Written by Jenny Jones, Member of the London Assembly
The Chair of the Fire Authority, James Cleverly, seemed remarkably confident and bullish about the success of privatisation when I questioned him on Wednesday. I found this surprising as the £1.5m a month maintenance contract for the entire London fire engine fleet has recently fallen into the hands of a man living in Stanwick, Northants.
The new owner bought it for £2 from the company Assettco, who won the contract back in 2000. I am genuinely curious about how someone will be able to not only turn debt into profit, but deliver on a contract obligation to replace fire appliances from 2014 onwards.
Whilst James Cleverly was ‘not going to pretend that we are unconcerned about the provision of core equipment to the fire brigade…’ the man appointed by the Mayor to chair London’s Fire Authority had great faith in the contracts drawn up under the previous Labour administration.
Mr Cleverly felt that ‘who owns the shares is not unimportant, but it is not as important as the actual grass roots delivery of that contract’. I can understand the appeal of this argument, but what if the new owner simply can’t make it work?
The public confidence of the Mayor’s Office in a company which already has a £30m debt is not shared by Sue Budden, the Director of Finance, at LFEPA, who told councillors at a meeting two weeks ago that:
“When they look ahead and look at the big vehicle replacement that is due to start in 2014, I think they can see they are not set up to cover that.”
The Fire Authority does have ‘step in rights’ if the contract fails, but I am unclear whether that involves us buying them back? We are told that Lloyds Bank are the chief creditor for the company and have ‘ownership’ of the engines if the company folds. So do we just take the engines off them and says thanks? Fire appliances don’t come cheap, but given that the Fire Authority is due to find £65m in cuts over the next two years, I don’t see how we can afford to pay Lloyds any compensation.
Fire chief Ron Dobson admitted to me that dealing with all these problems has meant that “over the last 18 months or so this has inevitably taken up quite a lot of my time”. It seems a hugely expensive waste to have an extremely highly paid public servant and his staff run around firefighting contractual problems instead of managing service delivery, just one of the many potential problems with privatising core services.
Of course, this is all speculation and there is no reason to assume that the new company will do as badly as AssetCo who made a loss of £16.5m in the 18 months to 30 September 2011 on a turnover of £33.5m.
The new owner does not have experience of running such companies, or the fire service, but he has promised to produce a rescue plan within a few weeks.
According to David Hencke, the new owner is the non executive director of a series of venture capitalist funds, who offer:
“very good tax avoidance schemes – by investing in everything from hotels, property, to antiquarian books – and then liquidating their assets after five years to secure maximum tax relief and returns for their investors.”
Whatever the motivation of the new owner it is clear that James Cleverly and the Fire Authority did not have a chance to run a due diligence check on him (as they did when originally letting the contract), as they only found out about the £2 sale a couple of days after it had taken place.