The Kroll report on the refurbishment of Fairfield Halls

“What did ministers know, when did they know? I’d put a third question though. Why didn’t they find out?” – Diane Abbott, Sierra Leone Debate, House of Commons 18 May 1998

In early December the Kroll report on the refurbishment of the Fairfield Halls was published. Refurbishment of the Fairfield Halls overran by £37.5 million. Many details of this overspend came out in the Grant Thornton audit report issued in 2022.

The council website describes the Kroll report as “an independent review looking into the refurbishment of Fairfield Halls and related matters.

It was commissioned by the council to provide clarity over the probity and integrity of decision making around the Fairfield Halls refurbishment project, the reasons the project ran over budget and schedule, governance failures and whether there was evidence of potential wrongdoing by individuals.”

The report is 260 pages, some select extracts are below. One of the reoccurring themes is the poor flow of information from council officers to Councillors. The refurbishment of the Fairfield Halls was controversial from the point it started. If the elected representatives running the borough were not receiving the information they needed on the biggest building project in the borough, (to quote Diane Abbott) “Why didn’t they find out?”

“The risks of not going through a formal procurement process and allocating such a complex project to an untested company were never drawn out for elected members”

1 Introduction

“At the time of the decision to grant BBB this project, the company had only just become operational (in January 2016) and had not yet built a single property. It had no track record of delivering any projects, and did not have any experience delivering any projects with the specialist nature of refurbishment of an entertainment venue. Due to the nature of the company structure between LBC and BBB, it was decided to offer the wholly Council-owned property to BBB under a license to deliver the refurbishment and therefore no competitive procurement was carried out to assess suitability of the delivery body. The risks of not going through a formal procurement process and allocating such a complex project to an untested company were never drawn out for elected members in the June 2016 Cabinet report.”

““From interviews with LBC staff outlining the decision-making processes that existed at LBC at the time, it appears that Ms Negrini had ultimate responsibility for the decision to recommend BBB to the Project”

3 Executive Summary

“While we have not found evidence of any fraud or direct personal gain, our Review has identified a number of instances where information was seemingly deliberately withheld from, or mischaracterised to, Cabinet and a number of conflicts of interest and issues around BBB independence in relation to LBC. These findings reflect the concerns raised by the external auditor in RIPI2, who stated that, as a result of there being no properly executed contractual or loan documents in place, stated view of BBB as an independent company was open to challenge, and that the lawfulness of payments made to BBB in relation to the Project were called into question.”

“Despite the legal advice received recommending that governance and other structures be put in place that ensured BBB operated independently of LBC (to avoid unlawful behaviour over state aid, procurement), we note that in the following areas, BBB and LBC were not acting independently of one another and the governance structures set out in the delegated decision document were not implemented.”

“From interviews with LBC staff outlining the decision-making processes that existed at LBC at the time, it appears that Ms Negrini had ultimate responsibility for the decision to recommend BBB to the Project. We have not identified any formal documented decision detailing the rationale for this decision or the basis on which it was made and we were unable to confirm this with Ms Negrini”

“The way the Project was structured meant that BBB was subject to substantial commercial risk, as the Project was only viable as part of the College Green scheme. It should also be made clear that as BBB was wholly owned and wholly funded by LBC, LBC alone bore the full risk of any failed development projects undertaken by BBB.”

“BBB was ultimately wholly funded by LBC loans. This differed from the legal advice contained in the 16 March 2015 Cabinet report58 as outlined in 3.2 which set out several considerations relating to the anything that could create or reinforce a relationship of subordination or dependency between the Development Company and the Council should be avoided The fact that LBC did not follow the legal advice contained in the Cabinet report or the legal advice obtained from Pinsent Mason (see section 3.2.1) we remain of the view that the independence of Brick by Brick is open to challenge ensured that its own legal advice was followed.”

“Several LBC staff have told Kroll in interview that the BBB team was, in practice, treated as an extension of LBC itself rather than as a structurally and operationally independent third party. From January 2016 until June 2018, BBB was staffed primarily by LBC Officers that were seconded to the company.”

“Our review has however identified that at these points in time, the £30m investment reported to Cabinet appears to have been little more than a figure that LBC wished to spend”

3.3 Development of Project budget, scope and estimated completion date

“Our review has however identified that at these points in time, the £30m investment reported to Cabinet appears to have been little more than a figure that LBC wished to spend. It had been derived from a core scope of works which did not comprise a tested design, and existing estimates were significantly above this figure. This information was not clearly communicated to Cabinet.”

3.4 Governance of the Project

“In practice, governance and control of the Project at an LBC Officer level was concentrated within a small group of individuals within LBC from the Executive Leadership Team, from Finance and Resources and Place directorates. These individuals often fulfilled a number of different roles across the various governance structures.”

3.5 Lack of robust reports to Cabinet / Council

“We have identified a number of instances where formal reports to Members were not full and frank or lacked sufficient detail,”

“The impact of the Project overspend on LBC was not always reported accurately by officers to Cabinet and Scrutiny and Overview. Firstly, our review has identified references (see below) by LBC Officers to the fact that the overspend did not have a financial impact on LBC itself, and was a BBB issue (which is contrary to one of the key reasons LBC incorporated BBB, namely to obtain distributions of its profits, see section 3.2). As LBC was the sole shareholder and sole funder of BBB, any impact on BBB’s profits would ultimately impact LBC.”

“By the end of 2018, several senior LBC Officers were aware of the budget overrun, but also failed to report this to Cabinet”

3.6 Conclusion

“Throughout 2018, more and more senior Officers at LBC and Mr Lacey as Managing Director of BBB, became aware of the fact that the Project was going to go over the 2016 Cabinet agreed budget of £30m. However this overspend appears not to have been formally reported to Cabinet. By the end of 2018, several senior LBC Officers were aware of the budget overrun, but also failed to report this to Cabinet.”

“Ms Negrini was notified of the Project overspend in September 2018 and failed to ensure that this was reported publicly at that time:”

“Our Review also found that certain Members (Cllrs Butler, Hall, Godfrey and Newman (all LAB) in particular) received frequent updates and briefings from LBC Officers. As stated above, while we are not able to conclude comprehensively on whether they knew the full extent of the issues related to the Project, we know that the Project was discussed at these briefings, as detailed in the body of the report. We also note that because there was no formal reporting mechanism on the Project specifically, there was no platform for the full Council to be made aware of the issues with the Project apart from the very high-level business plan.”

5.7 Conclusions

“Initial cost estimates presented by KWA in June 2010, based on specifications put forward by LBC at the time, estimated that different iterations of the” Project would cost between £40 and £70 million. Despite this, in 2011/12 LBC decided to commit £27 million to the Project in its Capital Programme over the proceeding five years, £13million short of KWA’s lowest initial estimates.”

6.8 Conclusions

“We have identified omissions in the documents provided to the November 2015 Scrutiny and Overview Committee by Ms Negrini (then Executive Director of Place) that meant there was a lack of clarity in decision making”

“Our Review also found that certain Members (Cllrs Butler, Hall, Godfrey and Newman (all LAB) in particular) received frequent updates and briefings from LBC Officers”

The full report can be found at: https://www.croydon.gov.uk/sites/default/files/2024-12/kroll-report-RS2-2023.pdf