Restricted: commercialSF/HL/1412/12

To: / 1. Richard Harris
2. Minister for Housing, Regeneration and Heritage / cc / Mandatory CC:
PS First Minister
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Elma Williams-Ferrandis
From: / Wyn Roberts
Regeneration Manager
North Wales Coast RA
03000625299
Date: / 22 June 2012

RHYL YOUTH ACTION GROUP – FUTURE FUNDING OPTIONS

Issue

  1. This submission seeks your decision on the principle of future funding for the Rhyl Youth Action Group (RYAG) to complete the Hub project at 1 Elwy Street, Rhyl.

Timing

  1. Urgent – RYAG need to be informed as soon as possible to prevent a loss of future income streams.

Recommendation

  1. That you agree:

the Statement of Information at Doc 1 and its publication in a Decision Report once you agree which course of action to take;

Option 2at paragraph 24: that further capital grant funding of up to £100,000 is made available to assist RYAG to complete the Hub project.

Background

  1. This SF follows on from the previous Ministerial Briefings regarding RYAG (MB/HL/0807/12) and the management of the Hub Project (MB/HL/0254/11) in West Rhyl.
  1. The Hub projecthas involved the redevelopment of the ground floor of the original RYAG premises at the corner of Wellington Road and Elwy Street, Rhyl along with the construction of a 2nd floor to create new office space. The project began in early 2009 and was to be financed through Welsh Government sources and via RYAG’s own contribution:-

WG - Town Improvement Grant - (Phase1)£ 48,152

WG -Property & Environment Grant (administered via DCC)£259,921

WG - Communities Facilities and Activities Programme (CFAP)£134,633

RYAG (own resources)£ 77,137

TOTAL£519,843

  1. To date, £517,251 has been spent with WG contributing £442,706 and RYAG the balance of £69,082. The project however has been at a standstill in an incomplete state since late 2010. The majority of internal works have been completed but cladding and other external works are still required to fully weatherproof the building for the long term.
  1. The reasons that the project are incomplete are twofold:-

i)a lack of sufficiently robust project management and control over costs leading to a cost over runfor which RYAGhas no reserves to meet;

ii)a dispute with their construction manager, James Cuthill Construction and Project Management (JCCPM) for unpaid worksleading from cashflow problemswithin the project.

  1. DCC’s Auditor and Project Management team were asked to review the project in September 2011 to determine what had gone wrong and to help identify what liabilities RYAG had with respect to JCCPM. Their December 2011 report demonstratedthat £32,000 wasstill owed to JCCPMon the contract - this has subsequently been reduced to the nowagreed amountof £25,000. The report also indicates that c. £100,000 is required to complete the Hub building to the original tender specification.
  1. RYAG informed JCCPM in early February that they could not fund theirdebt or find the resources to complete the Hub from their own resources; JCCPM subsequently started legal action in an attempt to reclaim their costs. However, following further discussion with Welsh Government, Denbighshire County Council, DVSC and the Wales Co-op, JCCPM halted the proceedings in early March in the hope that the matter could be settled out of court if RYAG were given sufficient time to find external funding support.
  1. RYAG has approached a number of potential funders for assistance to first of all pay off its debt and to secondly fund the required work to complete the Hub. Denbighshire County Council, Denbighshire Voluntary Services Council and Welsh Government via the Communities Facilities and Activities Programme (CFAP) were all approached directly but none is able or prepared to help. RYAG also appliedfor a loan application to Charity Bank-Wales but this was also refused.
  1. Despite all their efforts therefore, RYAG has not been able to source any additional sources of external funding and is now asking WG to consider further financial assistance so that it can restructure its finances and complete the Hub project as originally planned.

Justification for Welsh Government Assistance

  1. The first issue for RYAG to deal with is the debt to JCCPM. The RYAG Board of Directors has now agreed to accept the offer of a payment holiday from their main mortgage provider (the Welsh Council for Voluntary Action) which will enable the organisation to restructure its finances to deal with the debt. RYAG will offer to pay JCCPM a monthly amount to clear the debt over the next 18-24 month period. This indicates a determination and commitment from the RYAG Board to deal with the situation in a responsible manner.
  1. It is acknowledged locally that RYAG provides a valuable service to the people of West Rhyl and offers a unique service to an average of 35-40 children and young people 5 days a week. Many of these are vulnerable and the Hub provides them with a safe environment within which to interact outside normal school/college/work hours. All RYAG’s services are funded by charity grants and should the company fail, replacing these services via any other third sector organisation,or through the local authority, would incur considerable additional cost. The organisation is well supported both by residents and local politicians.
  1. RYAG draws down over £200,000 in grant annually from a number of charities and other organisations (e.g. Cymorth CAP, Tudor Trust, Children in Need), support that would not necessarily transfer to any other organisation should RYAG cease operating. The cost of providing these services would in all likelihood have to be borne by the local authorityif they were to continue.
  1. A4e, the employment focussed social purpose company and one of RYAG’s tenants at the Hub has recently indicated that it will begin to seek alternative accommodation unless RYAG can assure it that the work to complete the external elevations of the building will start soon. The implication here is that unless RYAG can assure all their tenants that they have the financial ability to complete the project, other tenants may also decide to leave thus seriously undermining RYAG’s business plan for survival and eventual growth.
  1. Welsh Government Legal Services were contacted initially regarding the scope of what officials could and should be doing to safeguard our investment within the building. As we have a Legal Charge over the property it is appropriate to work with stakeholders and RYAG to try and find a solution to completing the external fabric of the building and in so doing safeguarding monies already invested. This enables officials to speak to other bodies as part of their duty to promote the business and act as a broker in bringing interested parties to the table.
  1. Given that the organisation has taken significant strides to improve its financial management and accounting and aims to continue with this improvement through the appointment of new staff and staff training, it may be reasonable for you to consider assistance.

Financial Due Diligence

  1. In response to this request, officials have sought to verify RYAG’s financial position by commissioning an independent financial report to provide an objective and constructive assessment of the organisation’s future sustainability. This was commissioned through the Wales Co-op and undertaken through BangorUniversity’s Management Centre in April 2012.
  1. The events of the last eighteen months have highlighted the organisation’s deficiencies in several key areas, most of which appear to have been the consequence of the previous managerial regime. These are now however being addressed and have led to increased director involvement with regular bank transaction reconciliations to improve financial control. RYAG is taking firm action to improve its internal and project management capability by :-
  • taking active steps to deal with their debt by working towards a practical solution that can enable WG and eventually other potential funders to consider further financial assistance;
  • appointing a new Project Manager (note John Reaney was recently appointed to administer and manage RYAG’s activities on a day to day basis (see Doc 2 for his CV) andestablishing a new and strengthened Board (see Doc 3);
  • up skilling of staff and Directors through training courses organised via the Wales Co-opparticularly on corporate governance issues
  • applyingfor additional funding from suitable organisations and charities/foundations to improve cash flow and project funding capacity (Children in Need and the Tudor Trust have recently approved further funding in this respect).
  1. Turnover has doubled during the last financial period with the organisation moving into an operating profit position. The increase in the organisation’s assets has generated income and this is used to offset the organisation’s expenses. The Report has highlighted that cashflow, month to month, is relatively stable.
  1. The Report suggests that RYAG’s financial situation into the medium/long term is relatively good, and while there will always be some risk of default given the tight margins under which RYAG operates, this can be minimised through tight fiscal control.
  1. The Report concludes that RYAG’s ‘underlying position is much stronger that it’s short term cash flow suggests’ and that with ‘intervention that does not cripple RYAG with further debt, it has the potential to strengthen its financial position moving forward’. The Hub building now needs to be completed to enable this assessment to become a reality.
  1. We have also reviewed the cash flow ourselves. Year 1 is very tight with predicted surpluses of just £4k. However we believe they have compiledthe cashflow on a prudent basis and additionally their major sources of income have been confirmed. They need toensurecosts are tightly controlled to come in on forecast – there is some scope for cost savings in order to react to changes inincome. Their cashflow in years 2 and 3 show surpluses of £27kper annum. This represent an 8% sensitivity i.e. costscan increase or incomedecrease by 8% and they can still achieve break even on cashflow. This is considered reasonable for a social enterprise. We therefore believe that RYAG has the potential toachieve astable financial position if its current issues can be addressed.

Advice

  1. You are invited to consider the following options:-

Option 1- that no further funding is made available to the Rhyl Youth Action Group.

You could decide to decline any further funding to RYAG. Once RYAG’s debt has been repaid, the completion of the Hub construction contract could in time conceivably be funded from applications made to other funders (e.g. the Big Lottery Fund)with whom RYAG have had initial talks.

However, this will inevitably take time and there is no guarantee that any funding will eventually be made available. Also, as already mentioned, some Hub tenants appear unwilling to remain at the Hub for much longer unless reassurance can be given that work to complete the building will begin soon.

Option 2 –(recommended option) that capital grant funding of up to £100,000 is considered to complete the Hub project

This option assumes that RYAG can find the funding to clear its immediate debt and further WG funding will be considered to support completion of the Hub project only.

If this option is supported, RYAG would retender the remaining work and appoint an experienced construction project manager to oversee the work and manage the contract. As part of our offer letter, there would be a requirement on RYAG to appoint an independent quantity surveyor that would ensure that the contract is managed and funds expended in accordance with the grant offer conditions and that value for money is obtained. (Note - the newly appointed RYAG Project Manager will not be the construction manager for the completion of the Hub construction)

The £100,000 identified as being required is based on a current estimate and there is a possibility that the work once tendered may exceed this amount. However, it is thought that is unlikely and could be value engineered to not exceed the capped amount.

  1. It is recommended that Option 2 is supported.

Legal Advice

  1. Legal Services have reviewed this SF and are content.

Powers

  1. The relevant legal powers are contained in sections 126 - 128 of the Housing Grants, Construction and Regeneration Act 1996.
  1. These powers are the powers of Welsh Ministers

Statistics

  1. No statistics were used in the preparation of this submission.

Financial Requirements and Governance Implications

  1. The exact level of funding required is not yet known but the maximum required for each option is estimated as follows:

Option 1 – no funding requirement;

Option 2 - funding for the completion of the Hub is made available – capped at £100,000

  1. The funding will be found from within the Regeneration Areas BEL North Wales Coast.
  1. The Sustainable Futures Operations Team has had sight of this SF and is contentHRH/363/12.

Press and Publicity Arrangements

  1. Officials will work with our Press Office to issue a press release regarding the projects approved.

Statutory Consideration &Policy compliance

  1. This is not a policy submission.

Doc 1

STATEMENT OF INFORMATION

The Minister for Housing, Regeneration and Heritage has been asked to agree making capital funding available to the Rhyl Youth Action Group (RYAG) to assist with the completion of the Hub project at 1 Elwy Street, Rhyl.
RYAG is a not for profit company that was established in 2003. It has grown significantly over the past 9 years and supports a wide array of activities for the children and young people of Rhyl, particularly those living in the Rhyl West ward. It has grown from an organisation that began with 8 members to one that now has over 900 and is supported by a number of well known national charities such as the Prince’s Trust, Tudor Trust and Children in Need. The youth cafe offers a safe and supportive environment and is open five nights a week throughout the year and is attended by 35-40 young people on average per night. The centre is the only one in Rhyl that offers this level of service and caters for a number of troubled youngsters that have been excluded from school and who subsequently find it difficult to access other facilities in town.
The Minister has been asked to take this decision based on a satisfactory financial assessment of the organisation.
The relevant legal powers are contained in sections126-128 of the Housing Grants, Construction and Regeneration Act 1996. Those powers are powers of Welsh Ministers.

Doc 2

John Reaney MCMI

26 Llanelian Heights Phone: 01492 512906

Old ColwynMobile: 07809 701167

Colwyn BayE-mail:

LL29 8YBWebsite:

An experienced and accomplished manager and leader in the voluntary sector with an excellent track record in: operational management; improving quality; delivery of programmes for young people; management of teams; training and resourcing professionals, staff, volunteers and associates.

An excellent communicator who can demonstrate efficiency and effectiveness, operating with people from varied backgrounds and positions. Has a strong reputation for delivering and improving the quality of organisations and improved outcomes for service users.

AREAS OF EXPERTISE

LeadershipAble to plan, lead, and develop organisations

ManagementA firm but flexible approach to managing people and creating positive teams

TrainingA unique and attractive communication style to enhance and develop individuals and groups

ACHIEVEMENTS

Managed, promoted and delivered the work of Weston Spirit across the North Wales region and subsequently the whole of Wales, securing its reputation as a high-quality deliverer of personal and social development programmes to over 2000 young people. Including strategic and operational management of 20 staff, youth centres, finance, H.R., Risk Assessment, Health and Safety, child protection, communication, fund-raising, networking, events, promotion, action plans, and contract negotiation and management.

Publishedtwo books on Christian Youth Work

PresentedMorning Worship – former Sunday morning ITV programme

DevelopedTraining, support and resourcing of volunteers and employed staff

Funding For recruitment and employment of parish youth workers; project funding for development and delivery of high calibre youth work programmes; sustainable revenue funding for staff costs; providing support and advice on employment law and surrounding issues.

Established North Wales Youth Enterprises C.I.C. and chairs the board of directors.

Experience

Self Employed Consultant Sept. 2008 – present

Development and delivery of youth work and management training programmes.

Delivery of the City Gates government programme for young, gifted and talented students who underachieve.

Training youth service managers on the FPM Management Development Programme leading to Level 6 qualification with Chartered Management Institute.

Considering the current youth work context and legislative frameworks, and effecting high quality outcomes for Integrated Youth Support Services.

CWVYS Regional Co-ordinator strategically developing a strong network to deliver a united voice for the voluntary youth work sector in Wales.

Paralegal representing claimants on behalf of solicitors in County Court legal actions. Compiling accurate reports and drafting legal orders to bring swift closure to cases.