Arrests, intimidation, dubious contracts and squandered millions - how England’s 10th biggest local authority failed the people it was supposed to serve.”
That was the opening line in a recent story in the Independent on the report issued in March 2021 into the goings on at Liverpool City Council, including some rather dodgy looking property deals. There is no question that the reputation of Liverpool has hit a low.
History will judge how the current low compares with the low it reached in Derek Hatton era of 1985, when the Council set an illegal "deficit budget" which committed it to spending £30 million more than its income.
The 1985 situation was all about external politics of course, and was part of a wider rate increase rebellion against the Government of the day. The current situation, set out in painful terms in the report from Max Caller CBE, is much more rooted in matters of internal politics.
The report runs to nearly 70 pages so there is plenty in there for you to digest, too much to cover every single angle in this article. To give you a flavour of the contents though, I am going to set out some of more alarming issues raised. That will enable you to decide whether you feel that someone in your organisation should be reading the report in detail, and establishing how you compare.
Following a three-month investigation, inspectors described an authority where “dubious” contracts were regularly handed out, key records were routinely destroyed and staff who dared voice concerns – or even ask questions – were intimidated.
Among major issues highlighted were senior councillors benefiting financially from funding decisions, a scrutiny process described as “sketchy”, and the handing of at least one major contract to a direct family member in breach of all regulations.
I want to focus this article on what the report tells us about the culture and process surrounding the property dealings of the Council.
In total, inspectors analysed 65 sample property transactions entered into by the council between 2015 and 2020. Not a single one was found to be entirely satisfactory. Who knows what might have been uncovered if the inspectors had gone back further than 2015, given that the mayor Joe Anderson, where many of the reports findings focus attention, first took office as Council Leader in 2010, and became its first elected mayor in 2012.
This sample was selected because of the method chosen for securing an offer; the particular policy initiative which was relevant; or because the sites could be linked to the Police investigations.
The inspectors were obviously keen not to apply 20/20 hindsight when reviewing the transactions, but it seems it soon became clear that “a depressingly familiar pattern emerged.”
In case after case, the inspection team noted that there was no attempt to seek any form of market test. Sometimes valuations were prepared on a number of bases, but rarely on the basis of a likely alternative planning scenario, even though this is a requirement of the General Disposal Consent. It would seem that the concept of preparing an informal planning brief was absent.
Alternative valuation scenarios were also prepared which discounted the likely highest valuation. These valuations were almost entirely prepared in house. Not every site started here, some did not have a valuation recorded on file until it was needed to certify the proposed deal – a clear case of bad professional practice which surely demands that a valuation should be undertaken prior to commencing negotiations.
More often than coincidence would allow, the person/company who was found at that point to have acquired the lease was drawn from a very restricted pool. In many cases, Heads of Terms were agreed, certified as being best value reasonably obtainable in the market and recorded as being authorised, but failing to fulfill the requirements of the Council’s scheme of delegation to enable them to rely upon it.
One might have hoped that this pattern might have been identified by the legal services team dealing with property conveyancing, who would have been familiar with the scheme of delegations and stopped some of these transactions in their tracks. This is part of the belt and braces governance process that many local authorities will deploy.
Sadly in Liverpool’s case, the in house legal team did not have the resources to handle the number of cases, so outside solicitors were commissioned, directly by the regeneration directorate without going through the City Solicitor. As the report concludes of this situation: “This meant that the City Solicitor never had oversight of the scale and scope of activity and could never ensure a consistent approach which protected LCC’s interests and ensured compliance with Standing Orders.”
The report finds that the focus of outside solicitors was on getting the deals done, as it was for Council officers. There was a clear lack of proper oversight, and some of the comments in the report about how the consideration for disposals were routinely eroded during the conveyancing process, is grim reading indeed.
Very often, when planning sought to agree routine s106 agreements as part of the planning process, the costs of this were sought and usually agreed to be deducted from the consideration. Overage clauses were trimmed back to effectively make them unenforceable. Pre-emption clauses, designed to allow LCC to buy back the property if development did not proceed, were undermined.
Inspectors found that at the point of exchange, it was often necessary to recertify the value as the existing delegated authority did not cover the new terms. As the report quite nicely summarises:
“This was always forthcoming. From time to time, both legal and finance officers raised concerns, but no-one thought it correct to call a halt, reflect on where the deal now was and whether it was still right to continue. Instead, the files were full of, ‘what do we now do to get this deal over the line.’ Securing LCC’s best interests were not on the agenda. When officers tried to resist, implied threats were employed.”
The litany of disaster was by no means isolated to deals negotiated by the in house property team. In one case where the Council employed CBRE to undertake a valuation – because the property was so specialised that the in house team felt they should not value it – CBRE eventually wrote to the Council saying that the position had been reached that they could no longer certify that the negotiated price was best value.
The Council officer interviewed about this transaction by the inspectors said there was a subsequent meeting, where CBRE retracted that statement. But there was no record kept of the meeting, and no follow up correspondence. When the delegated authority was put through, best value was internally certified even though it was acknowledged that the in house team did not have the valuation expertise to value the property. All very mirky, and again indicative of a culture that was all about getting the deals done, rather than ensuring proper governance of public assets.
The inspectors have said that in many instances, in the files, it was hard to establish what deal actually was approved and who authorised it. There is evidence of retrofitting an approval to the final contract.
There is no question in the minds of the inspectors that there was extreme pressure brought on Council officers to get the property deals done. l am sure we would all like to think that we would have acted beyond reproach, and that in the face of threats we would have stood our ground and ensured that proper valuation and delegation procedures were followed. But who amongst us can truly know what it was like working in that pressured culture, and how we would have responded?
Is it possible to finish this article on a high point? Well, yes it is. The inspection team reviewed the latest tranche of Small Site disposals late in the Inspection period. The project was being managed by two graduate surveyors and they had been allocated the project before the suspensions and arrests, and then allowed to manage the process with little intervention.
The records on this project, according to the inspectors, demonstrated understanding with both professional practice and delegated authority procedure. The decision record was properly prepared and documented.
The graduates had recognised the risks to the Council in releasing all the sites in one tranche to the developer that had offered the best price, and decided to release each one only on satisfactory completion of the current site. The inspectors noted that whilst the records were not perfect, they were an example of what good professional practice in a local government setting should look like.
Hopefully, the Council’s property team will find a way of putting this experience behind them and look to a brighter future.
On another positive note, in October 2020 the property team engaged external consultants to appraise the health of the management of the Corporate Property Estate. The resulting report set out a number of recommended work streams that will support the Council in adopting and implementing a corporate property management approach.
Shocking though the Liverpool report is, I have a suspicion that elements of what went on will have been experienced by many others in other Councils to some degree.
Whether the Liverpool report will be a critical wakeup call or turning point for local authority governance remains to be seen. But what it does do is raise serious issues around ethics and officer independence from local politics. It is a timely reminder of how things can and do go wrong, once good governance and scrutiny in public affairs is not taken seriously.