VALUE FOR MONEY EXERCISE – Woodside Leisure Centre

Appendix A

Value for Money Exercise - Woodside Leisure Centre

Introduction

1.1In February 2005, Three Rivers District Council (TRDC) decided to include a sum of £2million in the capital programme for 2007/2008 as a contribution to the provision of a new swimming pool for the north of the District.

1.2The need for additional swimming facilities in the north of the district was confirmed in assessment reports developed by TRDC during 2004 and 2005.

1.3In September 2005, TRDC confirmed, in principle, that the committed capital sum of £2million would be given to Watford Borough Council (WBC) as a contribution towards WBC’s planned redevelopment of Woodside Leisure Centre (“the Centre”). This planned redevelopment includes the provision of a swimming pool and it was considered that the location of the Centre would allow this facility to serve TRDC residents in the north of the District.

1.4Based on the current project timetable for the redevelopment of the Centre, at least part of the £2million contribution would be required in 2006/2007.

1.5The purpose of this paper is to provide an independent analysis of the value for money of the Council’s decision to contribute £2million to the Woodside Leisure Centre project and, as a result, provide recommendations for the Council’s future decisions.

1.6The paper is set out in the following sections:

  • The need for swimming facilities
  • The Woodside Leisure Centre project
  • Proposed partnership arrangements with WBC
  • Financial implications and non-financial implications
  • Alternative options for TRDC
  • Conclusions and recommendations

The need for swimming facilities

1.7From the TRDC perspective, the need for additional swimming facilities was set out in the findings of the TRDC Indoor Leisure Facilities assessment and Open Space assessment published in September 2005. These assessments took into account current strategies, resident surveys and consultations, facility audits and a GIS analysis, in examining the current and future demands of the district in terms of the provision of leisure facilities.

1.8The key findings from these assessments were as follows:

  • 38% of TRDC residents surveyed had visited a sports/recreation centre in the previous four weeks and 80% of TRDC residents surveyed consider the provision of sports and leisure facilities to be important
  • there are five swimming pools within the district, with the main public facilities being at the William Penn Leisure Centre and the Sir James Altham Pool
  • the users of the pool at William Penn Leisure Centre reside predominantly within a five or ten minute drivetime, whilst the Sir James Altham Pool attracts users from a wide catchment area stretching to Harrow and Pinner
  • there are no learner pools and no eight-lane facility enabling the hosting of competitive swimming events
  • the major gaps in provision appear to be in the north of the district, with an undersupply equivalent to one pool, particularly affecting the community of Abbots Langley
  • the pool at the Bill Everett Community Centre within the borough of Watford attracts residents from within the Three Rivers district, in particular from Abbots Langley and Croxley Green

1.9In the context of these findings, a number of recommendations were produced as follows:

  • to assist WBC with the development of a new pool at Watford Leisure Centre to supply swimming provision for residents at Abbots Langley
  • to refurbish William Penn Leisure Centre and provide a new learner pool
  • to provide a new learner pool at the Sir James Altham Centre
  • to develop stronger relationships with schools and consider the refurbishment of Rickmansworth School

1.10In addition to the work carried out by TRDC, WBC have also undertaken a recent Leisure Needs Assessment to identify the future provision of leisure facilities required to meet the sporting needs of borough residents.

1.11The key findings of this assessment were as follows:

  • based on the demographics of the resident population, the propensity to participate in swimming is higher than the national average and there is thus a large potential user base for swimming facilities within the borough
  • based on updated modelling parameters, it was judged that the existing supply of swimming facilities within the borough is approximately in balance with current demand, but that this existing supply would be insufficient to meet anticipated demand levels in 2010.

1.12In the context of these findings, WBC considered a range of potential future facility mix options, including replacement of Watford Central Baths with a new 25-metre six-lane pool and a learner pool at Watford Town centre site, construction of a new 25-metre eight-lane pool and learner pool at Watford Leisure Centre and closure of Bill Everett pool.

The Woodside Leisure Centre project

1.13WBC has now made the formal decision to replace Watford Central Baths and provide a new swimming facility as part of a redevelopment of Watford Leisure Centre (Woodside site) in Garston. WBC has committed substantial capital funding (i.e. £21million) to this combined redevelopment project.

1.14WBC have considered a range of facility mix options, but the current plans include the following key facilities:

  • eight-lane swimming pool, with learner pool and viewing gallery
  • eight-court sports hall
  • 100-station fitness suite, with dance studio
  • squash courts
  • café and function room
  • creche

1.15The new Centre is currently estimated to have a capital cost of circa £11million.

1.16Full revenue projections have been developed for the proposed facility. These indicate that the facility would require a revenue subsidy in early operational years. Once at operational maturity, it is anticipated to generate a small operational surplus, based on annual income of circa £2million and annual operational costs of circa £1.8million (including facility lifecycle costs).

1.17The financial projections are based on anticipated levels of usage of the facility and these indicate that the facility is expected to generate approximately 630,000 visits per annum, including circa 156,000 visits to the swimming facilities.

1.18Specific pricing and programming policies have not yet been established for the Centre, although the revenue projections are broadly based on existing pricing policies.

1.19The key milestones for the ongoing project are as follows:

  • planning permission submission (November 2005) and anticipated approval (March 2006)
  • consultation re design issues with prospective management contractors (December 2005 to May 2006)
  • appointment of management contractor (June 2006)
  • completion of Stage E design (June 2006)
  • novation of design team to management contractor (September 2006)
  • commencement of construction (October 2006)
  • completion of construction (February 2008).

Proposed partnership arrangements with WBC

1.20The details of the proposed partnership arrangements between TRDC and WBC in respect of the Woodside Leisure Centre are yet to be confirmed. However, based on documents reviewed and discussions with relevant TRDC and WBC officers, the key principles are likely to be as follows:

  • TRDC provide WBC with the sum of £2million as a contribution to the overall capital costs of the redevelopment of the Woodside Leisure Centre
  • WBC will ensure that the facility mix for the redeveloped Centre includes, as a minimum, provision of an eight-lane 25-metre swimming pool with associated learner pool
  • WBC will retain full responsibility for the full funding and delivery of the redevelopment scheme, providing, where relevant, appropriate indemnities to TRDC
  • WBC will retain full responsibility for any ongoing revenue subsidy required by the redeveloped Centre (including any major repairs and maintenance expenditure required during the life of the building)
  • TRDC residents will be able to access all elements of the redeveloped Centre (i.e. swimming and non-swimming activities) on exactly the same basis as WBC residents (including in respect of pricing, concessionary and booking policies)
  • WBC will retain full responsibility for the management of the redeveloped Centre and will provide regular reports to TRDC.

Financial implications

1.21In order to examine the financial implications of the potential TRDC investment into the Centre, we have considered the following issues:

  • Value of subsidy to TRDC residents
  • Impact on other TRDC facilities
  • Capital investment
  • VAT implications

Value of Subsidy to TRDC residents

1.22The proposed partnership agreement indicates that TRDC residents will be able to access all elements of the redeveloped Centre (i.e. swimming and non-swimming activities) on exactly the same basis as WBC residents.

1.23It is currently WBC’s intention that non-residents of the borough will be charged additional fees for use of the facilities. Details of this pricing policy are yet to be confirmed, but we understand that non-residents are unlikely to be eligible for concessionary price schemes and will be charged premium prices for facility elements such as direct debit memberships.

1.24On this basis, there will be a clear value to TRDC residents if, via the partnership agreement, they are able to use the facilities on the same basis as WBC residents.

1.25Without absolute clarity on the intended pricing policy, it is difficult to be precise regarding the value of this proposed subsidy to TRDC residents. However, based on the pricing and income assumptions included within WBC’s projections for the new Centre, we have made estimates as shown in Tables 1.1 to 1.3 below.

1.26In making these estimates, we have had to assume the level of usage of the facilities specifically by TRDC residents. To do this, we have examined relevant drive-time catchment areas and available data regarding usage of the existing WBC facilities by TRDC residents. However, this information is limited and so, in order to provide a sensitivity analysis, we have assumed three different levels of usage of the facilities by TRDC residents. Accordingly, in Tables 1.1 to 1.3 respectively, we have assumed that 10%, 25% and 40% of the overall facility usage is by TRDC residents.

1.27Further, in these Tables, the “annual value to TRDC residents” is a calculation of the potential value to TRDC residents should they be entitled to reduced prices in line with WBC residents. The calculations have been based on TRDC and WBC residents being eligible to price reductions of 5%, 10% and 25% on the normal price for non-residents.

Table 1.1Estimates of Value of Subsidy (assuming 10% TRDC usage)
FACILITY / ANNUAL INCOME (£Ks) / ASSUMED TRDC INCOME (£Ks) / ANNUAL VALUE TO TRDC RESIDENTS (£Ks)
5% / 10% / 25%
Dryside / 193 / 19 / 1 / 2 / 5
Rentals / 17 / 2 / 0 / 0 / 0
Outdoor / 141 / 14 / 1 / 1 / 4
Fitness / 1,047 / 105 / 5 / 10 / 26
Wetside / 428 / 43 / 2 / 4 / 11
Catering / 113 / 11 / 1 / 1 / 3
Misc. / 69 / 7 / 0 / 1 / 2
TOTAL / 2,008 / 201 / 10 / 20 / 50
Table 1.2Estimates of Value of Subsidy (assuming 25% TRDC usage)
FACILITY / ANNUAL INCOME (£Ks) / ASSUMED TRDC INCOME (£Ks) / ANNUAL VALUE TO TRDC RESIDENTS (£Ks)
5% / 10% / 25%
Dryside / 193 / 48 / 2 / 5 / 12
Rentals / 17 / 4 / 0 / 0 / 1
Outdoor / 141 / 35 / 2 / 4 / 9
Fitness / 1,047 / 262 / 13 / 26 / 65
Wetside / 428 / 107 / 5 / 11 / 27
Catering / 113 / 28 / 1 / 3 / 7
Misc. / 69 / 17 / 1 / 2 / 4
TOTAL / 2,008 / 501 / 25 / 50 / 125
Table 1.1Estimates of Value of Subsidy (assuming 40% TRDC usage)
FACILITY / ANNUAL INCOME (£Ks) / ASSUMED TRDC INCOME (£Ks) / ANNUAL VALUE TO TRDC RESIDENTS (£Ks)
5% / 10% / 25%
Dryside / 193 / 77 / 4 / 8 / 19
Rentals / 17 / 7 / 0 / 1 / 2
Outdoor / 141 / 56 / 3 / 6 / 14
Fitness / 1,047 / 419 / 21 / 42 / 105
Wetside / 428 / 171 / 9 / 17 / 43
Catering / 113 / 45 / 2 / 5 / 11
Misc. / 69 / 28 / 1 / 3 / 7
TOTAL / 2,008 / 803 / 40 / 80 / 201

1.28The key conclusions to be drawn from the figures in Tables 1.1 to 1.3 are as follows:

  • The annual value of the subsidy to TRDC residents could be substantial, but that estimated value varies widely dependent on the level of usage of the facilities by TRDC residents and the percentage reduction on prices offered to TRDC residents
  • Usage of the fitness and swimming facilities by TRDC residents forms the significant proportion of the estimated value of the subsidy.

1.29On this basis, should the Council decide to enter the partnership agreement as currently proposed, it would be important to gain further clarification in respect of the anticipated usage of the facilities by TRDC residents and differential pricing policies for residents and non-residents, particularly in respect of fitness and swimming activities.

1.30We have undertaken some simple mapping to explore five-, ten- and 15-minute drivetime catchment areas around the proposed facility. The relevant map is provided in Appendix 1.

1.31This mapping indicates significant overlap between the ten- and 15-minute catchment areas and the TRDC district. Whilst the overlap area has not been calculated precisely, it amounts to approximately one third of the overall catchment area in each case. On the assumption that one third of the catchment population resides within one third of the catchment area and that there are no significant differences between the demographics of different parts of the catchment areas, it is probably valid to suggest that up to one third of users of the new Woodside facility will be TRDC residents.

1.32Based on this level of usage, Table 1.4 below sets out the estimated value of the subsidy of TRDC usage of the new Centre under the different price discount scenarios and indicates the pay back period of the £2million investment in each case.

Table 1.4Estimates of Value of Subsidy (assuming 33% TRDC usage)

FACILITY

/

ANNUAL VALUE TO TRDC RESIDENTS (£Ks)

/

PAY-BACK PERIOD FOR £2M INVESTMENT (years)

5%

/

10%

/

25%

/

5%

/

10%

/

25%

TOTAL

/

33

/

67

/

167

/

61

/

30

/

12

Impact on other TRDC facilities

1.33There is a possibility that the development of leisure provision at the Woodside Leisure Centre could displace users from the existing TRDC facilities.

1.34However, our understanding is that only limited numbers of residents from the north of the district currently travel to use either William Penn Leisure Centre or Sir James Altham Pool. Accordingly, we do not anticipate a material impact on the financial performance of these facilities.

Capital Investment

1.35We understand that TRDC have committed the sum of £2million as part of the capital programme for 2007/2008 as a contribution to the provision of a new swimming pool for the north of the District.

1.36Accordingly, pending consideration of VAT implications, the proposed partnership agreement with WBC does not involve the commitment of additional capital funds.

1.37We understand that, whilst the £2million is nominally being contributed in order to allow WBC to construct an eight-lane rather than a six-lane swimming pool, this element of the development scheme has not specifically been costed.

1.38Nevertheless, we understand that the costs of providing the additional two lanes are of the order of £2million. Further, we have been informed that, should TRDC choose not to contribute the sum, then the first facility element to be dropped from the current development scheme would be the additional two lanes.

VAT Implications

1.39The implications in respect of VAT of the proposed partnership arrangement are quite complex.

1.40The payment by TRDC to WBC could be seen as a third party consideration by TRDC in part payment towards the leisure services that its residents will enjoy. If this is the case, then WBC will have to charge VAT on the £2million and TRDC would not be able to recover this VAT.

1.41If this case, TRDC would have to either accept an additional cost of £350K (in respect of irrecoverable VAT) or reduce its capital contribution to circa £1.7million (i.e. £2million minus VAT).

1.42Our specialist VAT advisor does not believe that the arrangement can be dealt with as a supply of construction services to TRDC using WBC as its agent, because WBC is having its facility redeveloped and will be principal in contracting with the building company undertaking the works. TRDC will not have any legal title over the new Centre and therefore is not having work carried out on one of its assets.

1.43However, if the arrangement can be structured as a “Dual Use Agreement” for which the £2million is seen as an up-front payment for the supply of services within that agreement, then this could be treated as non-business income by WBC and therefore no VAT would need to be charged.

1.44In any case, our recommendation is that the situation in respect of VAT requires additional exploration and consultation with relevant Customs and Excise contacts.

Non-financial implications

1.45The primary benefit for TRDC will be that a lack of leisure provision identified within the district will be at least partially addressed.

1.46Specifically from a sporting perspective, the provision of an eight-lane swimming pool provides additional opportunities in respect of training and gala facilities for competitive swimming. Further, the additional water space provides extra opportunities for swimming lessons.

1.47As such, the new Centre would help to address two of the key findings of the assessments undertaken by TRDC in 2004 and 2005, namely that:

  • there are no learner pools and no eight-lane facility enabling the hosting of competitive swimming events; and that
  • the major gaps in provision appear to be in the north of the district, with an undersupply equivalent to one pool, particularly affecting the community of Abbots Langley.

1.48The other key advantage of the proposed partnership agreement is that TRDC would not be exposed to the full developmental and operational risks associated with the new Centre.

1.49As stated earlier in this paper, TRDC’s sole responsibility in respect of the agreement would be the contribution of £2million. WBC would retain responsibility for the full funding and delivery of the redevelopment scheme and for any ongoing revenue subsidy required by the redeveloped Centre (including any major repairs and maintenance expenditure required during the life of the building).

1.50This situation not only protects TRDC from the costs of any unexpected complications in respect of the initial development and the ongoing facility management, it also means that there will be limited requirement for resource-input from TRDC officers. We understand that this resource is very limited and that this is an important consideration for officers and members.

1.51The key disadvantage of the proposed partnership arrangement is that the new facility would be developed outside the district boundaries.

1.52This fact could have a number of negative implications, including the following:

  • Perceived “leakage” of capital investment outside the district
  • Lack of TRDC resident “ownership” / “sense of belonging” to the new facility
  • Ongoing accessibility problems for TRDC residents
  • Lower than anticipated usage of the facilities by TRDC residents

1.53Some of these concerns are, to some degree, mitigated by the knowledge that TRDC residents already use WBC facilities relatively extensively, but the issues would need to be carefully monitored and managed.

Alternative options for TRDC

1.54In the light of the detail provided in the previous sections of this paper and for the purposes of comparison, we have considered three alternative options for TRDC action at this stage. These three options are as follows:

  • TRDC decides not to contribute £2million to the Woodside scheme
  • TRDC decides not to contribute £2million to the Woodside scheme, but uses the money to provide additional facilities in Abbots Langley
  • TRDC decides not to contribute £2million to the Woodside scheme, but invests the money and uses the interest gained to directly subsidise use of the WBC facilities by TRDC residents

-We understand that finance officers have indicated that, notwithstanding potential legal and accounting requirements, an investment of £2million would, at current rates, be likely to generate interest of circa £90K in the next 12 months