Edinburgh statutory repairs reports
Edinburgh City Council has paid £27m to contractors for building work at private homes which it has not yet recouped from residents, according to a report.
BBC Scotland has been allowed access to parts of the two highly-critical reports compiled by Deloitte for the council - called Project Power and Project Solar. Extracts are published below. Initials of those involved have been changed.
The council says they intend to publish a version as soon as possible but have not done so to-date because ongoing criminal proceedings and an internal disciplinary process.
Project Power report extracts
10.3 Most officers stated in interview that Property Conservation was only permitted to perform the minimum amount of work required to repair and make a property safe. However, a minority of officers appeared to interpret the section's remit as including the ability to effect repairs that may have been advisable and desirable but were not required immediately from a public safety perspective.
10.14 We have set out in Section 6 above our understanding of the procurement methods that were used by Property Conservation in the six years ended 31 March 2011. It is possible that some of those procurement methods, in particular the Short Tender process and the award of certain Minor Works projects to non-Minor Works Framework contractors, may not comply with the Standing Orders.
10.15.1 When we raised the issue of Short Tenders with AB in interview, he advised us that he was unaware that such a method was being used to procure Major Works, and that he considered that such a procurement method was inappropriate.
10.15.2 BC initially advised us in interview that he had been uncomfortable with the use of the Short Tender procurement method, but had only felt able to take action to stop its use when he was promoted ... BC indicated in interview that he reached this conclusion in conjunction with AB and CD, albeit his account is inconsistent with AB's own comments in interview.
10.17 We also note that the use of non-framework contractors by Property Conservation resulted in works being performed at non-framework rates, which would result in extensions to the scope of projects, and the consequent escalation in costs, being more difficult to manage. It is therefore unclear how Property Conservation can demonstrate that contractor costs have been reasonably incurred on projects in which the works have been awarded to contractors who were not members of the relevant framework, and were procured by methods other than Open Tender.
10.28 As a discrete recommendation, in our view it is imperative that CEC makes resources available to Property Conservation to enable a detailed, fully supported analysis to be prepared of the current accrual in respect of amounts paid to contractors but not yet invoiced to property owners. This analysis should establish details of the uninvoiced debt analysed by individual project and contractor. We recognise that certain projects may not be capable of being recharged to property owners due to their status, but we consider it essential that Property Conservation evaluates this accrual in detail in order to expedite cost recovery from property owners.
The VISA System
10.29 A contractor obtained unauthorised access to the VISA System which went undetected for over four years, during which time the contractor accessed the VISA system on more than 850 separate occasions.
2.52 Many of the underlying issues that we have identified during our investigation were identified by Internal Audit in he two raft reports issued in June 2008. Despite both the reports being sent to DE, who was then [job title].
2.59 Taken together, the issues summarised above point to serious and wide-ranging management failure which has exposed CEC to a potentially higher level of risk stemming from legal challenge, financial loss and reputational damage than would otherwise have been the case in the absence of such failure.
2.63 Our investigation has identified weaknesses at all levels of management who had responsibility for the operation of Property Conservation and Property Care. We recommend that CEC ensures that an appropriate management structure (both senior and operational) for these sections is put in place. Such a structure should consist of officers who have the appropriate skills, experience, ability and authority to implement the remedial programme that is concluded on by CEC. It will be important for these officers to be provided with sufficient resources, in terms of both suitably qualified and trained manpower and appropriately integrated and controlled ICT systems, to enable them to achieve the service objectives for each of the sections.
2.64 In a section that is subject to a high level of public scrutiny and operates in the relatively high risk construction sector, we consider that the management of fraud risks should be addressed more effectively than has apparently been the case. We recommend that Property Conservation management undertakes a thorough review of the risks - both operational and reputational - that attach to the section's operations and ensures that adequate controls are put in place to manage those risks.
9.19 We identified a number of instances in which it appears that contractors were appointed to perform Major Works and had erected a scaffold before the full extent of the required works had been established. As a result, property owners were faced with cost increases after the initial estimate of the cost of the works had been notified to them.
9.20 We recognise that, on occasion, it may not be possible to assess the full extent of the building work required until a scaffold is erected and a closer inspection of, for example, roofing or chimneys has been conducted. In such circumstances, however, we would expect the extent of any additional works, the reasons why they are required, and an estimate of the additional costs to be clearly and promptly communicated to the property owners.
9.31 The issues noted above, with regard to procurement and file content, have resulted in a number of hard copy project files containing little or no evidence of the method of procurement used, and the reasons for selecting a particular contractor to perform the works. This means that it may be difficult for Property Conservation to demonstrate that it acted reasonably in selecting the contractor and that the contractor's costs were reasonably incurred. In the sample of of files reviewed, we noted that the main criterion for selecting a particular contractor appeared, in many cases, to be the purported availability of the contractor to commence the works within a reasonable timescale (which Property Conservation officers advised us in interview was considered to be approximately six weeks from instructions).
9..43 There was also little evidence on the files that we have reviewed of any quality control procedures conducted by Property Conservation. We noted a number of references to snagging lists, but these were not included in all the files that we reviewed.
9.45 We have seen limited evidence of thorough interrogation of contractors' final accounts by Property Conservation surveyors and consultants, and noted a number of clerical errors in the project files that we reviewed. In some cases we are concerned that this apparent lack of scrutiny may have led to overcharging by contractors.
Quality of the Work performed
9.46 From our inspection of a sample of the works performed by contractors, it appears that, in general, the works have been completed to a satisfactory standard. There are, however, some examples of poor workmanship where works have not been undertaken satisfactorily. We also identified a number of minor defects that had arisen since the works had been completed.
Project Solar report extracts
2.7 The increase in work commissioned and managed by Property Conservation inevitably led to an increase in the amount of its work, the uninvoiced WIP and also the invoiced debt arising on the process of recharging property owners. The uninvoiced WIP - which represent amounts paid to contractors for works performed but not yet recharged to property owners - increased from £9 million at 31 March 2006 to £28 million at 31 March 2010. We have been informed in interview that this amount of financial exposure was considered to be acceptable by Property Conservation management because he section operated on a statutory basis, and it was assumed that all the monies would be recoverable from property owners in due course.
2.30.1 Property Conservation's management (that is, within the section itself) appears to have considered the section to have been inadequately staffed from at least 2007 onwards.
2.30.4 The property ownership databases that were used to issue Statutory Notices and recharge invoices throughout the period 2002 to 2011 were incomplete and unreliable and other relevant databases, were considered by CEC not to be legally accessible by Property Conservation.
2.51 Also, with regard to the 2008 Statutory Repairs/Notices report we note that the working paper file was destroyed at some point prior to the commencement of our investigation. Since the report was not finalised and the conclusions forming, the basis of the recommendations were, in our view, disputed, it would appear that the destruction of the file contravened IA's Audit Guide (paragraphs 6.17 to 6.21)
3.11 Further, a draft Report to the [job title] dated January 2008, entitled 'Property Conservation - Serviced Provision Resource' stated that: "The work of the Section has grown from predominately small building works/projects completed in relatively short time-frames with minimal administration/site supervision/coordination to large all-trades contract works, extending up to 18 months, requiring a high degree of coordination and management ability. This has resulted in an increased awareness and ability across staff with the Section being recognised as a technical centre of excellence"
4.18 Budgets are set by the [job title] and cascaded down to the individual sections via the respective departments and divisions. We understand that budgets are generally based on prior year performance, which are amended to take account of any required cost savings.
4.23 Property Conservation did not have any budget responsibility in respect of the monetary level of un-invoiced WIP or the recovery of monies from property owners. Consequently Property Conservation management's focus was on generating income from payments to contractors and there was no incentive for them to invoice and recover money from owners.
Part of 5.14 Can we please get in some agency staff to cover the period until permanent replacements can be found. We need them now so that there is a proper handover (as it is it is only a week away). This is service critical and is having an adverse effect on remaining staff confidence and ability to provide a proper safe service.
5.33.3 From early 2009 onwards, a significant and increasing number of Major Works contracts were procured using a method known as 'Short Tender' and were awarded to non-framework contractors, which we understand may not have been in accordance with CEC's Standing Orders. The total of payments made in such circumstances that we have identified to date is £2.4 million, with £1.2 million being paid to contractors in the year ended 31 March 2010 alone.
5.41 By 2010, Property Conservation surveyors were spending 35% of their time dealing with such issues according to YZ's report to the Finance and Resources Committee dated 16 March 2010. IA (Internal Audit) also observed in his October 2010 Review of the Statutory Notice process report, that the response time targets that were in place for Property Conservation officers to deal with customer complaints resulted in the surveyors having less time to manage and finalise contracts.
Financial oversight of Property Conservation
5.42 It has become clear during our investigation that a number of CEC's accounting and reporting systems that are used by Property Conservation are not fully integrated, as a result of which it is, at best, difficult to obtain a comprehensive overview of CEC's financial exposure resulting from Statutory Notice works. This financial exposure totalled £16.6 million at 31 March 2007, but had more than doubled to £36.6 million at 31 March 2011 (both figures excluding the Administration Charge recoverable on the un-invoiced WIP).
Management issues faced by PC Finance
5.66 PC Finance (within the Transport department) experienced difficulties throughout the period 2002 to 2011 in ensuring that recharge invoices were correctly addressed to property owners. We have been advised by CEC staff in interview that the principal management issue faced by PC Finance related to the lack of a reliable database of ownership information from which Statutory Notices and recharge invoices could be produced.