Tag: bad economics

If I were someone who’d chosen, on the basis on minimal consultation, to stump-up almost £½M of local taxpayers’ money to the company intending to install wireless internet boroughwide across Swindon, I’d be feeling a little worried reading that company’s February update.

Things aren’t going according to plan. Just six weeks ago installation in Highworth was expected to be complete by mid-January. It’s now early February and work is still in progress.

[T]he installation in Highworth has not gone to plan. There are several reasons for this – topography, approvals and snow to name a few…. We have also had areas where there were no suitable lampposts and no public buildings to substitute. We have in the High Street spoken to retail businesses and begun to cover our black spots and hope to complete around the 15th.

Now I’m not aware of the approvals process for radio transmitters having changed in recent months. Nor have I seen reports of a mountain suddenly springing up in the middle of Highworth, nor of buildings and lampposts disappearing overnight. None of these could be regarded as unpredictable, and cold weather in winter is not a total surprise either.

Not only is the hardware side a bit awry, the marketing seems to have been off-target too.

Customer response in the main remains positive but we know we have frustrated many because we went live with the PR before we were ready, as a result are always playing catch up…. The following is our initial plan. In Highworth, from the end of February, we will carry out a leaflet drop, display window posters and place an advertisement in a community magazine. We will also be placing adverts for the free service (not yet designed) in as many public places as we will be allowed.

If they don’t know what the adverts will be nor where they will go, that’s more an initial guess than an ‘initial plan’.

To be fair, no start-up company will be anywhere near perfect: start-ups make mistakes… lots of them. And the openness with which the company is now talking about its progress is welcome. If this was all being done with private capital, whilst I might have a little fun at the company apparently being caught unawares by the presence of hills in the landscape, I wouldn’t be overly concerned. But this isn’t being done just with private capital.

There’s almost £½M of local taxpayers’ money invested in this. Taxpayers money invested in secret. Taxpayers money invested on the basis of a business case only a select few in the council have seen. A business for which the briefing to two councillors said marketing was key. If the business case was truly robust enough to warrant stumping up £450k of local taxpayers’ money, I wouldn’t expect things to be so far off plan as they are now.

It’s been brought to my attention that Mr Bluh’s been defending and promoting the efficacy of his not-so-little wifi deal. At a meeting of Swindon Borough Council’s Scrutiny Committee he almost showed a little humility. Almost.

He acknowledged the significant level of debate on the subject of the proposal to deliver a Wi-Fi network across the borough, particularly in relation to the decision-making process in reaching an agreement with Digital City (UK) Ltd

It would be rather shocking if he’d not noticed the very extensive debate.

He welcomed debate on how best to resolve issues of process that will allow the Council to take advantage of similar commercial opportunities that might arise in the future

As the evidence that this will be an opportunity rather than a liability has not been made public, I’d rather processes were in place to ensure secretive deals like this weren’t done in future.

[He] stated his certainty that the Wi-Fi network would prove to be a great success, one that would not only produce a financial return that would underpin service delivery for the benefit of residents, but one which presented an exciting commercial opportunity for private and public sector businesses and organisations in Swindon.

And why should I or anyone else in Swindon trust the business judgement of a politician and has-been lawyer? As it seems this decision was made in secret by no more than five people there’s clearly not a lot of trust around.

It was therefore essential, he felt, that the Council was prepared and able to pursue viable commercial opportunities, such as the Wi-Fi network, as they presented themselves.

A new internet provider in one of the best connected towns in the country doesn’t sound like the most sure-fire winner to me.

[H]e agreed that more openness generally was to be welcomed but he maintained that, if the proposal had been debated in an open forum, the “deal would not have happened”.

One of the purposes of open debate is to ensure that certain deals don’t happen. Nobody beyond a select few has been allowed to scrutinise the information that would allow them to form their own view as to whether this was a deal that should have happened.

He was aware of concerns about the decision making process and assured the Committee that the process would be reviewed.

And what happens if the review shows the process was flawed? Will Mr Bluh personally stump-up the almost £½M that has been gambled on the three start-up companies providing the wifi service?

However, he remained convinced that the proposal, which he was sure would be to the benefit of the council and its residents, could not have been successfully concluded if it had been made public any sooner than it was.

But it’s not really public even now. We have no detail of the basis on which Mr Bluh and associates made this decision — it remains a secret deal.

Councillor Bluh assured the meeting that the Council would not be required to make any further financial commitment to the Wi-Fi scheme beyond the initial £450k loan.

The council had no commitment to make the initial £450k loan, but a select band decided that it should. Why should we believe that if the company came back begging for more money, Mr Bluh wouldn’t choose — in secret — to stump-up yet more of our money?

Many questions have been asked so far about this deal. Some questions about the process by which this decision was made raise serious issues. Mr Bluh’s answer to almost all of them seems to be ‘Trust me, I know best.’ Until he provides more informative answers the scrutiny should continue.

And how much direction to that regeneration will £150,000 buy? I ask those questions because £150,000 is roughly the size of the ‘package’ being offered for the chief executive of the replacement to the New Swindon Company.

• £120,000 salary
• £15,000 bonus
• Removal and storage costs
• Up to £4290 for temporary accommodation
• 6 months weekly travel costs
• Legal & estate agents fees plus stamp duty
• £750 for ‘adaptations in the home’
• Up to £8000 for relocation expenses

That’s roughly 10% of the new company’s budget of roughly £4.5M over 5 years going to its chief executive’s pay.

According to Mr Bluh

This is an exciting opportunity to lead and direct the regeneration and transition of Swindon, placing it on the national and international stage as a location open to inward investment.

Unfortunately Mr Bluh has been saying much the same thing for many years. There’s been far too much talk of visions, leadership and direction, but a woefully small amount of action, even allowing for the havoc wreaked upon the regeneration plans by the poor state of the economy.

We are seeking someone who has the appropriate leadership and entrepreneurial qualities and the ability to gain the support of public and private sector investors and the local community to deliver success.

‘Deliver success’? And whose version of success will that be? Surely it should be for this new company to support the public/local community and private sector investors to deliver success, not the other way round.

This is a pivotal time to shape the future of Swindon and in the process make your mark.

And that mark needs to be something considerably better than decorated hoardings around demolition sites, which is just about the only mark the New Swindon Company has left on the town.

This new company has a long list of things to do. It includes some such as a ‘University project’ that should be dead with the current state of government finance. Roughly £1.3M of our money is to be spent in the company’s first year, and a total of roughly £4.5M over five years, with a mission:

‘To deliver prosperity and a town everyone can be proud of.’

Given the parlous state of public sector finances — both nationally and locally — we need to get considerably better value for our money than the regeneration has been so far.

Appearances can be deceiving. I see that, having Swindon Borough Council loaned almost £½M to the company in which it has a 40% stake that is installing wireless internet across Swindon, that company has contracted the installation and maintenance to Swindon Commercial Services. That’s the same Swindon Commercial Services that Swindon Borough Council has recently made into an arm’s length company, and would obviously like it to have a few ‘external’ contracts in its first year of pseudo-independence, to make its finances look rather more rosy. The same Swindon Commercial Services that has amongst its directors one Mr Hunt, who so happens to be chief executive of the wifi company.

Public sector commercial dealings should not only be above board, but should be seen to be above board. The appearance of this deal is rather more incestuous than is seemly.
Hat-tip: magicroundabout.

Sometimes the government’s representative in South Swindon, Ms Snelgrove, is so keen to slag off the blue nest controlled council that she ignores what she’s quoting her own ministers as saying. Take, for instance, today’s announcement that the government’s adding another £122.6M to the national debt to fund the building of more council houses. Ms Snelgrove would have us believe that the council needs to do more.

The Council’s housing waiting list is now over 10,000 which is completely unacceptable and they need to start matching the Government’s support to tackle this problem.

Err… matching the ‘Government’ support (i.e. taxpayer support) is a condition of the scheme, and as the council had to bid to government for the money, is something they’ve already committed to.

John Healey announced 73 councils covering every region of England will share an extra £122.6 million. Councils will match the Government’s grant, bringing total public investment in the programme to over £500m to build more than 4,000 new council homes

Oddly although Ms Snelgrove included that in her press release, she chose to ignore Mr Healey’s compliment to the winning councils.

Councils have shown they’re ready and willing to build new homes, so I’m ready to back them.

The government’s representative in South Swindon, Ms Snelgrove, is always quick to criticise the council when their bids to government are unsuccessful. In contrast, when the council is successful… she’s still full of criticism. I’m not daft enough to expect politicians to present an unbiased view; I do expect them to keep their political point scoring consistent with the facts.

One thing that seems to be absent in Swindon’s free wi-fi fiasco is due diligence. Mr Bluh would have us believe that due diligence occurred before Swindon Borough Council loaned a start-up company £450,000 of our money to provide ‘free’ wireless internet across the borough.

As for whether due diligence was followed, of course we looked at the risks and exposure of the investment. There is absolutely no requirement for us to seek third party independent advice. We have successfully concluded many multi-million deals and transactions and, as a result, have built up a high level of legal, commercial and technical expertise.

Others disagree. Evidence of due diligence is certainly hard to find. The published advice given to Mr Bluh and Mr Edwards is limited. The advice stated that the company was more likely to pay the council’s loan back late than to completely default. It also stated that the likelihood of the council getting a return on its shareholding was strongly dependent on the company’s marketing campaign, yet at the time the company did not have a formal marketing plan. Just how weak would a business proposition have to be for these two councillors not to squander our money on it? This is also the council’s first public/private venture, according to an article in the council’s own newspaper. So the expertise available in the council is more limited than than is being suggested.

Mr Bluh would also have us believe that this £450,000 could not be used for other purposes.

The money invested in Digital City cannot be used to plug a gap in our budget or operating services, it forms part of a sum we would normally invest in order to get a better return for the council.

Just how naïve does he think we are? Transferring money from reserves is commonplace amongst councils when times are tough, as shown in Swindon Borough Council’s own accounts.

Theres also the matter of whether this boroughwide wifi service should have been put out to tender, as a procurement exercise. The Swindon branch of the Federation of Small Businesses believe so, and that the council is disadvantaging local businesses. Once again, Mr Bluh would have us believe differently.

We have been looking at providing free Wi-Fi for the last three years as part of ‘Swindon’s Digital Challenge Proposal’ and it is only recently we have been approached by Digital City UK who had a technical partnership with aQovia. They came to us because they wanted to set up services to sell in Swindon and we invested in them, so we have not disadvantaged any other businesses in Swindon.

But if it was part of the council’s policy to provide such services would they not have eventually offered a contract to supply these services if this offer hadn’t been made? And isn’t Mr Hunt — as chair of one of the council’s bureaucracies, the Swindon Strategic Economic Partnership, and a board member of several others (SSP, TNSC & SCS) — someone with rather better access to the council cabinet than most? This is not some unconnected company coming along with a commercial proposition: Mr Hunt and the council have been closely connected for many years. And as a consequence of that we, the Swindon taxpayers, seem to have been landed with a deal with far less financial security than a properly procured service would provided.

It’s not enough for the process to be, as Mr Bluh regards it, not only above board but robust. It also needs to be seen to be above board. At the moment, all that can be seen is a fog of secrecy and spin, mixed with smoke from taxpayer’s money burning.

Mr Wills — who is suspending his website in a few days’ time because he can nolonger use our money to subsidise his political ramblings there — like so many of his colleagues just does not understand the public outrage over MPs’ expenses. Like many, he continues to protest his innocence for financial errors — errors which if made by his constituents would get little if any sympathy from the state.

To Mr Wills there’s nothing wrong with using a disallowed claim as an excuse for not paying back an overpayment of expenses.

[A] series of accounting mistakes result[ed] in double payments of claims by the Fees Office. I deducted from the repayment the amount I was owed by the Fees Office for receipted train fares to and from my constituency. The Fees Office has still not paid this because they say the claims were submitted 16 days after a deadline they had imposed, despite the fact they are entitled to waive the deadline.

Imagine missing a deadline for filing details for a tax claim, then using that as an excuse for not paying income tax. It wouldn’t work: the Inland Revenue would not be sympathetic; neither, I suspect, would Mr Wills. Yet he expects our sympathy for doing much the same thing.

By the standards of many of his MP colleagues, Mr Wills has been relatively well behaved financially. But when it comes to understanding the mood of the electorate on this issue, he’s as out-of-touch as the rest of them.

It now seems that there’s more than just the marketing plan that’s been forgotten by the company setting up ‘free’ borough-wide wireless internet in Swindon at our expense. From the latest comment by Mr Hunt it’s obvious that even the plans for setting up the wi-fi are vague.

It won’t be fully functional in Highworth until probably about January 15. After that we will have a better idea.

Probably about? Just what sort of commercial delivery plan is as vague as that for a deadline just three working weeks away? This also suggests that last week’s ‘launch’ of the wifi service in Highworth was a sham and nothing more than a publicity stunt.

For a project that’s costing us almost £½M, I expect something far more robustly planned and thought through than this. I expected our council leaders to have demanded such robustness too, before they used our money for this speculative investment.

Mr Bradshaw has recently announced the creation of over 600 publicly funded jobs to massage the unemployment figures help young unemployed people into work. The jobs are, almost without exception, in the public sector, including 142 at the National Monuments Record Centre in Swindon. According to Mr Bradshaw these jobs usually go to rich kids.

[T]hese are great jobs — jobs in sectors that can be really tough to break into, that are usually the preserve of better off children whose parents have the contacts to get them a foot in the door.

Err… so he’s saying that after twelve years of his government and all its bluster about inclusiveness, recruitment to public sector jobs is biased, favouring the wealthy with contacts, rather than recruiting on merit.

It’s nice of Mr Bradshaw to confirm that the old boy network is alive and well under New Labour.

A document uncovered by kecl over on TalkSwindon shows that Swindon Borough Council’s £450,000 loan to the company installing wifi across the borough is far from secure.

The new company will need to generate sufficient income to repay the loan provided by the Council. Should this not be the case, security is provided through the loan agreement which requires transfer of the ownership of the company’s assets to the Council in the event of default. The physical assets will be purchased at a cost of around £250k

What the cabinet briefing to Mr Bluh and Mr Edwards doesn’t mention is what those physical assets might be worth once installed: no doubt considerably less than £250k. Still, never mind, the council would have a share in an unsuccessful network and a defaulting company.

In addition there will be value in the virtual network that will cover all of the Borough and in the Council’s shareholding in the company.

The document also indicates how woefully unprepared the company was just a couple of months before launching the service.

While providing the loan is not without risk, based on the Business Case it appears that the risk that the loan repayment period may need to be extended is more likely than the risk of complete default…. The success of the company, particularly in the early stages, and consequently the potential for Swindon Borough Council to achieve a return from its shareholding will depend to a large extent on the success of the marketing campaign. A formal marketing plan has not yet been developed, but a Brand Consultant and Marketing Specialist have been informally assisting the project.

So that’s a loan made of the basis of a business plan that lacks a plan for what financially is its most important part.

Over 50% of households in Swindon already had broadband access in 2006. That’s half the potential market for the new company’s paid-for services gone before they even start. Many of the remainder are likely to have neither the interest nor the money to pay for wifi services either. The business case must be very optimistic.

According to the document, the report and its recommendations were approved by the two cabinet members without reference to the rest of the council’s cabinet. The issue has now been referred to the Audit Commission.