Credit: YMCA
Credit: ESSA
Contracts in Uncertain Times John Summers considers the future for ‘guaranteed’ contract sums for outsourced aquatic and recreation centres
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o what is the future of guaranteed contract sums for aquatic and recreation facility management contracts, now that closures and disruptions as a consequence of COVID-19 have resulted in so many being varied to such an extent that they may as well have been non-guaranteed/fee for service? Over the past six months of the COVID-19 pandemic, it seems that “guaranteed contract sums” may not have provided councils with the budgetary certainty that it was assumed they would. As has been often noted, we are certainly living through unprecedented, extraordinary and extremely uncertain times, but one wonders whether we will now see a move from more guaranteed contracts to non-guaranteed. If so, what will they look like? The attraction of guaranteed contracts would seem to be twofold. Firstly, there is the full transfer of financial risk to the contract management company. Secondly, there is the view that under a guaranteed contract, the contractor will drive the ‘business’ harder than they would otherwise under a fee for service model, and as such council will be the beneficiary of increased net performances. With almost 400 aquatic, recreation or sporting facilities managed by third parties on behalf of councils across Australia, there is no doubt many councils are retendering or renegotiating option periods, giving consideration to this issue. So, will it be guaranteed, non-guaranteed or maybe a bit of both? As Belgravia Leisure Chief Executive, Nick Cox recently suggested, contract management companies, following the COVID-19 pandemic, would more than likely be pushing 44 Australasian Leisure Management Issue 141
back on onerous contract requirements, particularly relating to financial expectations. This is hardly surprising, and it will therefore be interesting to see where some common ground maybe found in this regard. So what might this ‘common ground’ look like? Fully non-guaranteed for the duration of the contract Having personally reviewed and responded to more than 50 tenders during my time at the YMCA, I could count on one hand the number of tenders for which the council were willing to assume full financial risk for the duration of the contract. In such cases, the level of financial scrutiny by council was extensive. While it is arguable whether this scrutiny actually enhances net performances, there is certainly an increased need to fulfil the due diligence obligations. Ideally there will be some embedded incentives for exceeding participation targets, particularly for memberships and swim school enrolments, and consideration could be given to total income. I have witnessed the management of expenditure control in isolation to income generation, whereby incentives or penalties have been applied for operating within, or exceeding an expenditure budget. However, I do believe this approach is often flawed in its design and application noting the correlation between increased income and expenditure in many parts of the operation. So, while this approach may still achieve optimum financial outcomes, it does expose councils to financial risks, as would be the case within an inhouse model, where council becomes the guarantor.
