Deed of Variation of Leisure Management Services – Agency Model

Location

London

Description

Westminster City Council intends to vary its existing contract with Sports and Leisure Management Ltd (trading as Everyone Active) to implement an agency model for the delivery of leisure management services and appoint Sports and Leisure Management Ltd (trading as Everyone Active) as the Council’s agent in delivering the leisure services at the Council’s leisure facilities. Under the revised arrangement, Everyone Active will act as agent and the Council as principal. The services, facilities, and scope of provision remain unchanged. The purpose is to achieve VAT efficiency and consequently deliver improved financial returns. Everyone Active will guarantee an additional financial surplus to the Council each year. The original leisure management services contract was originally procured under the Public Contracts Regulations 2006 and commenced on 1 July 2016. The opportunity to change the status has arisen during the course of the contract, while exercising allowable optional extensions under the Contract, following the successful litigation taken by Chelmsford City Council in 2022 and subsequent revised HMRC guidance in 2023 in relation to the VAT treatment of leisure services provided by local authorities.

Total Quantity or Scope

Westminster City Council intends to enter into a deed of variation modifying its contract with Sports and Leisure Management Ltd (trading as Everyone Active) for leisure management services which commenced on 1 July 2016 to appoint Everyone Active as the Council’s agent in delivering the leisure services at the Council’s leisure centre facilities.

Award Detail

CPV Codes

• 92610000 - Sports facilities operation services

Indicators

Legal Justification

This notice relates to the modification of an existing contract, not the award of a new contract. While the contract was sourced under PCR2006, the Authority considers the modification must be carried out pursuant to PCR2015 Regulation 72. A procurement procedure is not necessary given the award of the Deed of Variation is permitted pursuant to PCR2015 Regulation 72. The modification may lawfully be agreed between the parties and implemented without the need to conduct a fresh procurement procedure. The contract is for the operation and management of the Authority’s leisure centres to ensure the Authority can provide quality and affordable leisure services for residents of Westminster, maintain facilities and make financial returns to invest in core services. The contract will be modified to adopt an agency model. Under the current contract, SLM acts as Principal in the supply of leisure facilities to the public. Under the new agency model, SLM would make supplies to the public as an Agent of the Authority. It is the Authority providing leisure services to the public through its Agent. The proposed modification is not ‘substantial’ within the meaning set out in Regulations 72(1)(e) and 72(8) PCR2015. • The character of the original contract and services will remain substantially the same and is not rendered materially different from the original. • The modification concerns the same type, scope and nature of services at the same facilities to residents. The contract already provided operation of the leisure facilities, the modification establishes an agency model so SLM provides the Authority’s statutory leisure services to the public on its behalf and other ancillary modifications. This generates VAT savings. The underlying contract is for a range of leisure centre operation, management and related services by SLM for the Authority. The original contract will be modified to an agency model. Under the current structure, SLM acts as Principal in the supply of public leisure facilities so that the Authority is not making the supplies of leisure services. Under the new agency model, SLM would make supplies as an Agent of the Authority. The Authority is satisfied that the modification does not introduce conditions which would have allowed for (a) the admission of other candidates, (b) the acceptance of another tender or (c) additional participants in the procurement procedure - delivering the Council’s statutory leisure services as agent rather than outsourced contractor will not affect the physical operation of the leisure centres and the change to an agency model for VAT purposes does not change the service requirement or how those services are provided. It is unlikely to have changed the outcome of the procurement. The modification does not change the economic balance in favour of SLM in a manner which was not provided for in the contract. The Authority is satisfied that the agency model and VAT arrangement does not impact SLM’s operating costs under the original contract. The agency model allows for a more certain financial position to the Authority and a greater surplus share than previously anticipated.

Other Information

The Council appointed SLM to provide the leisure services pursuant to the contract and leases for the management and operation of the Council's leisure centres. The contract term is 10 years from 1 July 2016. The Council will be entitled at its absolute discretion to extend the term for a further period or periods of up to 5 years making a total possible term of 15 years. The Council has decided to extend for a further 3 of 5 years and may at its absolute discretion extend for a further 2 years. The Council intends to enter a deed of variation with SLM to modify the Contract to appoint SLM as the Council’s Agent. The Deed of Variation will set out the scope of the agency appointment and the extent to which SLM will act as the Council’s agent. SLM shall be appointed as the Council's agent to provide the leisure services and maintenance of the Council’s facilities but shall continue to carry out other services (specifically, the provision of food, beverages and retail services) as an outsourced supplier to the Council. The Deed of Variation does not materially alter the risk position of the parties. The Agent shall receive a variable management fee and reimbursement for its operating costs in providing the agency services. The Council is guaranteed a minimum return of the revenue received each year on the Council’s behalf having regard to the operating costs and management fee payable to the Agent. The Agent shall have a licence to occupy each of the Council’s facilities.