the council's audit committee on Monday, found the "heart of all the problems" was the £2.5m loan.
It was made by business group the New Anglia LEP to the council, which then passed it onto NWES. But the loan did not follow the council's investment strategy and was not secured against NWES' assets.
Making matters worse, the council then gave NWES another loan of £250,000 when it hit financial problems, which was "inappropriate", the report said.
The report was scathing of this loan writing: "It's unclear why the council should have provided a basic banking service".
They said NWES' financial problems should have caused concern but the council did not carry out checks until it was too late.
It accused the council of showing "misplaced trust" in NWES.
The report also questioned why NWES was hired when it had no experience of building business centres.
It highlighted several conflicts of interest in the group of people charged with delivering the project.
One of NWES' directors, John Balch, was a director and shareholder of the company NWES hired to project manage the scheme, Nautilus Associates.
Nautilus was not appointed as project manager through an "open procurement process", they said.
They also pointed out that Nautilus is a member of the LEP - the body which made the initial £2.5m loan.
Meanwhile, the leader of the council, Nick Daubney, used to work for NWES and from 2013 to 2016 was a director there.
This caused a conflict of interest, the report said, because the directors have to consider the interests of the company first, rather than the interests of the council.
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Mr Daubney declared his interest and left council meetings where the KLIC was discussed.
They also found records were missing from the steering group and some members were "routinely absent" from meetings, including the council's then chief executive.
They concluded that the council was naive and the officers involved had no experience of such a project.
The building also had design failings. It was meant to have 16,00 sq feet of rentable office space but councillors said there was only 12,595 sq feet and not enough parking.
They said the KLIC was almost full and a number of tenants had been successful, but other tenants were "non-growth businesses that do not fulfil the intended criteria".
They recommended a series of changes if council took on a similar project, including more oversight.
-The 11 mistakes
The councillors found 11 weaknesses, including:
- insufficient background checks on NWES;
- means by which loan would be repaid not considered;
- key documents were not signed;
- shortcomings in project management;
- perceived conflict of interest between employees of NWES and the council and NWES and its project management company Nautilus;
- no feedback from the council's representative on the board of NWES, and latterly, non-attendance on that board;
- a naive view of the value of the building being worth more than, or at least as much as,the loan provided;
- not securing the loan on the assets of NWES;
- a lack of regard of the council's financial policies;
- granting a further loan which was "inappropriate";
- the project was not included in the council's risk register.