Consultants’ report is latest damning review of Croydon’s badly-run council. By STEVEN DOWNES
Colm Lacey is to be removed from the board of Brick by Brick, the council’s loss-making house-builder, while funding for new schemes is to be frozen and all land transfers halted, under recommendations from consultants published today by Croydon’s bankrupt council.
The report, from Price Waterhouse Coopers, is the latest fiercely critical review of the Labour-controlled council’s badly-run investment and development schemes.
In the case of Brick by Brick, the council has poured more than £200million into the firm since 2015 but has not received a penny back in profits or loan interest and repayments – a key cause of the council being forced to declare itself bankrupt with a Section114 notice 10 days ago.
The consultants criticise the poor financial management of Brick by Brick, where Lacey, a former council exec with no experience or background in running a commercial development firm, was appointed as its founding managing director and chief exec. Lacey is one of just two directors currently on the board at Brick by Brick, the other being chairman Martyn Evans.
A meeting of the council cabinet this week is expected to approve the removal of Lacey and Evans from the board, to be replaced by two senior figures in the reviews that have been carried out in Fisher’s Folly since the council’s finances went into a tailspin in May: Duncan Whitfield, Southwark’s director of finance and governance, and Ian O’Donnell, the CIPFA accountant who found 75 areas of the borough’s governance that did not meet best practice.
Lacey is also an employee of Brick by Brick – thought to be on a salary of at least £150,000 – though his position may be untenable after a reading of the PwC report. Some accountancy and business experts suggest that, given the parlous state of the company, he could be disqualified from holding directorships in future.
The PwC consultants do not go into that.
But they do write, “Since its inception in 2015, [Brick by Brick] has been entirely dependent on funding from [the council] and to date (September 2020) has total borrowings of £214million.”
Referring to the 2019-2020 business plan, which Lacey himself presented to the council, the report’s authors say that Brick by Brick “… stated an ambition to deliver c.500 residential units per annum, targeting the completion of 14 sites already in development (307 units).
“Planned sales of £132.3million and a profit of £10.3million (7.8%) should have allowed the commencement of repayment of debt to [the council]. No interest or loan capital was repaid to [Croydon Council] in [Financial Year 2019-2020. [Brick by Brick] attributes this to a number of factors including delays due to covid, development issues and delays with actions sat with council departments (such as Planning).”
The PwC consultants are clearly less easily fobbed off with Lacey and Brick by Brick’s excuses for failure than the company’s owners, the council and Labour councillors. “We believe covid was a relatively minor causal factor given the year ended on 31 March 2020. We note there is no reference to a [Financial Year 2019-2020] impact in [Brick by Brick’s] March or April Board minutes.”
They continue, “The board lacks a qualified Finance Director. In addition, the business’ in-year financial reporting processes have significant gaps and must improve substantially.
“In many of the documents we have reviewed, the loans have breached their final repayment dates, and as a result [Brick by Brick] is technically in default on those loans. This is despite the fact that [Brick by Brick] continues to request further drawdowns against the loans.”
The PwC report makes no mention of the £6million in loans taken out by Croydon Council at the start of this calendar year to buy up two dozen flats from Brick by Brick, flats which Lacey’s company had been unable to sell as it was not registered as a recognised supplier of shared ownership homes.
The PwC consultants have, however, spotted how the council provided Brick by Brick with a secret subsidy by selling off chunks of public land at well-below true market value. Six sites were sold to Brick by Brick for as little as £1 each – an issue on which Lacey lied to a council scrutiny committee in February.
“The council has sought to comply with obligations under Section 123 of the Local Government Act 1972 in relation to best consideration for any land which transfers to [Brick by Brick]. However, there are inconsistencies and differences in the approach that the council and [Brick by Brick] have used in valuing the land, and where there are material valuation differences these should be better understood and resolved.”
For the time being, the council wants to continue providing funding to Brick by Brick on its many as-yet-unfinished building sites, but it will not be releasing any other plots of land for other schemes.
The consultants lay out the possible options for the failed building company, from continuing trading to winding it up or selling it off.
None of the outcomes will be particularly palatable to the bankrupt council that is in desperate need of the £110million which had been promised by Brick by Brick’s founders – led by former CEO Jo Negrini, and backed by councillors Simon Hall and Alison Butler, who together with their leader Tony Newman continued to proclaim BxB as some kind of success story, by any measure.
But as the PwC report states, “All of the options result in the council writing off substantial loan funding and accrued interest.”
The council’s interim chief exec, Katherine Kerswell, and new council leader, Hamida Ali, have had the PwC report since November 13, though last week Ali told a council meeting that she had asked the consultants to do some more work on it.
In the council’s report to cabinet, it notes that Kerswell and Ali have already met with Lacey where “the issues arising with [Brick by Brick] have been raised with the management”.
Determining the future of Brick by Brick, the report states, “will take some time”.
The report to cabinet explains, “There are over 20 schemes currently on site which have existing funding agreements in place, although some of these are past the repayment period. To stop [Brick by Brick] drawing down on those agreements could present cash flow issues with consequences that would further increase the risk to the council. It will therefore be necessary to make payments to [Brick by Brick] in line with current loan arrangements ensuring that conditions for funding are met.
“The purchase of completed units previously agreed in July…”, Alison Butler’s ever-so-convenient (for Brick by Brick) £30million deal for nearly 180 unsellable shared ownership properties, “will also need to be reassessed on a site-by-site basis and reviewed in the light of the resources available to the council.”
The PwC report, which has so far cost £125,000, also looks at other aspects of the council’s various commercial activities. It was due to have been presented to a council cabinet meeting tonight, but that has now been postponed until Wednesday.
Colm Lacey, therefore, would seem to have 48 hours to clear his desk.
Read more: Brick by Brick has paid nothing to council
Read more: ‘An accountant could have foreseen this more than a year ago’
Read more: Council forced to declare itself bankrupt
Read more: Officials to investigate possible wrong-doing at council
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