A series of calamitous decisions and mistakes by Liverpool Council could cost taxpayers nearly £5 million and hit city schools with millions in added energy bills.
A litany of errors and miscommunications at the council saw the city's mayor, cabinet and chief executives fail to be informed of major changes to their electricity supplier that would add millions to the city's energy bills at a time when further swingeing cuts have just been approved.
Today, the council's chief executive Tony Reeves formally apologised to the residents of the city for the costly mistakes of some of his officers. He has now agreed with government commissioners - installed to try and improve the troubled council - that a formal investigation into the 'controls, process and culture issues' that have led to the city's electricity contract ballooning from £10.6m to £26m per year must now take place.
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Liverpool Council previously had a contract in place with Scottish Power for electricity, which ran from June 2018 until May of this year. The deal concerned the supply for the council's own buildings and estate as well as the city's maintained schools and the fire service. The council had an option to extend the deal for another year until next May.
That contract had fixed prices until March of this year. From July 2021, discussions were held within the council about the options available for future electricity contracts, including whether to take up the extension option with Scottish Power. With increased volatility in the energy market, council officers held a meeting with Scottish Power in October 2021 in which it was agreed the contract extension would be accepted with some tariff options provided.
A draft cabinet report then presented the deal for sign-off at a cabinet meeting in January 2022. If this had gone to plan it would have led to 'increased price certainty' for the council.
However, the report was produced covering both gas and electricity contracts. This was the first of a series of errors from officers as the council's gas contract had already been automatically renewed back in October 2021. This key detail had not been picked up and the mistake led to a delay as the report was withdrawn.
On February 9 this year, the council received written confirmation that the 12-month extension was still available and that Scottish Power would accept a request to extend the deal as long as it was received by March 10. The incorrect cabinet report was redrafted to include only the electricity contract and was taken forward to the March 4 cabinet meeting, with a recommendation to confirm the extension.
But late on the afternoon of March 3, the day before that meeting, Scottish Power contacted officers to explain that their commercial and industrial desk was closed. An urgent meeting was called between the council and the energy firm the next morning.
In that meeting, Scottish Power informed the council that, due to the ongoing energy crisis in the country, it had closed its trade desk and was unable to open it for between one and two months. This meant no new contracts could be priced and agreed and the council would not be able to extend its electricity deal until the desk reopened. It also meant the council would be placed on the company's 'standard variable' contract until the desk reopened. This may have resulted in a doubling of pricing for the council.
A cabinet report states: "This was unprecedented and a significant increase in the risk associated with procuring a new supplier. Specifically, it meant immediately that Scottish Power was limiting the buying options available to commercial and industrial customers from that moment for the period of closure. It also raised doubt that the contract extension sought from cabinet on March 4 would be available, as the extension had to be agreed by Scottish Power."
The Mayor and cabinet of the city council were not made aware of this development concerning the council's electricity supplier and the cabinet report agreeing an extension was agreed without any mention of Scottish Power's situation.
No contingency plans were therefore discussed that would have allowed the cabinet to take advice and discuss alternative options.
Not only had the cabinet not been informed, but the council's senior leaders - including Chief Executive Tony Reeves - had not been either. They would not find out about the ensuing crisis until they were informed by the government-appointed commissioners weeks later, on March 17. The cabinet member responsible was not informed until March 23 when an officer returned from leave.
On March 24, Scottish Power confirmed that from April 1 any future energy supply would be on the standard variable rate, which would be far more expensive and leave the council open to significant financial risks and market changes. It could have resulted in a doubling of costs.
After a range of alternative options were looked into, it was agreed the best option was to enter into an interim electricity deal with the government-approved Crown Commercial Service. This temporary contract will run from July this year until next March. There is no price guarantee as the contract is entirely market dependent and work is now underway to procure a longer term electricity contract for the council.
The financial implications of this saga for a council in an already difficult economic situation are dire and the cots of these mistakes to city schools could be devastating. It is estimated that the total cost of electricity covered by the current contract will now increase from £10.6m to £26m. This figure includes costs paid by schools and the fire service in the city, who have their own individual budgets that sit outside of the council’s general fund budget.
The added costs represent a potential council budget shortfall of £4.5m. This is terrible news for an authority that has just approved a highly controversial budget cuts package of £20m. The most contentious element of that budget was a move to start charging for green waste bins, which if successful would only bring in £1.7m.
The errors will have wide ranging impacts in the city. The budget shortfall in relation to the council's maintained schools could be as high as £4m based on a shocking 104% price increase. The latest cabinet report predicts that while some schools will have reserves to cover the increase, a significant number may not.
In its comments about the situation and the many mistakes made, the commissioners installed at the troubled council said they have 'significant, and ongoing concerns about the circumstances' that led to this latest decision.
A statement read: "It is a product of failures or errors in contract management, forward planning, procurement, risk management, governance, controls, and capabilities."
They added: "A rapid learning review, that the commissioners asked for in March, was inadequate and failed to address, in an open way, the core issues that had led to the Mayor and Cabinet taking a decision on March 4 2022 to extend a contract on terms that were not available to the council.
"It is a concern that this fact was not bought to the attention of decision makers in a timely and effective way; that a revised report was pulled from the cabinet meeting in April 2022 at late notice and now an additional meeting has been required to seek approval to new arrangements, which will have a significant cost impact for the Council, and its partners, especially schools."
The commissioners have asked for a formal investigation into what occurred to take place, which must 'address the controls, process and culture issues that surround this matter."
As the latest plan was agreed at a cabinet meeting this morning, a clearly frustrated Mr Reeves apologised to the mayor, cabinet and residents of Liverpool for the mistakes made. Deputy Mayor Jane Corbett said: "We must learn lessons from this process to ensure we never find ourselves in this position again."
