Jersey Development Company: Interim Report - Ministerial Response - 12 October 2010

STATES OF JERSEY

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STATES OF JERSEY DEVELOPMENT COMPANY: INTERIM REPORT (S.R.10/2010) –

RESPONSE OF THE CHIEF MINISTER

Presented to the States on 12th October 2010 by the Chief Minister

STATES GREFFE

2010   Price code: B  S.R.10 Res.

STATES OF JERSEY DEVELOPMENT COMPANY: INTERIM REPORT (S.R.10/2010) –

RESPONSE OF THE CHIEF MINISTER

Executive Summary

This review is one of four that have been undertaken by scrutiny on this subject since late 2007. To this point, I believe the involvement of the Corporate Services Scrutiny Panel has been of benefit to the development of the Proposition and I have accepted all its recommendations. The current Proposition addresses all the recommendations from the Sub-Panel, including the outcome from the DTZ review.

I do not believe that the Sub-Panel's interim report contains anything substantive which should serve to delay the Proposition further, nor do I accept that the Sub-Panel has been denied relevant information on which to compete its review. As this report identifies, I have sought to provide the Sub-Panel with information even when I did not completely agree that the information was necessary.

I do not understand why the Sub-Panel has focused its attention on the personal employment contracts of the executive of the Waterfront Enterprise Board (WEB) and can only assume that it has misunderstood the broad range of legal and contractual arrangements that would need to be dealt with if WEB was to be closed down. Despite this, both I and the WEB Board have provided the Sub-Panel with an opportunity to ask any question it has about the nature of the employment contracts.

I firmly believe that enough work has now been done to create a firm basis for the States of Jersey Development Company (SoJDC) and enable us to move forward. The fact that the Sub-Panel is still raising what appear to be new issues, suggests that this process could go on indefinitely, which I find unacceptable.

P.73/2010 represents fundamental reform which is vital to deliver regeneration in Jersey.  WEB  is  a  company  which  holds  c.£88 million  of  assets.  The  longer  we prevaricate, the more potential damage we do to those assets. We need WEB to be fundamentally reformed and as SoJDC to deliver the best developments and value as required by the States.

I am pleased to note that the conclusion of the Sub-Panel that it is in no doubt that the development of a new SoJDC is the right way to proceed, established on a solid foundation.

I do not believe further delay is acceptable and will seek to debate the proposition as soon as possible.

1. Introduction

As the Sub-Panel's interim report points out, this review is one of a number that have been undertaken by scrutiny on this subject since late 2007. To this point, I believe the involvement of the Corporate Services Scrutiny Panel has been of huge benefit to the development of the Proposition and I willingly acknowledge the help they and their advisor have been to me. Throughout the process I have not only tried to respond swiftly to all their comments and recommendations, I have also accepted all recommendations the Panel has made.

Whilst I was surprised the Panel decided to do a full review of P.73/2010, I have continued to work co-operatively with it in order to ensure the best possible outcome. This included deferring the debate from last summer in order to ensure the Sub-Panel could complete its work.

In  considering  the  Sub-Panel's  interim  report,  however,  I  find  myself disappointed in its lack of substance. The Sub Panel contends that it has not been provided with information on which to complete its report, which I do not believe to be the case. Both myself and the WEB Board have fully co- operated with the review, including the provision of all relevant information.

I set out my response to the main issues from the report below.

2. Attendance at a public hearing by the Deputy Chief Executive and Chief Officer of Resources

The Deputy Chief Executive and Chief Officer of Resources attended the hearing as he is the Chief Officer responsible for Jersey Property Holdings. It would appear to be standard practice to ask a senior officer to attend such hearings, and I am surprised that the Sub-Panel did not invite him in the first place.

As can be seen from the transcript, the hearing covered other issues relating to Jersey Property Holdings and the Proposition, not just the DTZ review.  I therefore  reject  the  assertion  that  the  fact  that  The  Chief  Officer  of Resources  was  unable  to  answer  questions  on  one  issue  made  his attendance at the hearing a waste of time.

3. The development of the DTZ report

I do not understand why the Sub-Panel contends that it expected a copy of the draft DTZ report at the fact-checking stage. It was never the intention to provide the Sub-Panel with anything other than the findings of the DTZ report and the paragraph highlighted by the Sub-Panel makes this clear. This is further reinforced by another paragraph in the Terms of Reference which sets out –

4.6  As a result of the States debate on 3rd November 2009, a review will need to be completed, discussed and facts checked with the Board of WEB and findings shared with the Corporate Services Scrutiny Panel [my emphasis] and published to States Members before the debate on SoJDC proposals can be resumed.

I simply do not see how the Sub-Panel could be under the impression that it would be asked to review a working draft of a review of WEB, or what it would be in a position to review. The commitment was to provide the Sub- Panel with the findings as soon as possible.

I have already made it clear that the word dispute' was used carelessly in a private meeting between myself and the Chairman and that the WEB Board responded to the early working draft with comments on factual inaccuracy and the commercially confidential nature of some financial information which could not be included within a published report.

I had considerable reservations about providing an incomplete and unchecked working draft to the Sub-Panel. However, despite having no commitment to do this, I agreed to provide this document in order to support the review. The draft report was provided within days of the original request.

It is entirely normal for consultants' reports to be the subject of comments and fact-checking. DTZ issued the following statement confirming this –

"DTZ's  report  into  the  performance  of  WEB  is  an  independent  report conducted on behalf of the States of Jersey. A draft report was routinely submitted to WEB for review so that matters of fact could be checked and additional  evidence  provided.  This  is  standard  practice  for  this  type  of assessment to ensure accuracy and in no way undermined the independence or integrity of the report."

The key issue being that the consultant – in this case DTZ – has to produce a final deliverable that represents its own independent and considered views on the issues in question.

I reject the assertion that the Sub-Panel should have received a copy of the draft DTZ report and question why the Sub-Panel should receive anything other than the findings of an independent review.

I  also  reject  the  assertion  that  the  timing  of  the  provision  of  this information has delayed the Sub-Panel's work and any implication that the  process  of  developing  the  DTZ  report  was  anything  other  than standard practice.

4. The Recommendation

The Sub-Panel's original report (S.R.9/2009) suggested as a key finding that the Proposition did not accurately convey the intentions' that SoJDC would be different than WEB. As a result of this, the Sub-Panel rightly asked the Council to clarify the role of the company, principally to address concerns that it could become WEB by another name. This has been addressed in P.73/2010 which makes it clear that the Proposition will fundamentally reform the role and remit of WEB. SoJDC will –

• Have a new Board, with an experienced Chair, 3 non executives (all appointed by the States Assembly) and a Ministerial Appointee.

• Have strengthened governance and accountability arrangements – the Minister for Treasury and Resources will be politically accountable, enter  into  a  comprehensive  MoU  with  the  company  and  will  be responsible for approving remuneration of directors.

• Have a more limited operational remit – will be focussed on Island- wide  delivery  and  will  operate  within  agreed  masterplans  and development briefs within defined geographical areas.

• Be  guided  by  the  Regeneration  Steering  Group  in  terms  of  the activities it undertakes.

It is therefore unfortunate that the Sub-Panel still do not appear to understand that P.73/2010 will not simply create WEB by another name' and will lead to fundamental reform of the role of the company

I  decided  to  lodge  a  new  Report  and  Proposition  because  I  felt  it  was important to bring together the response to the recommendations from the Sub-Panel and the outcome from the DTZ review into one place. The central features of P.79/2009 remain unchanged.

Both the original and current SoJDC Propositions have been absolutely clear that the intention was to build on the existing corporate structure of WEB. It has never been the intention to disband WEB with SoJDC taking its place' so it is curious that the Sub-Panel now believes this to be an issue.

The Sub-Panel appears to believe that employment contracts are the reason why we cannot close down WEB and start with a new company. The Sub- Panel has misunderstood the implications of such an action. The WEB Board has made it perfectly clear that employment contracts were not the significant issue in closing the company. WEB has been in operation for 15 years and has many commercial contracts in place and many parties involved in contractual business agreements. Forming a new company would involve considerable reassignment or renegotiation of contracts as well as a significant restructure of corporate and financial arrangements. This would also involve complex legal advice which, along with associated costs such as stamp duty, would be at considerable expense.

At no point in its report S.R.9/2009 did the Sub-Panel suggest that a new company  should  be  formed.  Whilst  I  firmly  believe  that  the  personal contractual information of the executive is not relevant to any of its previous recommendations, members will note the steps taken by both myself and the WEB  Board  to  provide  information  about  the  employment  contract arrangements.

In particular, matters relating to the contracts of employment were discussed at  a  meeting  between  the  WEB  Board  and  Sub-Panel  members  on  the 1st October, 2010. At this meeting, the WEB Board sought to respond to all questions asked of it and also offered to provide any further information arising out the Sub-Panel's meeting later in the day. The Board provided the Sub-Panel with an extract of an employment contract, which applies to all staff, specifically dealing with reorganisation. This is similar to the proposed TUPE legislation currently being reviewed by the Social Security Department.

It appears to me that the WEB Board has taken a very helpful stance and has provided  the  opportunity  for  the  Sub-Panel  to  ask  whatever  it  wishes  in relation to the contract information it seeks. The minute of this meeting is attached at the Appendix.

The Sub-Panel's report states A number of questions remain surrounding the contractual  relations  with  WEB,  which  could  have  been  answered  if  the contracts had been provided'. It then sets out, for the first time, the questions to which it is seeking answers. Two points emerge from this –

• The Sub-Panel has had ample opportunity to ask these questions. If they had been asked earlier, they would have been answered.

• It does not appear necessary to have actual sight of personal contracts to answer these questions.

Turning to the questions, I set out answers below –

1. We heard in a public hearing with the Minister for Treasury and Resources that the stage has passed when it would have been possible to  start  up  a  new  company.  What  has  happened  that  makes  a severance with WEB now not possible when it was 3 or 4 years ago?

The challenges in starting up a new company are broadly the same than they were 3-4 years ago. The key differences are that WEB now has more commercial contract commitments in place that would need to  be  dealt  with  and,  as  identified  in  the  Sub-Panel's  report,  all original  executive  contracts  have  made  provision  for  the circumstances where the company changes. This is simply because the change in the nature of WEB was anticipated when appointments were made.

2. What are the contractual commitments that will need to be dealt with to shut down WEB and start SoJDC afresh?

WEB has a number of existing development agreements together with a number of leases. WEB is also party to a number of third party funding arrangements relating to these developments. Were WEB to be liquidated, legal contracts and debts would need to be assigned or novated. This would be a complex and costly process which would have no certainty of outcome. Were such agreements to be secured there would be considerable legal costs associated with these new contracts and passing those contracts before the Royal Court. There would  also  be  significant  stamp  duty  costs  associated  with  the company's various land holdings.

3. What are the risks in having to deal with the existing contractual relations?

The risk is that all parties may not agree to changes and gaining such agreement is likely to require significant financial contribution from WEB.

4. Why would it be administratively expensive?

These are identified in, 2, above and include legal fees, stamp duty and other costs to associated with negotiating agreement to change or novate contracts.

I reject the assertion that the Sub-Panel's recommendation relating to the differences between WEB and SoJDC has not been addressed and that the proposition will simply result in renaming WEB.

I also reject the assertion that access to individual personal employment contract information is necessary to complete its review.

5. Conclusion

Having what I believe to have been a productive and beneficial relationship with the Corporate Services Scrutiny Panel over this issue, it is disappointing to  receive  such  a  report.  I  do  not  believe  the  Sub-Panel's  interim  report identifies anything substantive to further delay the proposition.

I agree with the Panel in that I have no doubt that SoJDC is the right way to proceed and that it should move forward on a firm basis. I believe, however that enough work has been done to create this firm basis and enable us to move forward.

I do not accept that the Panel has not been provided with the information on which to complete its review. As I have demonstrated above, I and the WEB Board have sought to provide the Panel with information even though at times we did not necessarily agree that the information was necessary.

As  the  Panel  points  out,  this  is  an  issue  which  has  been  now  under development for over 3 years and the subject of at four scrutiny reviews. The current  proposition  retains  the  same  features  of  its  predecessor  with  the addition of information suggested by the Scrutiny Panel. One must question why at this stage the Scrutiny Panel can still be raising what appear to be new issues and how much longer this process could go on.

The  improved  model  identified  within  P.73/2010  is  vital  to  deliver regeneration  in  Jersey.  WEB  is  a  company  which  holds  c.£88 million  of assets. The longer we prevaricate, the more potential damage we do to those assets. We need WEB to be fundamentally reformed and as SoJDC to deliver the best developments and value as required by the States.

I  do  not  believe  further  delay  is  acceptable  and  will  seek  to  debate  the proposition as soon as possible.

APPENDIX

WATERFRONT ENTERPRISE BOARD LIMITED

Minutes of a Meeting with the Scrutiny Sub-Panel held on 1st October 2010 at the WEB Offices

0. Present:  Jurat J. Tibbo: Chairman Constable D. Murphy Constable J. Refault

Deputy E. Noel

Mr. P. Crespel

Mr. S. Izatt: Managing Director

1. In attendance:  Mr. L. Henry: Finance & Development Director

Mrs. N. Ashworth: Minutes

Deputy D. De Sousa – Deputy Chairman Scrutiny Sub- Panel

Senator S. Ferguson – Scrutiny Sub-Panel Member Ms. Kellie Boydens – Scrutiny Officer

0. Meeting with the Scrutiny Sub-Panel
1. Jurat Tibbo opened the meeting and welcomed the Scrutiny representatives. Deputy De Sousa gave Deputy Egré's apologies as he was unwell.
2. Jurat  Tibbo  stated  that  he  was  not  clear  what  information  Scrutiny  were seeking and questioned its relevance to their investigation.
3. Deputy De Sousa pointed out that whilst scrutiny supported the establishment of the States of Jersey Development Company ("SoJDC") there were some concerns regarding WEB's move into SoJDC as it was felt there needed to be clear  separation  between  WEB  and  the  new  company.  Senator  Ferguson agreed  and  pointed  out  that  it  was  the  concept  of  the  SoJDC  to  operate differently to WEB.
4. Jurat  Tibbo  asked  why  the  contracts  of  employment  were  apparently important  in  this  context  and  pointed  out  that  these  were  confidential documents between the employer and the employee.
5. Senator  Ferguson  explained  that  Scrutiny  had  been  told  by  the  Chief Minister's Department that the reason for not closing WEB and opening a new company was due to employment contractual obligations. Jurat Tibbo replied that  the  reason  was  due  to  contractual  business  obligations  not  staff obligations.  Jurat  Tibbo  highlighted  that  WEB  had  been  in  operation  for 15 years and there were many contracts in place and many parties involved in these contractual business agreements. Jurat Tibbo explained that were WEB to be liquidated firstly all parties to these legal agreements would need to agree to any changes and there was no obligation for them to do so, and secondly  there  would  be  very  significant  legal  costs  associated  with  the process of changing all of these agreements.

Page - 8

S.R.10/2010 Res.

6. A discussion ensued and Deputy De Sousa stated that the Chief Minister had referred to staff contractual issues and pointed out that Scrutiny members were happy to sign confidentiality agreements in this regard.
7. Mr.  Crespel  pointed  out  that  the  Managing  Director  ("MD")  had  been appointed to run the new company. A discussion ensued and the Scrutiny Sub- Panel  members  were  furnished  with  a  copy  of  the  advertisement  for  the position of MD, the MD job description, a letter from the Chief Executive at the Chief Minister's Department dated July 2006 together with a timeline schedule (all as attached).
8. In reply, Deputy Ferguson stated that the information given to Scrutiny by the Chief Minister had been incorrect and that it was not the perception of the public or of some States Members.
9. Deputy De Sousa stressed that Scrutiny needed to see the evidence in order to put their report to the States.
10. At this point Constable Murphy stated that it appeared that the Scrutiny Sub- Panel were undertaking a witch-hunt and Constable Refault agreed. Constable Refault went on to point out that it was clear that the missing member of the Sub-Panel was motivated towards one particular staff member, despite the fact that he was not present at the meeting.
11. Referring to the staff contracts, Deputy Noel pointed out that the only person that could release information about his contract was the MD himself who had been very co-operative in this regard.
12. Senator  Ferguson  questioned  the  settlement  terms  and  penalty  clauses contained within the MD's contract. At this point Jurat Tibbo handed over an excerpt  from  the  staff  contracts  headed  re-organisation'.  In  answering  a subsequent question from Deputy de Sousa it was also confirmed that all the staff had the same re-organisation clause within their contracts.
13. Deputy Noel highlighted that there was nothing unusual with regard to the re- organisation  clause  and  indeed  the  Social  Security  Minister  would  be recommending to the States next year the introduction of TUPE (The Transfer of Undertakings (Protection of Employment) Regulations) in Jersey.
14. Jurat  Tibbo  stated  that  the  best  way  forward  was  for  the  SoJDC  to  be approved by the States following which a new Board would be appointed and it would be for the new Board to analyse the requirements of the Company and  abilities  of  all  members  of  staff  and  make  whatever  changes  it  saw appropriate under the terms of the contracts.
15. Jurat  Tibbo  emphasised  that  the  current  Board  of  WEB  were  not recommending getting rid of any member of the staff as the Board fully supported the senior Executive and had every confidence in the whole team at WEB. The Board concurred with this statement.

At this point Jurat Tibbo left the meeting.

16. A  discussion  ensued  about  the  proposed  development  of  the  Esplanade Quarter and the sinking of the road. Mr. Henry pointed out that it was now proposed for the Esplanade Quarter to be developed in stand alone phases with the sinking of the road taking place at a later date.
17. Mr. Crespel highlighted that WEB had a duty of care as a Company and to the Island and also to act in good faith with its development partners who had invested hundreds of millions of pounds in the waterfront. Mr. Crespel pointed out  that  to  delay  the  completion  of  the  overall  scheme  unnecessarily,  as ongoing building sites were unattractive to investors and users, could lead to serious financial consequences. It was imperative to conclude the proposed development on the West of Albert reclamation site.
18. Constable Murphy pointed out that there were no other building sites in the country where there was a queue of developers and tenants waiting. This had all been set up and encouraged by the MD and Constable Murphy pointed out that it was also important in terms of the Finance industry and the employment situation in the Island.  
19. The  MD  explained  there  were  three  large  financial  institutions  that  had expressed a desire to move into the Esplanade Quarter but it was critical to have  certainty  that  the  development  was  going  ahead.  The  MD  also highlighted the competition between Jersey and Guernsey and pointed out how successful Guernsey had been in attracting new financial institutions. The MD stressed how catastrophic it would be for Jersey to lose out in this respect and   Deputy Noel  stated  that  the  market  needed  certainty  and  that  it  was imperative to have the debate on SoJDC.
20. Mr.  Crespel  echoed  these  comments  and  emphasised  that  the  delays  in debating SoJDC and the ensuing uncertainty was causing significant adverse effects and the delay was not in the best interest of the Public of the Island.
21. Constable  Refault  asked  the  Scrutiny  Sub-Panel  if  there  was  any  further information that they requested.
22. Deputy  De  Sousa  stated  that  the  Scrutiny  Sub-Panel  had  a  meeting  that afternoon to discuss the findings of their meeting with WEB. Should further information be required then the Board would be notified.
23. In summing up Senator Ferguson stated that if there was a clear out' of WEB the next 18 months would be spent in the Royal Court.
24. At the end of the meeting the MD invited the Scrutiny Sub-Panel to look at the proposed plans for the Esplanade Quarter, Zephyrus and Westwater. The MD, Mr. Crespel and Mr. Henry presented and discussed the proposals with the Sub-Panel.