CROYDON IN CRISIS: The ‘highly dysfunctional’ council had ‘no transparency or accountability’ over the way it handled millions of pounds of public money. And this latest extract from the Penn Report shows that some key figures refuse to accept responsibility for their part in the council’s financial collapse.
EXCLUSIVE by STEVEN DOWNES
An entire chapter of the Penn Report is devoted to “Asset investment”, and it won’t surprise Inside Croydon’s loyal reader that the bulk of that section focuses on the £200million omnishambles that is Brick by Brick.
Now we cannot say with any certainty, but it seems very likely that the cocksure and arrogant “Interviewee 53” referred to by Penn from page 121 of his report is none other than Colm Lacey. The former council employee, thrust to fame and (his) fortune as the (mis)managing director of Brick by Brick was certainly among the 64 people interviewed during the course of Penn’s investigation.
And it seems from remarks elsewhere in his report, Penn took a firm disliking to the shamelessness of Lacey over the incompetence that ultimately brought down the council.
In his conclusions, Penn states that while Croydon’s “governance looks fit for purpose from a distance, the decision-making culture and behaviour revealed by these interviews is highly dysfunctional.
“This is evidenced in the belief that needing to be ‘fleet of foot’ meant that public money could be spent without due regard to public decision-making and internal controls. This included, seemingly, no formal officer governance controls put in place in respect of loan agreements in excess of £200million… and the apparent failure formally to advise members and share information appropriately.” This passage from Penn appears to be a direct criticism of Lacey and his running of Brick by Brick.
Penn seems to be a keen advocate of the report-writing technique known as “cut and paste”. Long sections of the report are directly lifted (with attribution) from the Report In The Public Interest from external auditors Grant Thornton, which was issued two years ago this month. Penn even half-inched the auditors’ most memorable phrase, “Collective corporate blindness”, for the title of his work.
In Chapter 12, Penn relies heavily on the findings of Whitehall’s Rapid Review of the council’s finances, conducted on behalf of what is now the Department for Levelling Up at around the same time the LGA investigator was carrying out his interviews.
Penn quotes the Rapid Review to summarise the position: “Brick by Brick was set up as a wholly owned company of the council. Its objective is to bring about housing growth in the borough. The council has funded the company through its Revolving Investment Fund which borrows money at low rates and lends on to Brick by Brick (and others) at commercial rates.
“The council expected to generate surpluses from these transactions and to receive dividends. Although to date it appears that Brick by Brick has made little progress despite loans of over £200million from the council, since neither loan repayments nor dividends have yet been received…
“It is our view that the council has mismanaged Brick by Brick, but that does not invalidate the business concept…
“The council is unanimous in its view that the oversight and management of the commercial and investment risk in the past was inadequate.
“The ongoing supervision which did take place of Brick by Brick focused on development and planning issues and did not appear to involve much or any financial discussion, exacerbated by the fact that the company did not prepare financial cash flows for the meetings and did not replace its finance director when he left.”
All of which has been in the public domain since the time that Katherine Kerswell, the council CEO, received Penn’s magnum opus.
What Penn’s interviews reveal is that these shortcomings and failings at Brick by Brick were well-known before the council’s financial collapse and that some in senior positions – including Jo Negrini, the chief executive until September 2020, and Simon Hall, the cabinet member for finance – were felt to have tried to cover up the problems that the building company was encountering.
As we reported earlier this week, when more junior members of staff dared to air concerns about Brick by Brick, Shifa Mustafa, the executive director for Place who was responsible for the company, warned them: “Don’t raise that with the chief executive”.
In para 12.28 of his report, Penn relates the views of “Interviewee 46”, someone described as being “external to the council”. They told Penn “that to their knowledge any challenges or questions about Brick by Brick had been rebuffed” by Negrini and Hall.
“There was no transparency or accountability in the way the company was being run.”
Penn’s Interviewee 44 was a member of staff. They told Penn that they “had been excited to be asked to work for Croydon given its declared ambitious agenda for social housing.
“But Interviewee 44 soon discovered that in reality what had been set up as Brick by Brick was a company focused on delivering private housing for sale and for rent.
“There were regular demands from the company for more and more money and former senior elected members were backing these demands. The company had serious financial problems and it seemed to Interviewee 44 that it believed that the way out of it was just to borrow more and more…”.
Penn notes that Interviewee 44 “had quickly realised that the governance arrangements for Brick by Brick were inadequate… there had been no scrutiny, no budget monitoring and no risk assessment being done. What was of particular concern was that Brick By Brick senior managers seemed to have direct access to former leading council members without the need to go through the Croydon officer structure – this is totally inappropriate and simply wrong.”
This was just a sample of many comments in the report, which when taken alongside the financial evidence from Brick by Brick’s own balance sheets, suggest that Colm Lacey couldn’t be trusted to run a whelk stall.
Contrast those comments, however, with the responses from Penn’s Interviewee 53, whose own remarks demonstrate the clear view that Brick by Brick was a paragon of business virtue.
After receiving £200million in council loans and failing to make a penny profit, Interviewee 53 told Penn “that Brick by Brick is being ‘hung out to dry’ as the scapegoat for the failings of others and for the council’s financial problems”.
Although Penn says he has tried to anonymise all his interviewees, he appears to have tried harder with some than others. So, although Penn tells us that Interviewee 53 is “external to the council”, in para 12.12.1 he tells us that they had worked for the council at some point, and that their appointment “coincided with a change of administration so the Labour group was in its first term in 2014”.
Colm Lacey was appointed as the council’s director of development in September 2014…
“Interviewee 53 told me that the new administration had seemed genuinely committed to improving the supply of affordable housing in the borough and there were a lot of potential sites for affordable housing that had not been progressed so the key task was just that – to progress the development of these sites.”
Part of the Lacey “myth” of Brick by Brick is that he was the company’s “founder” and that it started trading in 2016. The facts say that Lacey is a liar: Brick by Brick was registered at Companies House in 2015, when its first director was Richard Simpson, one of Lacey’s new Croydon colleagues, then the council’s finance director.
In the Penn Report, Interviewee 53 appears to share Lacey’s distorted version of events: “Brick by Brick started to trade as a company, with the council as a single shareholder, in 2016”.
Much else of Interviewee 53’s account of events also seems very similar to the self-serving load of old flannel that Lacey has come up with over recent years.
“Interviewee 53 told me that Brick by Brick was deliberately set up to operate independently of the council, despite it being the only shareholder, and was designed to be commercially ‘fleet of foot’ as a developer and able to identify and progress opportunities quickly and not be subject to the kinds of time constraints under which local authorities understandably have to operate…
“In Interviewee 53’s opinion, the new [Labour] administration really wanted a transformative change in housing supply to work, so there was a lot of senior level political support for Brick by Brick, particularly from the (former) deputy leader who also had the cabinet portfolio for housing [Alison Butler].
“However, notwithstanding this political support, in practice the programme turned out to be a real challenge for the council as an organisation, and it became clear that it was finding it difficult to cope with the pace of Brick by Brick work – such as processing 30 complicated planning applications simultaneously – and there was a lot of conflict between Brick by Brick and various departments within the council as a result.”
So here’s the narrative: “fleet of foot” Colm Lacey and Brick by Brick were being held back by the nasty council officials and ward councillors.
The reality, of course, was somewhat different. As Inside Croydon reported in July 2018 – two full years before the council’s financial collapse, and long before anyone had heard of “covid” – Brick by Brick’s failure to deliver even a single new home in the three years after the company was established had caused what Simon Hall called a £63million “slippage”, forcing the council to consider cuts to its services.
And meanwhile, Lacey – apparently with the knowledge and backing of the likes of Negrini, Butler and Hall – was producing business plans that might as well have been written for him by Hans Christian Andersen: he was predicting £88million of sales proceeds to be paid over to the council in 2018-2019, yet no sites were due to be complete before December 2018. The slide towards financial catastrophe was already well underway. Council figures from mid-2018 showed £212million of council borrowing for Brick by Brick, when the council’s total assets were £409million at the time.
Yet three years after those dire warnings, and within months of the council issuing its Section 114 notice to admit its effective bankruptcy, and “Interviewee 53” was peddling to Penn their own, rather partial version of events.
“More and more it became an independent development company and, although wholly owned by the council, it developed a distinctly different ethos and operational culture to a typical council service department. When [Richard Simpson] left the council in 2019, in Interviewee 53’s opinion this presented a real problem for the company because he had been the champion within the council and held a great deal of intellectual capital which was never replaced…”.
Interviewee 53’s choice of words may have been unfortunate on some occasions. Penn notes that the interviewee said that Simpson’s “significant contribution” for Brick by Brick was “the ‘grease in the wheels’ between the company and the council and this was never replaced”. “Grease the wheels”? Whatever could he mean by that?
Penn’s account of the interview continues: “Despite the expansion of the business there was an increasing erosion of support by the council for Brick By Brick. By now the company had more than 40 employees all of whom were working on a portfolio of projects which required input from the council to be successful. By contrast, the council had not taken on a single extra person to service this workload, nor replaced the expertise which had left the organisation to work for Brick By Brick.”
This was the council that was already making staff redundant because of the financial costs of the badly-run Brick by Brick.
In para 12.12.7 of the Penn Report, Interviewee 53 takes the opportunity to blame others for Brick by Brick’s failures. “There was an increasing loss of senior executive support for the company and the company ended up relying increasingly on political support from the then-leading cabinet members. A lot of issues were escalated to the council through [Mustafa] in her role as non-executive director on the [Brick by Brick] board, but to Interviewee 53’s knowledge, nothing really happened as a result.
“The end result was a lot of delay with the programme for which Brick by Brick has received all the criticism. The company was being publicly criticised for delays and for the perceived failures in the delivery of the planned programme etc.
“For some reason, it seemed to Interviewee 53 that the council as an organisation was unable or unwilling to provide support to the company it had set up. Despite what is now being claimed, all decisions about Brick by Brick in Interviewee 53’s view were formally secured through the established governance arrangements, and Interviewee 53 was of the opinion that they had been careful to ensure that this was the case… There was never sufficient action taken by the council.”
Interviewee 53 claimed that in one instance, a Section 106 agreement – for payments by a developer for local infrastructure, as a condition of planning permission – was “sitting on someone’s desk at the council for 11 months just waiting to be signed off.” This delay cost the company “and therefore the council, more than £800,000”.
Penn continues: “It seems to Interviewee 53 that there was never the level of engagement and support, or perhaps the level of expertise or understanding about the way that development companies work, from the council-appointed directors to make this happen. At least that is how it appeared to Interviewee 53 – it may be that there were issues or contributory factors to this that Interviewee 53 was not aware of.” Before Negrini installed him as the managing director of Brick by Brick, Lacey had no experience of ever working in a commercial, private sector development company.
Interviewee 53, though, is very certain that they are right, and everyone else is wrong, wrong, wrong.
“The concerns raised in the [Report In The Public Interest] and the PwC reports that the council did not get the necessary information about the company and its performance are in Interviewee 53’s view simply not correct.
“But Interviewee 53 suspects that there was a lack of understanding at the Council about the way companies like Brick by Brick work and a lack of expertise to interpret the information provided…
“In Interviewee 53’s personal view [Brick by Brick] is a successful development company that has delivered a lot of new housing in the borough, including a great deal of affordable housing.”
And if you believe that, you’re probably still of the view that Santa Claus will be paying your home a visit on December 24, too…
Read more: #PennReport wanted police probe into possible misconduct
Read more: #PennReport: Staff speak out about ‘scandalous’ bullying
Read more: Men who led council to bankruptcy say they did nothing wrong
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