One of Greenwich Council’s commercial offshoots, GS Plus, has lost £1.2 million over the last financial year, with directors warning that its chances of winning new work will be hit by the council’s decision that it should pay its staff the Living Wage.
Its sister company, Greenwich Service Solutions (GSS), has also been hit by the move to pay Living Wage, losing a contract to provide school meals in Kent and warning it has not been viable to pursue new business.
Greenwich is now reviewing the operating models of both companies, which were set up under the administration of former leader Chris Roberts and provide similar services.
GSS was set up in 2008 to help the council retain its work in fields such as school catering, facilities management, and to bid for new work from outside clients. It has 382 staff, down by over 400 following the loss of the Kent contract.
GS Plus was set up the following year after a meeting chaired by then-deputy leader Peter Brooks, in anticipation of government cutbacks and compulsory tendering, and mainly works on services for Greenwich Council itself, such as transport, as well as catering, cleaning and IT. It has 920 staff.
The main difference between the two firms is that GS Plus is a “Teckal company”, which means it must be directly controlled by a public sector body and conduct 80% of its business with that body.
Brooks, who is currently the borough’s ceremonial mayor, has sat on the boards of both firms since their formation, and is paid £4,000 each year from each company on top of his council allowances.
In 2013, the council was accused of “hypocrisy” because GSS and GS Plus did not pay the London Living Wage (currently £10.20/hour – not to be confused with the government-mandated minimum wage, which has been rebranded “national living wage”).
But when they did adopt the Living Wage, the two companies struggled to hold onto contracts – even outside London, where the rate is £8.75.
853 understands that the loss of contracts at Greenwich schools which have switched from council control to academy status has also hit business*.
It effectively means the two companies can only bid for business at councils, schools or other organisations which agree to pay Living Wage rates.
At GS Plus, which lost £1,219,716 in 2016/17, directors declared in their annual report: “As a consequence of GS Plus having to pay the London Living Wage, a good number of catering, cleaning and ICT contracts have been lost as clients increasingly struggle to meet the annual wage increases due to budget cuts, etc.
“Contracts with total annual value of circa £1.3m have been lost since the beginning of the current year, with potential further losses expected.”
At GSS, which made a profit of £227,358 in 2016/17, directors warned: “It has not been viable to pursue further tendering opportunities at this time and retention of existing contracts remains a high priority.”
The managing director of both companies, Gurmel Singh-Kandola, a former senior council officer, is retiring at the end of the month, and a report to Wednesday’s cabinet meeting said the council was taking the opportunity of a change in management to review how the firms worked.
Asked by health cabinet member David Gardner how GS Plus and GSS compared with other arms-length companies set up by councils, director of finance Kevin Gibbs said he could not answer as that would be a topic covered in the review of the firms.
Cabinet member for human resources Chris Kirby told the meeting: “Obviously the example of the Kent catering contract is a good one, it might be difficult to benchmark in some respects but as a council we’ve tried to insist on the Living Wage being paid and that has made it difficult for GS Plus to compete where some local authorities are less scrupulous in the way that they look to bid for contracts. As in all of these things, context is everything.”
Council leader Denise Hyland said budget pressures had led to a “race to the bottom” in catering and cleaning contracts.
She added that the council would work to put GS Plus “on a firm footing”. “And that means, y’know, you don’t make an omlette without breaking eggs,” she continued.
The review into both companies will report back later this year.
Asked about GS Plus’s financial position, a Greenwich Council spokesperson told 853: “The business plan for the company is currently being refreshed and a revised business plan is anticipated later this year. The company is in a surplus position and there have been no accounting irregularities.”
*Update, 31 January: This story originally referred to schools that had switched to academy status choosing firms that did not pay Living Wage. Maritime Academy Trust, which runs a number of Greenwich borough schools, has been in touch to say it recently re-tendered its contract and made it a condition that the new provider, which is now in place, paid Living Wage. We’re grateful that MAT has been in touch, and the story has been amended to remove any possibility of confusion.