LEISURE services in Merthyr Tydfil look set to continue to be outsourced if approved by councillors.
At a full council meeting on Wednesday, October 8, councillors will consider a recommendation from officers to continue to outsource Merthyr Tydfil’s leisure services and assets.
The Merthyr Tydfil Leisure Trust Ltd, established in 2014, went into administration in 2023.
In 2023 the council terminated its contract with the Merthyr Tydfil Leisure Trust Ltd and both leisure and library staff transferred to the council under TUPE, The Transfer of Undertakings (Protection of Employment) Regulations.
The leisure staff were then transferred, under TUPE, to an external specialist leisure provider, Halo Leisure, under an interim contract.
Full council has asked officers to explore all options for the future running of leisure services and assets in Merthyr Tydfil.
Now officers have drawn up a list of pros and cons of two options with one being to run the services in house and the other being to outsource them.
They’ve also considered progress being made under the current interim service provision contract and have spoken to a number of professionals about which option is deemed best for Merthyr Tydfil.
A number of different outsourcing models for procurement were identified by officers which could be tailored to the council’s needs.
These include outsourcing of management of all leisure services and assets, being fully outsourced to a specialist multi-site operator, transferring leisure services to an established leisure trust, transferring leisure services to a new leisure trust, a joint venture, an agency agreement, a wholly-owned company, or a wholly-owned company with separate subsidiaries.
The recommendation from officers is that leisure services continue to be outsourced and if agreed by full council this will give officers the autonomy to conduct a full procurement exercise to outsource the council’s leisure services and assets.
The report says appraisal of leisure service delivery options reveals a “clear contrast” between the potential benefits and risks of insourcing versus an outsourced model.
The strengths of insourcing are said to be closer strategic control with council objectives, full VAT recovery potential, retention of surplus (leisure services do not generate a surplus) and enhanced transparency and democratic accountability.
But the challenges include high transition costs, significant operational, financial, and reputational risks, and increased operational, overhead, and staffing costs needing extra funding.
The strengths of outsourcing were said to be proven operational performance and sector expertise, cost efficiencies through economies of scale and charitable status, access to external funding, business rate relief, strong customer engagement/experience and satisfaction metric, risk transfer and operational resilience, alignment with broader public health and wellbeing goal, and potential income share.
The challenges of outsourcing are limited VAT recovery unless an agency model is adopted and that it requires ongoing contract management for strategic oversight.
The report said: “It is clear that the benefits of the outsourced operational model far outweigh the benefits of bringing the service back in house.
“Furthermore this is further enhanced by the fact our current interim operator is performing significantly better than the previous leisure trust, which provides some comfort to the council that a properly procured leisure provider will demonstrate those benefits identified over a long-term strategically-focused contract.”
“If continuing with the outsourced option of the local authority’s leisure services and assets is chosen by council then they redirect their focus and resources toward essential services like social care, education, and housing while still ensuring leisure services are being delivered to a high and accountable standard.”
If councillors accept the recommendation the report says that the full long-term procurement process to bring in an external provider will take approximately 15-18 months.
Regardless of whether the leisure provision is insourced or remains outsourced officers will need to agree a further extension to the current interim contract with Halo Leisure because the timescale to finalise each option would not be complete by the end of the current interim contract.
In terms of insourcing costs the report says that transition costs, which include the implementation and procurement of ICT infrastructure, leisure operating systems, staff development, and recruitment costs, would be in the region of £500,000-800,000 drawn from the experiences of other local authorities.
Ongoing costs related to staff will be around £2m per year and although there will be some savings in relation to existing management fees and irrecoverable VAT these are offset against business rates and employer costs.
For outsourcing, based on the current interim contract, there is the existing annual cost which is made up of a management fee of £91,000 with 3% incentive charge and £1.2m for the deficit payment totalling around £1.3m.
It is anticipated that a longer-term contract will include a negotiated reduced single management fee per year and one-off procurement costs for a long-term contract would be in the region of £65,000.
