business case for scc selling tour packages through nexxus...

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Business case for SCC selling tour packages through Nexxus Trading Services Limited

August 2013

© 2013 Copyright Staffordshire County Council. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any

form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the County Council

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Contents Proposal page 1 Executive Summary page 1 Objectives page 2 Governance Arrangements page 3 Standing Orders and Financial Regulations page 3 Accounting and Banking Arrangements page 3 Investment and Resources Required page 3 Initial Set up Costs page 4 Ongoing Company Costs page 4 Risk Management page 4 Next Steps page 5 Appendices Appendix 1 Process and Management page 7 Appendix 2 Accommodation and Attractions page 8 Appendix 3 Financial Model page 9 Appendix 4 Legal Advice page 11 Appendix 5 Risk Assessment page 14

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Proposal That Staffordshire County Council (the “Council”), acting as the accountable and legally responsible body for the Destination Management Partnership (“DMP”), launch and sell a series of packages direct to the consumer via the website, www.enjoystaffordshire.com (the “Website”). These packages would combine private sector attractions and accommodation providers in the County as a way of promoting the county, increasing visits, overnight stays and spend, and ultimately employment within the sector. As the means to facilitate this significant development, this paper also proposes the use of the Council’s trading company, Nexxus Trading Services Limited (“Nexxus” henceforward). Executive Summary The Council already sells - through the Website - a ticket (Thrill Hopper) which combines four of the County’s key attractions but this current arrangement stops short of combining accommodation providers, and therefore does not legally constitute a package as defined below. There is strong evidence from a neighbouring destination, Go Leicestershire, that considerable revenue can be generated by the marketing of true packages of attractions and accommodation to the consumer which would make it easier for the consumer to select a short break in a particular destination, rather than having to make a series of individual decisions and undertake a great deal of time-consuming personal research. Go Leicestershire are the only major UK destination selling such packages (see issues below) through a limited quantity of print material but mainly via their consumer website, www.goleicestershire.com. We also are aware that the neighbouring Derbyshire DMP is considering the launch of a similar scheme. Were Staffordshire to enter this field successfully there would be considerable market advantage and PR value accruing. The facility, had it been available, would also have been invaluable in promoting such assets as The Staffordshire Hoard and would be equally valuable, if available in time, to promote the World War I Centenary. Over time, niche packages could be developed promoting not just attractions combined with accommodation, but also restaurants, gardens and arts & crafts SME's, all of which are currently part of the Destination Staffordshire membership. Go Leicestershire - according to their CEO - currently sells £600,000 of their packages annually and this is achieved from a base of attractions without the comparable consumer appeal and high entry cost of a number of Staffordshire attractions, most notably Alton Towers and Drayton Manor. Whilst we could not expect to achieve this turnover in year 1 it is forecast that in five years we could be generating £300,000 of annual revenue for the sector. This initiative has been given extra impetus by the opening of St. George’s Park, whose marketing team have first hand experience of the Leicestershire example.

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The key barrier in the past to this initiative and the reason why the Leicestershire example has not been widely replicated elsewhere in the UK has been the legal requirement that packages sold or offered for sale in the UK must carry financial protection for the consumer in the event of failure of the operator or any elements of the package. The legislation in this instance is the Package Travel, Package Holidays and Package Tours Regulation 1992 (PTRs). Accordingly, this requirement is also a condition of membership of the key trade organisations such as ABTA or ABTOT which offer the packages credibility and consumer reassurance. This requirement has deterred all other DMP’s, most of which have a strong element of public sector control, from launching packages. These legal requirements are most commonly met by private operators by financially protecting the packages sold with a bond secured either via arrangement with a bank or by taking out an insurance backed bond via an established/ specialist provider such as Travel & General Insurance Company plc (which also administers the ABTOT scheme). The bond need not cover credit card bookings as these are protected by the Credit Consumer Act and any defaults by our partner businesses would be charged back to the accommodation provider who made the consumer sale (see process below). Objectives The objectives of selling tour packages through Nexxus are: • To drive additional revenue into the sector, encouraging crucial overnight stays,

revenue and consequent employment. • To provide the tourism sector in Staffordshire with a competitive advantage over

other destinations, thereby growing our market share. • To generate additional PR coverage for Staffordshire not just because of the

innovation involved but also in terms of the packages making it easier to facilitate journalist visits to the County.

• To increase engagement of the sector with Destination Staffordshire, adding increased critical mass to the promotion of the County as a destination and so lending greater impact to the Council’s investment.

• To reinforce in-house services and ensure that the current expertise is maintained and kept up to date.

• To make use of the ready-made trading vehicle which the council might wish to develop in the future as an arm’s length delivery agent for the other, broader activities currently delegated by the Council to the DMP. In effect, it is conceivable that Nexxus may absorb the DMP and be used as a means of attracting future private sector investment, thus reducing the Council’s commitment. This mirrors the situation in Leicestershire and Cheshire, for example, and a number of other tourism destination management organisations in the UK.

• To increase the profile of the Council. • To future-proof the Council’s service delivery. • To stretch and motivate staff within the Council, by providing additional experience

of working in a commercial context. • To enhance the work being done on alternative business models.

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• To improve service provision through developing skills and learning from other organisations.

The financial objective of this specific activity is not, in the first instance, at least until the price elasticity has been tested, for Nexxus to make a substantial profit but as a minimum to cover its costs (see financial analysis), so as not to place any new financial burden on SCC. Any future profit generated above this requirement could be used to reduce the contribution of the Council to the general costs of the DMP’s activities. The administration of the scheme and the associated marketing costs would be borne by the existing SCC tourism team and by the participating private sector partners, respectively. Any financial assistance, in cash or in kind, given by the Council would therefore be provided under a formal agreement with the company. Governance Arrangements The power afforded under the Local Government Act 2003 and the Localism Act 2011 enable authorities to trade with private sector bodies and persons for profit. In doing so local authorities will be able to create an entrepreneurial climate in which to introduce new service delivery options and business opportunities. Nexxus was incorporated under part V of the Local Government Act 1989 to take advantage of these new trading opportunities. Employees from the Council’s services- in this case the tourism team- will carry out the functions required by the activities proposed here under the umbrella and through the legal framework of Nexxus. The company’s framework, articles of association and governance arrangements should be structured to allow additional related activities or services to be “bolted on” if required, following a robust business case being produced as appropriate. Standing Orders and Financial Regulations Nexxus will continue to comply with the Council’s standing orders and financial regulations. Accounting and Banking Arrangements It is not expected that use of a Nexxus bank account will be required from the outset since all transactions will be posted through the Council’s bank account. This model will prevent cash flow implications and avoid the requirement for a working capital balance when the company begins trading. Nexxus will use the Council’s financial ledger. The accounting structure will ensure that all income, expenditure and VAT can be allocated to the company by use of appropriate transaction types and coding structures. The use of transaction types will enable the company to have its own stationery for purchase orders and invoices and will facilitate the submission of the company’s VAT returns. Interest on balances held by the company will be calculated on an annual basis.

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Nexxus will continue to be responsible for providing its accounts and tax returns in the appropriate format within set deadlines. Nexxus will be responsible for the engagement of an auditor, as applicable. Investment and Resources Required These can be summarised in the following areas: 1. Initial Set up costs It is not the intention that Nexxus will employ its own staff or acquire its own assets: as above, the tourism team will conduct the proposed activities under the umbrella of Nexxus. Initial set up costs will therefore be low. • Initial legal costs for making use of Nexxus are as follows:

o Company incorporation: the company is already incorporated so costs will be limited to a review of the governance arrangements and the company's constitution to ensure that the board authorities are consistent with those arrangements: £500.

o Business Case review: £500. o It is expected that the Council’s existing supplier could be retained as auditor

as they will perform this function at minimal additional cost since the nature of the operation of the additional activities will be relatively uncomplicated.

o Other set up functions will be minimal and mainly related to the requirements of financial reporting which it is anticipated can be undertaken by SCC Finance and ITT.

2. Ongoing Company Costs

o A working capital is not considered necessary as the company will use the same bank account as the Council.

o Other costs associated with business development and marketing of the scheme will be covered through the private sector contributions to the scheme as shown in the financial analysis.

o The legally required Insurance described above can be provided either through a bank bond which is required by ABTA, for example, to be at the level of 15% of forecast annual turnover (therefore, £15,500), or through bond insurance carrying an annual premium of £400. It is recommended that the latter route is adopted.

The financial model is detailed in Appendix 3.

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Risk Management The company has been set up to adopt the Council’s financial, operational, management and audit policies and will therefore employ quality management procedures. These ensure that risks are managed effectively and do not overexpose the company to external risks. An assessment of the risk facing Nexxus has been prepared and is detailed in Appendix 5. The key risk would appear to be the Council being challenged in terms of the legality of it acting as a tour operator in its operation of the scheme. The advice from legal is that:

“(This) is a challenging area (in which) to quantify risk since the Localism Act 2011 is relatively untested at this point and other local authorities have heavily relied on the provisions of the Local Government Act 2003 when setting up their own local authority trading companies. Our interpretation of the Localism Act 2011 is that there is nothing to prevent the Council from acting as a tour operator / consumer package operator provided that it acts in accordance with the Package Travel Directive, Package Holidays and Package Tour Regulations 1992 (the “Regulations”), which regulate the sale of packages offered for sale in the UK. This would mirror the approaches of other local authority trading companies such as: • The Norse Group, comprised of Norse Commercial Services Ltd, NPS Group Ltd and Norse Care Ltd (all set up by Norfolk County Council);

• KCC Commercial Services, KCC Legal, KCC Schools Personnel Service and Edukent (all set up by Kent County Council);

• Essex Cares (Essex County Council); • Solution SK (Stockport Council); and • Swindon Commercial Services (Swindon Borough Council)”

The above is further qualified in a summary of legal advice received on this issue and included at Appendix 4. Alternatively, David Crisp has produced a full paper on the impact of the Localism Act, which is available upon request. Next Steps The following steps need to be taken in the following order. o Authorisation for SCC, via the management of the tourism team, and acting on

behalf of the Destination Management Partnership, to undertake this type of activity; in effect, using Nexxus to perform as a package tour operator to the consumer, combining private sector partners within Destination Staffordshire and

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engaging the accommodation providers as agents in the transactional sale to the consumer. The legal advice (see Appendix 4) is that within the scope of the current legislation, the Council is allowed to provide this function and it only remains for the Council to be satisfied with the risk assessment provided. Council SLT/ Cabinet approval required.

o Incorporate the proposed services into Nexxus as a suitable potential vehicle for future expansion covering other DMP activities. Council SLT/ Cabinet approval required.

o Application and payment for membership of ABTOT and commissioning of the

legal insurance (as per “Financials” in Appendix 3). Responsibility: GW. o Drafting of agreement with participating partners. Responsibility: GW/ Legal o Approach to partners to agree marketing contributions, website amendments and

rate for services. Responsibility: GW o Design of the marketing material and Website amends, including terms and

conditions. Responsibility: GW/ Legal team. o Launch to consumer. Responsibility: Tourism team.

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Appendix 1 Process and Management

The scheme would be managed by the Council’s existing tourism team, advised by the DMP’s current structure. The team already has experience of the promotion and financial management of a type of “package”, namely the Thrill Hopper ticket which combines four leading Staffordshire attractions. The transaction process would be as follows: o Council/ DMP agree participating partners and an agreed rate per service provided

(with written contract outlining the obligations of all parties to cover a given period) o Council/ DMP design the range of packages including agreed partners, set the

consumer price according to the financials below and promote on the Website using the facility provided by the partnership’s contracted web supplier, who provide the same system and facility for Go Leicestershire.

o This latter process would direct the consumer to the accommodation provider’s website to book the accommodation and buy the chosen package.

o On arrival at the chosen accommodation the consumer party would be issued with a ticket covering the selected attractions option; this ticket would be printed and distributed by the Council, each with a unique reference number.

o Once redeemed by the attractions the Council is invoiced by them at the agreed rate quoting the reference code of the ticket (as with the Thrill Hopper).

o The Council remits the charge to the attraction and invoices the issuing accommodation partner for the cost of the attractions admission.

o The accommodation provider retains the balance of the initial consumer payment to cover their cost of the accommodation and meals.

o The Council would therefore be acting as the principal or tour operator, designing and managing the scheme, issuing terms and conditions to the consumer, setting the price of the packages and being responsible for the acceptance of any admission tickets issued.

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Appendix 2 Accommodation and Attractions

Proposed Accommodation Providers to be initially featured Hilton Hotels, St. George’s Park The Moat House, Acton Trussell The Drayton Manor Hotel Alton Towers Hotel The Stoke Moat House Proposed Attractions to be initially featured Family Package

• Alton Towers • Drayton Manor • Snowdome • Go Ape • Aerial Extreme • Waterworld • Conkers • National Brewing Centre

Couples package

• Shugborough • Wedgwood • Churnet Valley Railway • Trentham Estate • National Brewing Centre • Trentham Monkey Forest • Biddulph Grange • Gladstone Museum • Tamworth Castle • Dorothy Clive Gardens

NB. National Memorial Arboretum is not included because there is no entrance charge, although a meal in the restaurant and parking could be included as an option. It may be included in the future as it builds its commercial opportunities, e.g. guided tours and exclusive exhibitions.

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Appendix 3 Financial Model

The following summary sets out the P & L for the first year’s forecast volume based on the initial launch of separate proposed tickets for a family of 4 and for a couple, each targeted at different attractions in the County. This limited launch would allow key learning to be gained before any expansion into multiple packages was contemplated. The family ticket will be split into two options, one where the consumer selects to visit Drayton Manor theme park (DM) and a range of other attractions, and one where Alton Towers is selected (AT) alongside a range of other attractions (see Appendix 2), all to be visited over a 2-day period with accommodation selected from a range of options. (See Appendix 2). TOTAL P & L Family Couple Total DMP AT Selling Price (each) £205.00 £205.00 £105.00 Retained by accommodation £100 £100 £75 Max rebate to attractions £119.00 £119.00 £30.16 Min rebate to attractions £78.50 £78.50 £22.49 Invoice to accommodation £105.00 £105.00 £30.00 Max. retained by SCC -£14.00 -£14.00 -£0.16 Max. retained by SCC £26.50 £26.50 £7.51 Average SCC Gross Profit per each £6.25 £6.25 £3.68 £16.18 Volume (Year 1) 100 200 150 450 Revenue (Year 1) £20,500 £41,000 £15,750 £77,250 Average SCC Gross Profit total(Year1) £625 £1,250 £551 £2,426.25 Marketing costs (per annum)

Web £333.33 £333.33 £333.33 £1,000.00 Print/ Design £500.00 £500.00 £500.00 £1,500.00

Other Costs (per annum)

ABTOT Fees/ subscriptions £300.67 £300.67 £300.67 £902.00 Bond Insurance £133.33 £133.33 £133.33 £400.00

Nexxus governance review £166.67 £166.67 £166.67 £500.00 Business case review £166.67 £166.67 £166.67 £500.00

Average net Profit/ Loss (Year 1) -£975.67 -£350.67

-£1,049.42

-£2,375.75

Marketing Contributions (per annum)

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Drayton/ AT £0.00 £0.00 £0.00 £0.00 Others @ £350 £1,050.00 £1,050.00 £3,500.00 £5,600.00

Average SCC Profit/ Loss (Year 1) £74.33 £699.33 £2,450.58 £3,224.25 ex VAT £59.47 £559.47 £1,960.47 £2,579.40 Price of ticket per Person £51.25 £51.25 £52.50

It is clear from this that the scheme is designed to be self-funding; no additional cost will be incurred by the Council; the cost of the scheme will be covered through additional charges to the participating private sector businesses and through some leveraging of the existing service provided by the partnership’s web provider. Annual costs in subsequent years would remain broadly as for Year 1. However, the net profit of the scheme would increase as volume rose through greater consumer awareness and promotion to the extent that, in Year 5, turnover would rise to a forecast £300,000 and profit at constant mix of ticket type, would be c. £10,000. It is also possible that the existing/ future ERDF grant could part fund the marketing costs, although this would have to be at the expense of other planned use of this grant.

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Appendix 4 Legal Advice

E- mail dated 15/05/13 from David Crisp to Graeme Whitehead “

1. The Localism Act

The Localism Act 2011 provides a general power of competence for local authorities in England. It gives these authorities the same power to act that an individual generally has and provides that the power may be used in innovative ways, that is, in doing things that are unlike anything that a local authority - or any other public body - has done before, or may currently do. Where the authority can do something under the power, the starting point is that there are to be no limits as to how the power can be exercised. For example, the power does not need to be exercised for the benefit of any particular place or group, and can be exercised anywhere and in any way. Section 2 of the Act sets out the boundaries of the general power, requiring local authorities to act in accordance with statutory limitations or restrictions. Restrictions that apply to existing powers that are overlapped by the general power are applied to the general power (often described as “overlapping powers”). So for instance if an existing power requires a particular procedure to be followed, the same procedure will apply to the use of the general power to do the same thing. It also applies any express prohibitions, restrictions and limitations within primary or secondary legislation, to the use of the general power. The question being asked here is whether the Council, by acting as a tour operator, is acting in accordance with any overlapping powers. Please consider my advice at point “4.” below in this respect. Section 3 restricts the ability of a local authority to charge for providing a service to a person using the general power, or where they are using an overlapped power, for non-commercial purposes. If no specific charging power exists, local authorities can charge up to full cost recovery for discretionary services - that is those that they are not required to provide to a person, where that person has agreed to their being provided. This is in line with the charging powers in section 93 of the Local Government Act 2003. Charging for commercial purposes is subject to the provisions of section 4 which restricts the ability of a local authority to do things for a commercial purpose using the general power. The power does not authorise authorities to trade in a service with a person to whom they are already statutorily obliged to provide it. They must also only trade commercially through a company. These provisions reflect the trading powers in section 95 of the Local Government Act 2003.

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2. Competition Act

I mention it in my notes but the Council needs to ensure that when using the general power conferred by the 2012 Act they fully comply with other complementary legislation, in particular the relevant Competition Acts. Otherwise they risk being investigated and taken to court for non-compliance and may incur significant associated costs. When considering whether to charge for services using the general power of competence, we advise the Council to consider the likely impact on local businesses and may wish to consult with them and other interested parties.

3. Tax Specific tax advice should be taken in respect of the use of Nexxus under this project (it is entirely out of my remit). Generally speaking I believe it is common knowledge that VAT is charged when a VAT-registered business sells to either another business or to a non-business customer. The standard rate is 20%.

4. State Aid To comply with the State Aid Rules Nexxus must not be subsidised by the Council in any way. The Council must recover the cost of any accommodation, goods, services, employees or other support it supplies to the company. It will be necessary to set up suitable systems and financial controls to ensure that this is the case and to demonstrate the transparency of the company.

5. Acting as a Tour Operator If the decision is made to set up a controlled company for the purposes of selling consumer packages, then consideration should also be had of the Package Travel Directive, Package Holidays and Package Tour Regulations 1992 (the “Regulations”), which regulate the sale of packages offered for sale in the UK. The two principal sections of the Regulations provide financial protection for prepayments and require tour operators to provide what is promised. Amongst items covered are:

• A direct responsibility placed on tour operators for the safety of their customers. Tour operators are legally responsible for the components of the package - coach transfers, hotels etc, if negligence is proved. They cannot avoid responsibility by attributing it to their sub-contractors although a tour operator will be entitled to pursue separate legal action against a supplier/member under the terms of its supplier contract/membership terms.

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Accordingly, it is proposed that the Council insert a clause into our supplier contracts / membership terms requiring the supplier/hotelier to indemnify the Council in the event of their default/non-performance.

• Prohibition of inaccurate brochure descriptions with penalties for non-

compliance. • Prohibition of last minute surcharges. Surcharges under two per cent of the

package price cannot be levied at all. • Legal remedies if necessary, in the form of holidaymaker compensation. • A guaranteed refund if the operator goes bust.

Furthermore, the client may want to consider registering with either one of the two major tour operator organisations, the Association of British Travel Agents (ABTA) or the Association of Independent Tour Operators (AITO). These organisations protect members from unforeseen claims which may threaten the solvency of the company and the reputation of the Council.

6. Commercial trading and risk – the business plan I quote from the attached government advice in this respect because it is essential: “All commercial activity involves risk and potential losses as well as the potential to make profits. These risks and opportunities must be fully understood and scoped before embarking upon such enterprises, with the potential to mitigate and manage these risks explored. A key part of this is the development of a business case. The 2009 Trading Order requires that a business case (‘a comprehensive statement’) be prepared and approved before exercising the trading powers. This covers objectives and associated investment and other resources required, business risks with an indication of their significance, and the expected financial results and any other relevant outcomes expected. It also places an obligation on the authority concerned to recover the costs of any accommodation, goods, services, staff or any other thing that it supplies to a company in pursuance of any agreement or arrangement to facilitate the exercise of the trading power. No similar requirement is currently contained in the Localism Act. In any event the rules on State Aid would need to be considered in this respect. Other important legal, commercial and financial considerations for councils setting up a trading company include company law issues, the cost of bidding for contracts, tax liability (corporation tax and VAT), EU procurement law and state aid rules and employment law (TUPE and pensions). There also needs to be a business plan for the operation of the company.”

7. Next Steps Should you wish to continue with this process, I believe a business plan will need to be formulated and submitted to your relevant contact within the Senior Leadership Team. Upon consideration of the plan, they will be able to decide on whether the idea can be submitted to the Cabinet for approval. Once approval is granted, we can discuss the practicalities of setting up a company (although I do make some mention of this in my notes).”

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Appendix 5 Risk Assessment

A comprehensive legislative, contractual, financial and operational risk assessment has been undertaken to ensure that all risks and uncertainties affecting the Council in their execution of this project and also their use of the Trading Company’s position are identified. 1. Risks associated with Nexxus

Risk Likelihood Impact Risk Management 1.1. Failure to utilise Nexxus in strict compliance

with legislation

Low Medium External legal advice on governance arrangements.

1.2. Failure to follow the statutory guidance on the trading power

Low Medium Legal included in the setting up of the company.

1.3. Using trading powers where there is a statutory obligation to provide them

Low Low Every new service to trade via the company to list services in their Business Case and to consider statutory obligations.

1.4 Failure to trade through a company


1.5 Possibility of trading ultra vires


1.6 Failure to adhere to EU procurement rules

Low Medium Robust procurement procedures to be employed, amendments to the Council’s Procurement Regulations to include a section on EU procurement rules as they apply to the company.

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1.7 Possibility of challenge to state aid – full cost recovery

Low Low Issue of State Aid is outside the scope of the company. Comply with the Best Value Accounting Code of Practise on full cost recovery.

1.8 Consequences of the Council’s CPA category falling below “fair”

Low Low Governance procedures to include an exit strategy.

1.9 Failure to include suitable “break clauses” in contracts, where appropriate, should the Council’s CPA category fall below “fair”

Low Medium Robust contract and governance arrangements. All contracts to be entered in to will be checked out by legal first.

1.10 Possibility of conflicts of interest for members / officers acting as board members or directors of the company

Low Medium Members and officers will be governed by the Council’s Code of Conduct.

1.11 Failure to arrange adequate insurance cover for the Company's liabilities and assets.

Low High Ensure insurance broker is kept up to date with the set up and operation of the company including any new areas of trading the company becomes involved in. Regularly review insurance cover and before accepting any order/contract.

1.12 Failure to comply with taxation laws – corporation tax and VAT

Low Medium Advice to be sought from a consultant with taxation planning expertise.

1.13 Consideration of potential TUPE implications

Low Low Initially this is not a concern but will be reviewed regularly.

1.14 Risks relating to Council’s reputation and public perception of its efficiency and effectiveness in the event of Nexxus failure

Low Medium Risk assessment regularly reviewed

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1.15 Failure of company to be competitive

Medium Low Continue to benchmark fees and costs. 1.16 Consequences of adverse financial impact

on general fund and hence taxpayer

Low Low Robust contract and governance arrangements i.e. contract monitoring, budget monitoring, contract administration procedures

1.17 Conflict of interest over workload priorities of council projects and company projects

Low Low Effective resource planning meetings, use of agency/contract staff and subcontractors.

1.18 Company credit rating

Low Low Council could act a guarantor and insurance could be purchased to mitigate this.

1.19 Inability to meet tendering PQQ’s

Low Low The company will generally adopt the council’s policies and protocols.

1.20 Challenge from council’s auditors re financial model and group accounts

Low Low The accounting structure will ensure that all transactions applicable to the company can be identified using transaction types and coding structures.

1.21 Lack of capacity to manage additional work Low Low Performance management to increase productivity and careful programming to ensure only accepting work where resources are available. Continue to use agency staff and subcontractors to manage peaks.

1.22 Contractual disputes Low Medium Legal to check all contracts before they are entered in to, staff trained in dispute resolution and contract administration.

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2. Risks associated with SCC performing these activities (additional to above) Risk Likelihood Impact Risk Management 2.1. Legal challenge to Council operating such

a scheme Low Low The impact on the Council in reputational

terms is considered to be small in the light of the legal advice given. The motives of the Council in operating the scheme should be viewed as laudable in terms of supporting a vital sector and employer within the County whilst being non profit- making in intention. Any financial penalty in the event of the action being judged illegal is likely to be in proportion to any gross profit made over and above the rebates to partners. This value over 5 years is modelled at only £31,000 with any challenge likely to occur within that time.

2.2. Legal challenge to scheme as anti- competitive

Low Low There are currently no bona fide operators offering a similar range of packages dedicated to Staffordshire or linking the specific attractions and accommodation providers. There are operators in the travel trade packaging a limited range of non- comparable products but these are offering travel by coach as an organised party. In this case, the Council would point to the

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rates offered to them by partners of the scheme as being a commercial decision by such partners and that these rates are unlikely to be better than those quoted to other agents/ distributors of such tickets (e.g. Alton Towers entrance) which would always include an element of commission or profit for the operator or agent, which the Council is not taking.. Also, that such operators are not offering a comparable, packaged product and the council is only pitching the final price at the level required to attract consumer purchase.

2.3. Partner in scheme is unable/ refuses to honour their element of a package or fulfils this in a manner deemed sub-standard leading to consumer complaint or in worst case injury or death.

Low Medium The Council has never had to address an issue of customer complaint arising from its sale of the Thrill Hopper ticket and in such circumstances, the consumer would be directed back to the operator or in exceptional circumstances offered a refund which would then be re- claimed from the partner. The bonding to be taken out would insure SCC against failure of delivery by a partner and the council would only deal with partners who signed the terms and conditions indemnifying SCC against serious consumer injury which would be covered in the first instance by SCC’s existing insurance and then re- claimed.

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Appendix 6 Graeme, As this will be traded through Nexxus there is very little, if any, risk to the County Council. The insurance for Nexxus will be separate to that of the Council’s and any claims will therefore not impact on the pricing of our main insurance programme. Clearly there is a need to purchase the insurance backed bond to meet any legal requirements and protect against any financial loss arising from supplier failure. In terms of the insurance for Nexxus, the inclusion of this service may increase the premium cost but in the early stages I do not think this will be a significant increase. There may be a greater impact if business progresses to levels similar to that of GoLeicestershire. If you need any advice on strategic risk, I would recommend that you refer this to Lisa Andrews who is responsible for this area. Regards Rachel Fox Risk & Insurance Manager, Insurance Services Staffordshire County Council Office Address: Staffordshire Place 2, 2nd Floor, Tipping Street, Stafford, ST16 2LP Postal Address: Wedgwood Building, Tipping Street, Stafford, ST16 2DH Tel: 01785 276477 Fax: 01785 276473 [email protected] www.staffordshire.gov.uk From: Whitehead, Graeme (Place) Sent: 29 July 2013 09:20 To: Fox, Rachel (Finance) Cc: Crisp, David (L&D) Subject: Selling tour packages to consumers Rachel, I would be grateful for your consideration of the attached. You might remember the gist of the proposal which David and I have now worked up (David had discussions with John Tradewell in the course of giving his legal advice). Before taking this through he delegated member decision route I’d appreciate your views in terms of the risk and the insurance aspects. You will recall that national legislation requires us to take out financial protection for the consumer against failure of the operator (us/ Nexxus) or any elements (our partners in the private sector) of the package sold. The paper proposes taking out an insurance backed bond with T&GIC or similar. Regards, Graeme

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