HARLOW Council’s press release of October 30 contained many inaccurate and misleading statements. This statement is lengthy because it is difficult to respond to each point in the council’s statement without supplying a lot of information.
The council worked hard over many months prior to the termination of the contract to try to find a way to enable HWRA to continue to provide services under the contract. It was hamstrung from achieving anything because HWRA, despite many requests, failed to provide the financial information requested including reports to its trustees. The information it did provide revealed that HWRA was insolvent
Short answer. HWRA did not fail to provide financial information to the council. Nor did the information HWRA provide reveal that it was insolvent. HWRA was only insolvent if the council refused to accept payment of money owed by instalment. Many businesses and charities make payments to creditors by instalment.
Detailed answer. HWRA was up to date with all payments until April 2012 and advised the council months before this that it would require temporary assistance from April. It was in the council’s and council tax payers interest to work with HWRA during this difficult period because the contract contained indemnities payable by the council in the event of termination. The contractual indemnities were originally put in place when the council TUPE transferred council employees to HWRA in 2003. This provision was a recognition of the fact that the council was transferring staff to a newly created charity with no funds set up at the instigation of the council partly to save money. In March 2012 the council requested financial projections for 12/13, 13/14 and 14/15.
HWRA provided projections for 12/13 and 13/14. It was difficult to provide detailed projections for 14/15 more than two years ahead for various reasons that were made clear at the time. Prior to the termination of HWRA’s council contract in October 2012 HWRA offered to pay £60,000, followed by £30,000 in December 2012 and the remaining £35,000 no later than October 2013. This would have cleared the whole sum owed.
In late June 2012 HWRA was asked to provide a cash flow projection. A cash flow projection was provided and updated as and when requested by the council.
HWRA was also asked 40 written questions. Some of the questions requested copies of documents to support the written answers. The questions were put in late July and mid August 2012. This was a difficult time for the service because the officer responsible for putting financial information together left the service in June and HWRA’s head of service was receiving treatment at hospital some distance from her home in Harlow throughout the relevant period. HWRA is a small charity with limited resources.
HWRA answered 38 of the 40 questions. It was not possible to provide answers to two of the 40 questions because HWRA did not have the documents requested. The council requested a copy of HWRA’s audited accounts for the year ending 31st March 2012. The audit of HWRA’s had not been completed when the request was made. This was explained at the time. A draft income and expenditure statement for the year ending 31st March 2012 had already been provided. The council also requested copies of projections from 2008 for accounts that had already been closed, audited and supplied to the council. HWRA explained at the time that owing to problems with HWRA’s IT system it was not possible to provide a complete set of projections. HWRA took the view that to provide partial information was misleading. The request related to accounts that had been closed, audited by HWRA’s external auditors and reported to the council a long time ago. The fact that HWRA had experienced a serious IT failure was well known to the relevant council manager.
HWRA tendered for the contract in open competition and agreed to its terms. This created a new contract between the council and HWRA in 2009.
The new contract specified very clearly that the amount of money to be paid for the services was fixed as was the term of the contract. Neither the tender process nor the contract provided for increases in the contract price. Indeed, those documents envisaged that there would be no such increases
Short answer. The contract was for a fixed price and fixed term but it contained a wide variation clause.
Detailed answer. The solicitor advising HWRA provided written advice that confirmed that the contract contained a wide variation clause which allowed the council to assist HWRA. The solicitor is a leading expert in procurement law. This written advice was sent to the council before HWRA’s contract was terminated but was not drawn to the attention of the Cabinet when the decision to terminate was taken.
HWRA got into financial difficulty and, consequently, the council undertook a Scrutiny Committee review of the financial viability of HWRA trying to find a way to help it. It was frustrated by HWRA’s failure to participate properly in that review, which included its failure to provide the requested financial information.
Short answer. HWRA was not permitted to participate in the Scrutiny Review in any meaningful way. HWRA provided virtually all the information requested by the council. The only exceptions were answers to two of the 40 questions put and projections for April 2014 to May 2015.
Detailed answer. As reported in point one above, this was a difficult time for the service. The officer who normally put HWRA’s projections and other financial information together left HWRA in June. He had worked for the service for many years. Under pressure to save money HWRA did not replace this post. A member of staff with book-keeping and budget management experience was given a few additional hours to cover some of this financial work. She was not familiar with the SAGE accounting system HWRA used and only received a brief training session so it took longer to put cash flows and other financial information together than it normally would. The council did not use SAGE so could not assist with this task.
In August 2012 during the Scrutiny Review HWRA’s head of service was a hospital inpatient for five days in Addenbrooks Hospital in Cambridge and off work recovering from surgery for over two weeks after this. Surgery had been cancelled twice so it was not possible to change the date. The relevant council officers were aware of the situation. The head of service had accepted an invitation to attend a meeting of the Scrutiny Review on 30/8/12. This was her first day back at work. She had planned to prepare a presentation for the Review Panel but was confronted with 22 written questions which the Panel had requested whilst she was off sick. Questions had already been put and answered in early August. It was not possible to answer the 22 detailed questions and prepare the presentation in one day so via one of his colleagues the chairman of the Scrutiny Review Panel was asked what the head of sService should concentrate on. She was advised to concentrate on answering the questions and told that it would be possible to attend the September meeting of the Committee to put the presentation and answer any further questions.
Shortly after the written answers had been provided HWRA received a letter from the council officer supporting the Scrutiny Review Panel’s work to say it would not be possible for HWRA to attend the September meeting or indeed any meeting of the Panel because it was due to report to the Cabinet in late September. It was not appropriate for another member of staff or a trustee to attend the Scrutiny Panel in the absence of the head of service because of the detailed nature of some of the financial and other questions. The only member of staff who could have performed this role had left the service in June to move to Yorkshire so could not cover this task or assist a trustee to do so.
HWRA was not allowed to see any of the reports put to the Scrutiny Review. Several months after HWRA’s contract was terminated HWRA was sent copies of the scrutiny reports. It is clear from these reports that officers were putting an unduly unfavourable view of HWRA’s financial circumstances behind closed doors. There was no opportunity for HWRA to address concerns, explain why the situation was not as negative as presented or challenge the legal advice councillors were provided with.
HWRA demands included that the council provide extra money to it, allow it additional time to repay money it owed to the council, write off some of that money and extend the contract period. All of those demands were despite it being in financial difficulty. Those demands were unreasonable and the council could not meet them without running risks associated with its statutory duties and EU procurement rules under which the contract was tendered.
Short answer. HWRA made requests, not ‘demands’. The legal and other advice councillors were given was incomplete and misleading.
Detailed answer: HWRA requested assistance from the council from April 2012 in a report to the Chief Executive dated 23/2/12. This followed earlier meetings with another senior manager. The report explained that temporary assistance would be required and set out why it was in the interests of the council, council tax payers and the residents of Harlow that the council consider providing assistance. The report did not request an increase in the payments to HWRA or a write-off of debt. Following this meeting HWRA was advised by a senior council officer that time to pay would be allowed in the form of deferred payments. The council disputes that a verbal agreement was reached.
Following the change in administration in May 2012 HWRA met the council leader and the resources portfolio holder. HWRA was invited to put a presentation to Harlow Council’s ruling group in late June 2012. In the run up to the May 2012 elections the councillors that later took control of the council criticised the 76 per cent cut in the specialist advice budget implemented by the previous administration. In view of this it was a reasonable assumption that the new administration might be willing to consider further investment in specialist advice to allow HWRA to assist some of the people it could no longer help. Additional funds would also make it possible to attract more external funding and help in other ways.
HWRA did not request additional resources to deliver the contract it had tendered for. HWRA was already delivering the requirements of that contract. HWRA put a case for additional help to the ruling group meeting it was invited to. It was not a demand. It was always clear that if the council was unable or unwilling to provide assistance in the form of additional funds or a write off of debt that HWRA was simply requesting time to pay. The senior officers present at the meeting advised Councillors not to assist HWRA and claimed it would be unlawful to do so. HWRA disputed this interpretation of the law and later provided written advice confirming that there was no legal impediment to assisting HWRA. The councillors decided to set up a Scrutiny Review in July 2012. As noted above, HWRA was not allowed to effectively participate in the Scrutiny Review so the senior officers that opposed assisting HWRA were able to control the process without HWRA being present during any of the discussions.
During the review the chairman of the Scrutiny Review Panel asked HWRA to put the request made to the ruling group to the Panel in writing. HWRA complied with this request. This was later used by officers as evidence of HWRA’s ‘demands’ and of HWRA’s alleged insolvency.
HWRA owes the council more than £125,000 compared to a contract price for a whole year of £120,000. The council could not let this amount owed continue to increase without any confidence that it would get the council tax payer’s money back. If the contract had been left in place the council would have had to have continued providing HWRA with tax payers’ money knowing that HWRA could not repay that money and was unlikely to be able to continue providing the service until the end of the contract. The council needed more than just promises that all would be OK at some undefined point in the future and did not have adequate financial information to enable the council’s head of finance (and statutory section 151 Officer) to agree that all would be OK and that the council had a reasonable prospect not only of getting the service but also of getting its money back
Short answer. It was clear before HWRA’s contract was terminated that the Council would gain far more by reaching an agreement than it would by terminating the contract.
Detailed answer. Under the disputed deferred payment verbal agreement the sum due to the council in October 2012 for salary reimbursement was approximately £32,000. Under the normal arrangements approximately £125,000 was due – this figure included £35,000 owed from April 2012. Earlier invoices sent to HWRA were for a smaller total. HWRA has never been provided with a full breakdown of the sums demanded. HWRA paid the council for payroll services and, under a separate unwritten agreement, HWRA normally paid the amount due for these salary payments quarterly in arrears with interest. HWRA offered to pay £60,000 in October 2012, a further £30,000 in December 2012 and the balance of £35,000 owed from April 2012 the following year.
For legal reasons HWRA needed the council to confirm in writing that it was prepared to accept the balance by instalment. The council offered to pay the October 2012 salaries in return for the £60,000 payment but refused to provide the written confirmation HWRA required in order to lawfully make the payment offered. The council did not offer to pay salaries beyond October so it is not true to say that the debt would have increased. The council wasn’t obliged to make a contract payment to HWRA until January 2013. It could have withheld that contract payment in the event that HWRA did not make the further payment of £30,000 it had offered to make in December 2012. HWRA was delivering the requirements of the council contract and indeed providing more than was strictly required in many key areas. Most of HWRA’s salaries and other costs were funded by other funders.
The council offered to keep the contract in place whilst they discussed repayment of HWRA’s indebtedness but only if HWRA first repaid some of the money (£60k) it owed to the council by a specified deadline. HWRA said that it had that money available to repay to the council but it refused to do so unless the council agreed to its demands. The council was left with no reasonable alternative option but to terminate the contract with HWRA in October 2012 when it became clear that HWRA could not and would not pay the monies owed to the council.
Although HWRA believed that it should have been treated differently from any other organisation the council has acted consistently and is under a legal duty to act to protect council taxpayer’s money.
Short answer. The council’s statement is inaccurate and misleading. For legal reasons HWRA needed the council to confirm that it was prepared to accept the balance owed by instalment before the £60,000 could be paid. Thecouncil did have a lawful and reasonable alternative to terminating HWRA’s contract which would have ensured a continued service for local residents and saved the council hundreds of thousands of pounds. HWRA did not expect to be treated more favourably than other organisations.
Detailed answer. HWRA could not pay the amount due to Harlow Council in full when it fell due. The legal advice HWRA received was clear i.e. that HWRA would be insolvent unless the council confirmed that it was willing to accept an instalment arrangement for the balance owed. Without this confirmation HWRA could not prioritise the Council and pay the £60,000 offered. This was made clear to the council in writing before the contract was terminated. To characterise this request as a ‘demand’ is misleading. It was a legal requirement.
It is not true to say that the council ‘…was left with no reasonable alternative option but to terminate the contract in October 2012…’. There were several reasonable and lawful alternative options short of terminating the contract including providing the confirmation HWRA required. HWRA did not expect to be treated more favourably than other organisations. Indeed there is clear evidence that it was treated less favourably than one organisation that was provided with additional funds and an extension of funding that council officers wrongly advised councillors it was unlawful to offer to HWRA. This organisation took part in the same advice procurement tender advertising five year contracts as HWRA in January 2009.
HWRA acknowledged and accepted the termination of the contract. In fact, HWRA elected to close its doors to new business before the council terminated the contract. After the contract had been terminated HWRA required the council to pay the redundancy costs of some of its staff – those involved in providing the services under the contract – in accordance with the terms of the contract. The council complied with those demands.
Short answer. HWRA did not close its doors before the contract was terminated or accept the termination of the contract.
Detailed answer. HWRA did not close its doors before the contract was terminated. When the council did not provide the assurance HWRA legally required and made it clear that the contract could be terminated in a few days HWRA stopped taking new cases on 15/10/12 because the service already had hundreds of open cases. Staff and trustees were concerned that it would not be possible to finish all these cases in the event that the council terminated the contract as threatened.
The Advice Centre remained open throughout week commencing 15/10/12 and advice enquiries were dealt with until normal closing time on Friday 19/10/12. On 15/10/12 the council requested further financial information by 19/10/12 – HWRA supplied the information. On 17/10/12 the council issued a termination notice to take effect from 19/10/12. The council switched the Advice Centre telephones off on 19/10/12. It was not unprecedented to have a temporary suspension of new cases with referrals and appropriate provision for emergencies. This had happened for short periods in the past with employment cases for example when all targets had been met.
Several letters and emails were sent to the council challenging the termination of the contract before the redundancy indemnities were paid in early December 2012 including a letter dated 22/11/12 from HWRA’s solicitor setting out many of the grounds of HWRA’s legal challenge. HWRA made several requests for the council to make its position on the indemnities clear. It wasn’t clear to HWRA’s trustees whether the council would use a clause in the contract to offset some of the money owed against the redundancy and other indemnities. It was extremely difficult to properly consider future options without this information.
HWRA’s trustees had no choice but to issue redundancy notices on 9/11/12. All staff worked at least one month’s notice – that was all most were entitled to. HWRA’s trustees hoped it would be possible to reach agreement with the council and withdraw the redundancy notices. The council requested information in response to HWRA’s enquiries but did not say whether the indemnities would be met. The only point it became clear that the indemnities would definitely be met was on Friday 7/12/12, the last day of the notice period, when the council emailed HWRA to say money had been paid into HWRA’s bank account that day. The redundancy payments were due that day. By this point HWRA had already been forced to pass work back to other funders significantly reducing HWRA’s income. Contracts awarded in January were also lost.
HWRA has not challenged the amount of money owed to the council as it could have done when a statutory demand for its repayment was served on it. Nor did it challenge forfeiture of its lease. Neither did it challenge termination of the contract.
Short answer. HWRA challenged the statutory demand, the forfeiture of the lease and the termination of the contract.
Detailed answer. HWRA’s solicitor wrote to the council within the 21 day time limit of the statutory demand being issued. The letter challenged some of the information in the statutory demand, the forfeiture notice and the termination of the contract. Council officers offered to meet then withdrew the offer shortly after. Further legal correspondence was sent on these matters in early February 2013 after the judicial review application was submitted in January. This was followed by further correspondence on the private law issues. The council responded to these letters and asked HWRA to suspend action on these issues in order to include them in the mediation.
HWRA has never been given a full breakdown of the sum claimed. Normally an annual breakdown of actual salaries paid was sent in late March. This was checked and reconciled against the quarterly payments made by HWRA so any under or overpayments could be identified. The council stopped paying salaries in September 2012 so the detailed annual breakdown including payments made to the pension fund and HMRC on HWRA’s behalf was never sent. HWRA made several requests for this information. In so far as it was possible to estimate the sums paid direct on HWRA’s behalf HWRA accepts that the sum demanded was probably broadly correct. It was impossible to be certain however in the absence of the detailed information. HWRA had been invoiced for lower sums earlier in the year so it needed to be properly checked. Early in 2013 HWRA received a demand from HMRC for an underpayment for a period when the council was responsible for making the payments on HWRA’s behalf. HWRA requested a detailed breakdown from the Council again so the figures could be checked. The council failed to respond so HWRA had to make the payment to HMRC without being able to check whether it was actually due.
Instead, HWRA gave notice to the High Court on three occasions of its intention to appoint an insolvency administrator stating that it was insolvent or likely to become insolvent. HWRA made no such appointment. The Registrar at the hearing yesterday expressed regret that HWRA had taken that course of action. That tactical and cynical approach made matters worse for HWRA and delayed the Council from undertaking an open tender exercise for an alternative service provider for the people of Harlow to be procured.
Short answer. The council’s statement is inaccurate and misleading. The notices of intention to appoint an administrator were not tactical or cynical nor did they delay the council from undertaking an open tender exercise for an alternative service provider.
Detailed answer. The reason for issuing three notices of intention to appoint an administrator in the six weeks or so spanning early December 2012 to mid January 2013 were explained in a detailed letter sent to the council in January 2013 by HWRA’s specialist insolvency solicitors. The council had said in correspondence in early January 2013 that it was willing to consider mediation. HWRA had been pressing the council to mediate from October. This was the first time the council had indicated that it was willing to consider this. HWRA had valid legal claims it wanted to pursue if mediation did not achieve a settlement. The administration did not proceed partly to save money. Administrators have to be paid from the funds available to creditors. Given that the council had said in correspondence in early January 2013 that it was willing to consider mediation it did not seem to be a sensible use of funds to spend thousands of pounds paying an Administrator when these funds would be taken from the sum available to pay the council. In addition to which HWRA believed it had a valid counter-claim for unlawful termination of contract and other claims that exceeded the sum owed to the council and was not therefore insolvent. The council advertised a tender for advice in December 2012 with a closing date for bids in January 2013. It was HWRA’s position that the contract had been terminated unlawfully so naturally it did not consider that a tender process should have been launched. HWRA’s solicitor complained when a bidder openly canvassed a councillor about the bidding opportunity in writing and the councillor sent this to all her colleagues. Canvassing in this way is expressly forbidden during a tender process. It is HWRA’s understanding that this is why the tender was suspended not HWRA’s ‘tactical and cynical approach’ as claimed in the council’s press release. HWRA offered to resume advice services if agreement could be reached and had the capacity to do so.
The council, upon HWRA’s request, entered into a lengthy mediation with HWRA in an attempt to resolve the issues between the two parties. Regrettably, no agreement was reached.
Short answer. The mediation was not lengthy.
Detailed answer. After expressing a willingness to consider mediation in early January 2013 the council then escalated the dispute by locking HWRA out of the Advice Centre premises it had occupied in one form or another since 1978. A senior council officer had given the clear impression to HWRA’s solicitor that this would not happen without warning. The locks were changed when HWRA’s now voluntary team left work for the evening on 28/1/13. The following morning HWRA’s solicitor was emailed informing her what had happened. A complaint was lodged to no avail. HWRA’s solicitors suggested three potential mediators. The council did not take up any of these suggestions or make alternative suggestions. The council responded to HWRA’s private law solicitors on the question of the forfeiture of the Advice Centre and refused to mediate on this issue. The only point at which the council became seriously engaged about the prospect of mediation was in late March after the High Court judge ordered a rolled up hearing of HWRA’s judicial review application. The council pressed HWRA to adjourn the judicial review hearing set down for 14/5/13. HWRA made it clear that it preferred to mediate as soon as possible and not wait until late June or early July as requested. HWRA eventually agreed to adjourn the judicial review hearing. The one day mediation session took place on 5/7/13. Sadly it was not successful. A confidentiality agreement means that both parties cannot reveal the content of the discussions.
Having concluded that HWRA was unable to repay its debt to the council, the council, as per normal practice, proceeded to apply for the winding up of HWRA. HWRA had notice of those proceedings and had every opportunity to prepare for them. Regrettably, it did not.
Short answer. To describe it as ‘normal practice’ to wind an organisation up in these circumstances is misleading. HWRA did not have ‘every opportunity’ to prepare for the winding up hearing.
Detailed answer. Creditors do not automatically wind up organisations that cannot meet their debts in full because it is often better to work with organisations to recover monies owed. In many cases this can result in more money being paid than investing thousands of pounds in wind up proceedings which the creditor may never recover. Most of HWRA’s unrestricted funds were lost as a result of the council’s decision to terminate its funding contract with HWRA and lock the service out of the Advice Centre premises. Some unrestricted funds were lost very quickly after the termination others were lost in spring this year.
Eventually HWRA was left with only two funders both of which are restricted. In these circumstances it would appear that the main or possibly only reason for the council to launch expensive winding up proceedings was to stop HWRA from pursuing legal action. This means the issues raised in the judicial review that was adjourned in May will never be aired in open court. For the reasons set out at the end of point 9 above HWRA did not have every opportunity to prepare for the winding up hearing. HWRA has had no IT access since 31/8/13. Most of the hard copy documents HWRA held were in judicial review bundles. This and the other information HWRA had hard copies of did not include the evidence supporting the calculation of HWRA’s counter-claim.
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