The first major privatisation exercise for the new Tory run Bradford council was to involve the provision of school meals. This had already been fixed by Parliament; the 1988 Local Government Act had listed 6 council services that had to be opened up to "Competitive Tendering". The school meals service was top of the list and the date for it's sell-off had been fixed for August 1st 1989.
Work was already underway to draw up "specifications" for the service when Eric Pickles took control. The new ruling Tory group were determined that the sell-off of school meals would act as a flagship for their further widespread privatisation plans.
Offers to buy the service had to be in by March 10th 1989. But as the deadline approached it became clear that only one tender was to be submitted - that of the council's own workforce, known as the "In-House team".
This looked like proving a severe embarrassment for Eric Pickles and his plans for a new "private enterprise" culture. On March 21st the Yorkshire Post announced "Top-tier buy out may be on the menu". The Post revealed that the 2 most senior managers of the council's catering organisation had proposed a "management buy-out" of the service. They wanted to set up their own private company and buy out the council's school meals service - lock, stock and barrel.
The news stunned both opposition councillors and workers, but was warmly welcomed by the Tory leadership.
It was not long before Labour leaders and local union officials were raising questions about possible corruption when they realised that the 2 catering managers who were proposing the management buy-out were the same 2 officers who had drawn up the In-House bid.
Labour leader Phil Beeley had summed up the whole exercise as "a charter for corruption" and Liberal leader John Wells said it "smacked of insider dealing".
Soon afterwards evidence of collusion between the Tory leadership and the 2 officers began to surface. Within a week Tory Education chief Graham Seager was forced to initiate an "internal inquiry" into the affair. Dissatisfied with this, Labour leader Phil Beeley and his Education spokesman John Ryan formally called on West Yorkshire Deputy Chief Constable Paul Whitehouse to order a full police probe into the matter.
Suddenly Eric Pickles' privatisation "jewel" looked set to turn into a sordid corruption scandal.
The councils school catering service employed over 1600 staff, providing around 43,000 meals per day. Drawing up the specifications for the service, to be given out to interested bidders, was completed in October 1988, not long after Pickles had taken control of the council. The specifications had been chiefly drawn up by the 2 most senior officers in the catering department; Derek Halliday - chief officer in the catering division - and Mike Howat - catering manager. The Tory group immediately set about "sugar coating" the school meals sale offer by bumping up the cost of school meals to 80p each - an increase for younger children of 80%! That one move suddenly made the offer of an exclusive 5 year contract to provide meals for a largely captive clientele look very attractive.
On November 22nd 1988, as the draft contracts and tender invitations were being prepared for approval, Eric Pickles and his most senior Tory colleagues gathered in City Hall to witness a private "presentation" on "Management Buy-outs", given by the Capita Group.
The Capita Group Ltd. were a London based firm of consultants who had recently achieved fame by steering through the largest ever Management Buy-out of a public service - that of Westminster council's Cleansing department.
Indeed Capita itself had been formed as a result of a management buy-out. Formally known as CIPFA Computer Services, it had been owned by the Chartered Institute of Public Finance and Accountancy. In December 1986 CIPFA C.S. was bought out by it's own managers to create the Capita Group, with an annual turnover of £2 million. Under it's new management the company was reorganised in 1988, producing a "holding" company and numerous subsidiaries dealing in Finance, Consultancy, Computing, Training and Recruitment. The "presentation" for Eric Pickles was given by 2 of Capita's directors; Paul Pinder and Richard Benton. They dealt at length with the Westminster Cleaning buy-out. Also present was the Chief Executive, Derek Holmes, who had been invited by the Tory leader.
2 weeks later the school meals draft contract and tender invitation were approved at a council sub-committee meeting and the offer was advertised. A number of private companies expressed an initial interest, but only one - Consultant Caterers of Heckmondwike - seemed serious.
Meanwhile, the council's catering service's 2 chief officers, Derek Halliday and Mike Howat, began preparing a bid on behalf of the councils own workforce.
On January 12th 1989 Halliday issued full sets of documentation to his own In-House team and private contractors Consultant Caterers.But 5 days later the managing director of Consultant Caterers phoned Halliday and told him that his company was not interested in bidding for the service.
This left the council's own In-House team as the only runners in the field. Halliday asked Consultant Caterers to keep the decision secret. Halliday also informed other senior officers in the council's Legal and Finance departments and they too agreed to keep the news secret.
It is not known if Eric Pickles was informed, but it is almost certain he would soon have found out anyway - there was little that went on in City Hall that Pickles didn't know about.
At the same time Derek Halliday and Mike Howat began a series of secret meetings with Paul Pinder of the Capita Group, to discuss preparing their own private management buyout (MBO) bid. How they came into contact with Capita isn't known, but there is little doubt in the mind of Labour Education spokesman John Ryan. He later said;
"With the political embarrassment of the first council service operating under C.C.T. being won by the council's own workforce, councillor Pickles had to quickly find a way of stopping it. Along came the MBO. We may never know what motivated the two officers concerned, but many believe it was discussions with councillor Pickles that set the whole idea going."
What ever the truth behind the 2 officers' motivation, it is clear that as soon as they began their secret negotiations with Capita to put together a management buy-out, or MBO offer, there was a clear clash of interests with their official council work in preparing the In-House bid.Indeed, the council's own rules, set down in the "Purple book", strictly forbids such action. The 2 officers were now acting in direct contravention of practically all the council's "Section 7" rules:
"SECTION SEVEN - OFFICIAL CONDUCT.
"70. General.
"(a) The public is entitled to demand of a local government officer conduct of the highest standard and public confidence in his integrity would be shaken were the least suspicion to arise that he could in any way be influenced by improper motives.
"(b) An officer's off-duty hours are his personal concern but he should not subordinate his duty to his private interests or put himself in a position where his duty and his private interests conflict. The employing authority should not attempt to preclude officers from undertaking additional employment, but any such employment must not... conflict with or react detrimentally to the authority's interests, or in any way weaken public confidence in the conduct of the authority's business.
"71. Whole-time service.
"Officers above Scale 6 shall devote their whole-time service to the work of their council and shall not engage in any other business or take up any other additional appointment without the express consent of the council.
"73. Interest of Officers in contracts.
"If it comes to the knowledge of an officer that a contract in which he has a pecuniary interest, whether direct or indirect..has been, or is proposed to be, entered into by the authority, he shall, as soon as practicable, give notice in writing to the Chief Executive of the authority of the fact that he is interested therein. (Attention is drawn to the provisions of the Local Government Act 1972 Sections 95 and 117)."
Even the Audit Commission, which had provided Eric Pickles with much of his inspiration, had dealt in detail with such conflicts of interest in it's December 1988 report "Competition - Advice to Auditors". The report stated categorically;
"14. Conflict between preparing In House bid and Management buy out bid.
"For reasons of probity, the managers involved in the buyout should not be involved in the preparation of the In House bid."
But Halliday and Howat continued to prepare the In-House bid whilst secretly drawing up their own private MBO bid.
By mid February all the managers of the council's Catering support services had agreed In-House costs with Mike Howat. On February 15th a letter arrived by fax in Pickles' office. It was from Paul Pinder on behalf of Capita. It was headed "Private and Confidential" and addressed to Eric Pickles in person. It began;
"Dear Mr. Pickles,
Management Buy Out Proposal
"You will recall that we met some weeks ago when Richard Benton and I talked to you about management buyouts...
We have recently been approached by two officers of Bradford M.C. with a view to Capita assisting them with a possible Management buyout......
The letter continued in some detail to outline the advantages of a management buy-out of the schools catering service. Halliday and Howat were not mentioned by name, but of them the letter said;
"From our work to date, we believe that this proposal would create a viable and successful company and that the duo in question would form the nucleus of a good quality management team. As evidence of their commitment to the project, they are each proposing to invest between £25,000 and £40,000."
Pinder asked for feedback from Pickles on 2 points:
"a) before continuing our work, it is important that we have a strong indication regarding the likely level of support that the proposed buyout would receive from the authority.
"b) in order to control the level of personal liability of the management team and as an indication of Bradford's commitment to the buyout proposal, we would like Bradford M.C. to be prepared to pay the first £25,000 plus expenses plus VAT of professional fees."The letter summed up with;"In addition to receiving Bradford's agreement in principle to taking the management buyout route, we would be seeking indefinite postponement of the date for receiving tenders for the school meals contract.... In order to have a fair opportunity at putting together the deal, we would need a "lockout" on other contractors bidding for these contracts."
Pickles subsequently dropped a copy of the letter off at the Chief Executive's office. This was later to prove a key move. Derek Holmes was by now simply waiting for his enforced early retirement. It is known he was deeply unhappy at the way he'd been treated by Pickles and was spending as much time away from City Hall as possible. It seems Holmes took little notice of the letter and simply filed it away.
Eric Pickles, on the other hand, had further discussions with Capita's Paul Pinder. The nature of the discussions remains a mystery.
Halliday and Howat were meanwhile busy finishing off the In-House bid whilst still secretly preparing their own private bid. They were undoubtedly overstretched and Howat was forced to request a 7-day extension to the closing deadline. It was duly granted and fixed for Friday March 17th.
On February 22nd another seminar was arranged in City Hall. This one was on "Compulsory Competitive Tendering" and was given by consultants P-E Inbucon Ltd.
Attending the seminar were Eric Pickles and his deputy Richard Wightman, along with a handful of senior officers involved in the tendering process - led by Mike Howat. This is particularly significant because 3 months later Pickles was to claim that he had not spoken to Howat for 4 years!
As the deadline approached, Pickles received another letter from Capita. Dated March 13th this letter began;
"Dear Mr. Pickles,
"I would like to update you on our recent discussions concerning management buyouts with Bradford M.C,." On the school meals buy-out Pinder wrote;
"I can confirm that .... we will be able to deliver the benefits suggested in my letter of 15th February .... We believe that there will be scope for you to announce a reduction in the price of junior school meals from 80p to 65p"
Pinder complained that;
"There is one area which is causing me concern however. I have yet to hear from Bradford's Legal department, concerning the authority's willingness to underwrite a proportion of Howat Halliday's costs should the bid not be supported by the authority. I would be grateful for your assistance in speeding this matter along."
The letter went on to suggest other schemes where Capita could help Bradford council; Poll Tax collections, Computer services and further management buy-outs. Pinder finished with;
"As you will see, we are working very hard to find solutions to a number of problems that local authorities are currently experiencing (for reasons of pure altruism, of course). I do hope you can spare some time to discuss these issues with me."
By this time Derek Halliday and Mike Howat had finished drawing up the In-House bid. It was intended that the team who would eventually evaluate the bid would include Derek Halliday himself. This would appear fortunate, because the in-house bid was seriously flawed.
Only much later would this fact come to light when outside consultants Greene Belfield-Smith, later called in to evaluate the bid, discovered that "the cost implications to the council are double that which we believe reasonable..." The consultants concluded that the bid, as it stood, would generate "Super-profits".
How on earth had this happened?
There would appear to be two possible explanations. The first and most charitable explanation is that the senior officers had done their sums wrong.
The other possible explanation is altogether more sinister; Howat and Halliday had knowingly jacked up the In-House bid. The result of this bizarre miscalculation meant that when the two officers eventually proposed their own private MBO bid, they could undercut the In-House bid and yet still guarantee near "Super-profits" for themselves.
On March 16th Howat and Halliday signed official council "honesty" declarations.
On Friday March 17th, the date of the deadline, Mike Howat and Derek Halliday submitted the In-House bid, sealed in an envelope. The bid - the only one received - was locked away unopened.
Then the two officers walked round to the Chief Executives office and told Derek Holmes that they intended to make a management buy-out offer. Holmes was surprised.Because the deadline had now been reached, it appeared that any later bids would be excluded. However, due to a loophole in the law, this was only true if the tendered bid had come from a private company. An In-House bid could be overturned at any time.
There was little Holmes could do. He told Halliday that he must take no further part in the proceedings. This was very much a case of closing the stable door long after the horse had bolted. However, it did mean that Halliday could not take part in evaluating the bid. Outside consultants Greene Belfield-Smith would later be engaged to do the job.
Things began to move rapidly on the following Monday, March 20th.
Howat and Halliday delivered a letter to Education Assistant Director Ken Sutcliffe, formally outlining their intention to negotiate a Management buy-out.
At the same time details of the Howat/Halliday MBO bid were being leaked, in true Pickles fashion, to the Yorkshire Post.
Elsewhere in City Hall the In-House tender was officially opened for the first time by senior officials led by Ken Sutcliffe.
As if all this frenzied activity was not enough, a letter written on council notepaper was on it's way to all the staff working in the council's catering division. The letter was signed by Howat and Halliday and entitled "The future organisation of our School catering service".
It began;
"Over the next few days it is likely that you will hear significant coverage in the "media" that the Bradford School Catering Service is subject to a Management Buyout."
The letter continued;
"Discussions are taking place between senior managers of the School Catering Service and the controlling political group of the City Council which MAY lead to firm proposals to form an independent commercial company which would enter into a long-term contract with the Authority to operate School and Welfare Catering."
That sentence really put the cat amongst the pigeons; it amounted to formal acknowledgement of the involvement of Pickles and co.
The carefully planned manoeuvres of that March Monday bore all the skilled hallmarks of the Tory leader. Yet whilst expressing his group's pleasure at the proposed MBO, Pickles was still claiming that it had all come as a surprise to him!
There was little doubt in anyone's mind that the Tory group were set to back the MBO all the way. Pickles was expecting complaints from the Labour group, but if past experience was anything to go by, he knew it would consist largely of empty political rhetoric. To Pickles this was simply water off a snake's back.
The Tory leadership didn't rate the Labour Education spokesman John Ryan very highly. Ryan was a quiet, unassuming but diligent politician, although not a fiery speaker.
However, on this occasion the Tory leadership had seriously underestimated Ryan. Ryan set about a meticulous investigation into the murky goings-on behind the scenes. It is largely due to Ryan's efforts that documents such as the Capita letters eventually surfaced.
The Labour group began a concerted campaign against the MBO, which proved to be the most effective opposition they had mounted so far.
Their call for a police probe was rejected, but it served to focus public attention on the matter. Their continued efforts soon had Pickles rattled.
On April 4th a special meeting of the Education Executive sub-committee was called.
Education chief Graham Seager didn't turn up and deputy Tory leader Richard Wightman took his place. The meeting was attended by senior council officials, including Chief Executive Derek Holmes.
Labour questioned Holmes as to why he had allowed Howat and Halliday to prepare the In House bid whilst simultaneously preparing their own private bid. Holmes insisted that he had known nothing of the MBO, or else he would never have allowed it.
But a grinning Richard Wightman pulled the rug from under Holmes feet. When quizzed by Labour about the Tory group's involvement in the affair, Wightman said;
"No approach has been made to the ruling group by the MBO team, that was not passed straight to the Chief Executive." Holmes looked stunned. Wightman had succeeded in shifting responsibility straight back into Holmes' lap with a reference to the first Capita letter that Holmes had simply filed away 2 months earlier.
In the end Holmes was ordered to draw up a report on how matters could proceed.
Meanwhile, local union NUPE mounted an unsuccessful High Court challenge to the whole process and school Dinner Ladies prepared a petition expressing their "utter contempt" for Howat and Halliday.
The following month saw the council's Annual General Meeting when Pickles could at last be publicly challenged by the opposition. After a searing attack by Labour and Liberal councillors, Eric Pickles rose to reply.
His speech was marked by none of his usual flair. It was a rambling, faltering speech, littered with untruths and addressed largely to his own benches. Pickles was clearly rattled and seemed more concerned with placating worried Tory councillors.
He said;
"I think it is necessary to be absolutely clear on one thing. There is no management buy-out proposal before us today. The Chief Executive's report is there to look into specifically the question of the management buy-out in the Education service but, much more importantly, to lay down guidelines for future management buy-outs should they come along; to be absolutely certain that questions of probity are thoroughly safeguarded. So today we are not taking a decision on the management buy-out and I want to make it clear that my hand at any future time will not go in favour of a management buy-out unless I am satisfied on questions of probity and satisfied on questions of value for money."I don't need, frankly, any lectures from people opposite on questions of probity."When I received a telex from Capita suggesting that they had officers interested in a management buy-out I was with the Chief Executive. I read that on my return, I announced it to a meeting with Management Team that evening, I gave a copy to the Chief Executive and that is where my contact with Capita ended. They did (calls of "liar") ... I really think actually, madam, with respect, that this is actually far more important an issue than for you to play a fishwife to at this occasion.
"Now, what had we to do once we'd received that formal offer and once the officers had been identified, and it was a full fortnight before I realised who the specific officers were and I also want to make it clear that it's a good four years since I had a private conversation with either of those officers."Once we'd received it, I don't want to use my words, I want to use NUPE's words when we had a meeting with NUPE. They accepted that once we'd received that offer, we had to proceed to investigate it and we proceeded to investigate it completely, without prejudice, and we will not be proceeding with a management buy-out unless it's in the interests of the council to do so.
"Now the usual half-truths and smears are produced. In those various letters from Capita they suggest various things; meetings about computers, meetings..er..er..a lockout. None of those things have happened because once that letter was received from the Chief Executive, I had no intention nor would I have any contact with this buy-out because I am convinced that the best course of action, the most proper course of action is to leave that thoroughly in the hands of professionals to deal with it and for the politicians to keep out of this process.
"I do regret, I deeply regret the snide, personal attacks on two diligent officers and one of the failings of the present system is, because of the way this has been uttered, those officers are powerless to take the people to court for the grave defamations that have been done. I never thought that I would sit in a chamber to hear two senior officers, two senior officers to be called for their dismissal and this is the party that apparently cares about personnel and discipline and appeals and fairness. Who could possibly on those benches be able to judge a matter like this any more? I think that behaviour has been outrageous and the problem is this, Lord Mayor, that the longer we have to talk .... I really really think..... the longer we go after questions of spurious probity when apparently the police are happy, the District Auditor's happy, our internal audit is happy, the High Court is happy about this, so long as we go along on this, the more we are going to avoid the real question and that is whether it is in the interests of the authority to proceed on a management buy-out or not, and that, unlike most things, the jury is well out on that particular question and we are, at some future date, going to have to decide that.
"But I'll tell you this, my hand ain't going up unless it's in the interests of the authority to do so and I am certainly not pursuing some kind of privatisation goal. What I'm interested in is not serving any vested interest, be it privatisation or the trade unions. What I'm interested in is what's good for Bradford."
Pickles survived with the Lord Mayor's casting vote. The In-House bid was accepted in the meantime but the controversy raged on as the Tory group still pursued the MBO option.
Consultants Greene Belfield-Smith were instructed to look again at the whole school meals tendering process. The consultants were, of course, familiar with Howat and Halliday's work on the In-House tender - a tender they discovered was seriously flawed.
But the MBO team, with Capitals help, had been hard at work. In May, following discussions with council officers, they put together a "scope" paper on their offer. This proposed that the new MBO company - Howat Halliday Ltd. - could be operating by July.
Howat and Halliday would each take a 25.5% share holding in the new company, with Capita taking 15% and the rest being offered to employees.
But the MBO team were still laying down conditions. Firstly they were not willing to compete against any other bidders including a new In-House bid. Secondly, they demanded that the council foot most of Capitas fees, up to the tune of £33,000, should their bid fail.
The MBO team had already arranged banking finance for their new company and had drawn up a detailed, though secret, business plan. All this material was given to consultants Greene Belfield-Smith.
On August 18th 1989 the consultants submitted their report. They rejected any plan to re-tender the school meals service to private companies. They recommended instead that the council choose between a new In-House bid or an MBO bid, but rejected any idea of a competition between the two, despite the District Auditor's recommendation.
Of the 2 options, the consultants themselves recommended the MBO option as "the most attractive".
In complete contrast to Howat and Halliday's handling of the In-House bid, the consultants spoke in glowing terms of the 2 officers' work for their MBO bid;"We have no doubt at all as to the ability of the management team to run the service..."The business plan has been properly produced, it includes cashflow forecasts and contains full and appropriate details" Finally the consultants' report added;"We are satisfied that the MBO has sufficient substance to warrant discussions with the council on the basis that a contract can be let if the negotiated price is better than the existing In-House bid......
Suddenly it looked as if Howat and Halliday's MBO team had finally won a clear run at the service. The Tory leadership were ecstatic.
But in October 1989, as Pickles and co. set off for their party conference, another consultants' report was published. The Coopers & Lybrand report, commissioned by the council in July to evaluate the council's preparations for service privatisation, proved damning.
The report summed up the councils preparations as abysmal Looking at 10 key areas, Coopers & Lybrand judged each in terms of either "Good practice", "Minimal adjustments needed", "Problem area" or "At risk". 6 of the areas were classed as "at risk". None were classed as "Good practice".Such was the shambles that the consultants warned against the council proceeding with it's own widespread privatisation. The council would need to put all it's energies into meeting the government's minimum deadlines. Of the school meals buy-out option, the report said "... we see no particular advantage in rushing to an early conclusion of the catering and refuse collection management buy-outs. Our advice is therefore to suspend negotiations on MBO's."
At the next council meeting on November 7th 1989, the council was forced to accept the Coopers & Lybrand report, but Pickles still insisted the Buy-out plans were "not dead". Once the council's new company "Bradford Commercial Services" was set up and running, Pickles was determined to revive the MBO option. But this now depended on the Tories winning the 1990 council elections. The cost in consultants fees to date for this "money saving" exercise was already proving astronomical - topping £100,000. John Ryan said of the affair: "It's been a scandal and still merits investigation." An investigation was probably the last thing Eric Pickles wanted.
Referring to the matter, Pickles had noted in his private diary: "We got away with bloody murder!"
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