Agenda item

To pre-scrutinise the attached Qualis Four-Year Business Plan, prior to a decision by Cabinet that is due on 12 July 2021.

Strategic Director A Small introduced the detailed business plan, which had yet to go before Cabinet for a decision on 12 July. It was a requirement of the Shareholder agreement that each year Qualis produced and presented to the Council a one year and a four-year business plan for the Council to consider and sign-off. Since the newly appointed Qualis Board had needed time to consider the medium, and longer term, strategy only a single year business plan had been presented to Cabinet in December 2020. The business plan detailed future service transfers and a template for such business case transfers.

Councillor J Philip, Portfolio Holder (Finance, Qualis Client and Economic Development), outlined that Qualis had been set-up by the Council to be successful and to do the business it wanted Qualis to do, although it was a separate development company. He encouraged members to be positive about Qualis and look at what Qualis was expecting to undertake, but he fully expected the one year and four-year business plans to be updated, as there might be changes along the way.

S Jevans (Qualis Group Managing Director) introduced other Qualis Board Members – Paul Hewitt (Group Operations Director), Ben Johnson (Qualis Management Managing Director) and S Rutter (Qualis Commercial Managing Director). Qualis was the Council’s property management and development company and it generated returns that supported the Council’s key services and regeneration activities. Its core activities focussed on development, investment, property asset management and facilities management. The four-year plan set out detailed plans for each of the four subsidiary companies. The business plan aimed to deliver the Epping development sites, Cottis Lane, Bakers Lane, St John’s Road, Conder Building and Hemnall Street (270 residential homes), and Roundhills (28 residential homes). Any investment and regeneration opportunities within the District would be explored. Qualis would continue to build on its commercial investment portfolio and had already achieved a £30 million investment portfolio across three assets. Qualis would look at the benefits of transferring additional services that made sense to do so in relation to property. It would be working with the community on the development of Qualis Community.

N Dawe (Qualis Group Finance Director) stated that Qualis Management would generate a 6% targeted return within the next four years. Qualis Commercial was forecast to return significant development income in the year after next. Qualis Living, in terms of investment assets, was forecast to grow a healthy profit over the next four years and a further small loan would be required to help more developments to take place worth £35 million.

The Committee pre-scrutinised the Qualis Four-Year Business Plan 2021/22 to 2024/25, as detailed below.

·      The residential homes to be built at the Epping Town Centre developments and Roundhills seemed a small number of homes for the next four years. Regarding key priorities in relation to the property asset management function, how much was it envisaged this would save the Council? Councillor J Philip replied that this was why the Council’s asset management team needed to work together with Qualis to ascertain not just the savings but the improved revenue generation that could be made, so this had yet to be done.

·      If over the four-year plan no dividends would be taken, was there a way to maintain the dividends? Councillor J Philip replied that profits generated would be kept within Qualis to be reinvested as the Council wanted Qualis to be successful and this would give it the opportunity to grow.

·      Would information on the quality of the services after they had transferred to Qualis, particularly in respects of voids, be open to scrutiny and would sufficient detail be provided? Also, what consultation was being carried out with tenants before the business case to transfer management services to Qualis? Councillor J Philip clarified that there were no plans to hand the Council’s housing stock over to Qualis in this four-year plan as it was more to do with the management of things. The Council had chosen Qualis to take over the management of the Housing Repair Team, but this did not affect the Council’s ability to scrutinise things. B Johnson replied that in terms of outsourcing and where it made sense to do so, Qualis was looking at building the capability in-house and to make savings for the shareholder. Performance was monitored on a monthly basis, which included voids, as well as several high-level KPIs that were regularly reported back to the Board.

·      Could assurances be given that the transfer of Council housing stock to Qualis was not being considered? Councillor J Philip advised that there had been no discussions about moving housing stock to Qualis. The Council was proud of building new council houses and these would stay with the Council.

·      Additional information on Qualis Community highlighted that Primera was making progress on setting it up. P Hewitt commented that ideas were being developed in this area and there was more work to be done, which would then be reported to the Council, hence the lack of detail given in the business plan.

·      On retraining of people who had lost jobs though the Covid pandemic, P Hewitt replied that young people were an area of concern. The aim was to get desired programmes to help any unemployed in the District.

·      Councillor C Whitbread asked councillors to be mindful of the comments / advice they made on social media about Qualis and its Board, as only residents benefitted from Qualis and not members.

·      The Council benefitted from rental income of commercial assets, but was non-payment of rent on its commercial assets a potential risk factor as well as the forfeiture of leases? There was no date when the moratorium would end on tenancies. As the Council seemed to be placed lower down while other organisations were ranked higher in the charges register, what would happen in relation to a default on any loan payment made and the equity of an asset as this could be considered a reputational risk, and had this been identified in the risk register? Councillor J Philip replied that the Council did have rental risks on Council houses and on property in its asset portfolio, but the Asset Management Team would be looking into this. He continued that there was definitely a reputational risk for the Council and Qualis, but Qualis was separate from the Council and must be allowed to work as a normal developer and he felt that there was the right amount of security currently. N Dawe advised that Qualis had secured low risk assets and part of the due diligence process was that the payment history was good and that properties being purchased would perform well in the market, so it was a very conservative portfolio approach. The Council was mindful of risk, albeit a low risk, and aimed to minimise risk. In terms of rent risk on the £30 million loaned to Qualis to acquire commercial property, there was heavy securitisation on the loans.

·      What role did the members on the Qualis Board play? Also, it seemed to be taking a long time to fill the vacancies in the Asset Management Team. Councillor J Philip replied that two councillors represented the Council on the Qualis Board that was set-up last year, as well as an independent Chairman and independent members. It was important there was a good working relationship between the Qualis Board and the Council’s senior management. S Jevans was seconded last autumn to Qualis for two years as the Managing Director. Other staff were being seconded to do necessary work. The Asset Management roles would be filled by Qualis when required.

·      Was Qualis being overly ambitious and too quick? Councillor J Philip replied that a long process had been undertaken to look at the four-year business plan and that there needed to be sufficient ambition, so there was now a good balance. However, updates to the four-year business plan would keep coming back.

·      Could the purchase price of £1.6 million for the Pyrles Lane site be clarified, as a valuation figure was being awaited, and what were the fees of £800,449? Councillor J Philip advised that the business plan had to be produced for this agenda, but it would be better to wait for the full business plan going to Cabinet on 12 July 2021.

·      Could Mr Dawe provide more information on why Qualis would be borrowing more money? Councillor J Philip said that at this stage there was not a great deal of equity to build on, so Qualis needed the loans detailed in the business plan. N Dawe replied that future projects included Pyrles Lane and Cottis Phase II, as well as two other regeneration projects but these required further work as they were commercially sensitive. Councillor J Philip added that the Public Works Loan Board could provide loans for regeneration projects and there was a drive to regenerate different parts of the District.

·      Did Qualis have a process in place regarding its significant risks as it was a new company? Councillor J Philip acknowledged there were risks but regular quarterly monitoring reports would be scrutinised, and it was covered in the business plan.

·      Given the close working relationship between Qualis and the Council would there be independent scrutiny by a third party over the four years of the business plan on Qualis’ various activities as this would enhance public confidence? Councillor J Philip replied that elements of what Qualis was doing could be scrutinised where it delivered services for the Council. Although the Council was the shareholder, Qualis was an independent company, and it was critical it served our residents but should be able to work independently. The challenge with Qualis was to make the outward facing things clear and open to scrutiny. S Jevans advised that the Council had recently audited Qualis, which provided the shareholder with confidence.

·      As the details would change year by year, was there a mechanism in place to allow members to comment on possible schemes Qualis was looking at? Councillor J Philip asked members to bring any particular areas to his attention because, from the client side, he held a weekly meeting with S Jevans and would pass on contributions from members in relation to Qualis’ core business.

·      In respect of reviewing the organisational structure of Qualis with a view to identifying operational and financial efficiencies, were there any thoughts on setting up further companies? P Hewitt replied that there were no plans to do this. However, as many activities of Qualis Living and Qualis Commercial did overlap somewhat, external advice was being sought and it was being investigated whether those two companies could be combined. This would drive efficiency and the need for resources, as well as bringing some operational benefits, but only if it was right for Qualis.

The Chairman thanked the Qualis Management Team for attending the meeting and encouraged members to attend the forthcoming Cabinet committee on 12 July 2021.

RESOLVED:

That the Overview and Scrutiny Committee pre-scrutinised the Qualis Four-Year Business Plan.