A council pension fund is being sued for £6.5million by the company which was dumped last year as the environmental services contract holder for two Northamptonshire councils.
Northampton Borough Council (NBC) and Daventry District Council (DDC) were tied into the £7million-a-year contract with Enterprise Managed Services Ltd (EMS), which saw them collect bins and clean streets between 2011 and 2018.
But since the end of the contract last summer EMS - which is now part of the Amey group - has claimed that it is entitled to around £6.5 million as an ‘exit credit’ from the Northamptonshire Local Government Pension Fund (LGPS).
Although the legal claim is against Northamptonshire County Council, which is the administering authority for the fund, the assets are actually those of NBC and DDC, both of which have joined the county in defending against the claim.
The legal dispute was raised at an NBC cabinet meeting on Wednesday evening (June 12), where borough council solicitor Francis Fernandes said the two authorities were ‘robustly defending’ their position.
Mr Fernandes said: “In terms of the Enterprise contract, it’s not about us being sued for the performance of the service. There was some money in excess in the LGPS pension fund that Enterprise wants to claim against.
“So they have started to sue the pension fund for the £6.5million, but this council’s view, along with Daventry District Council, is that this is money that belongs in Northamptonshire.
“I will happily give members a briefing on this, but I don’t want to go into too much detail because proceedings are active.”
The contract handover on June 3 last year did not appear to end amicably, with the borough council’s cabinet member for the environment, Councillor Mike Hallam, saying the authority had been ‘badly let down’ by Enterprise (referred to as Amey) for allowing grass verges to reach almost 4ft in places.
But a report by Daventry District Council's executive director for business, Simon Bowers, to a council strategy meeting goes into more detail about why Enterprise has decided to launch its legal action.
Effectively, after leaving the pension fund, Enterprise believes it is entitled to the surplus within the fund.
The report states: “When this council and NBC entered into the contract with EMS, a significant number of staff transferred from the councils to EMS. In accordance with the regulations, the staff who transferred retained membership of the pension fund and EMS became an ‘admission body’. As is required, EMS had an ‘account’ created, which was initially funded to match 100 per cent of the assessed liabilities, with assets taken from the DDC and NBC accounts.
“During most of the life of the contract the EMS account was assessed as being in deficit. This resulted in higher employer pension contributions which the councils met. However, towards the end of the contract this position was reversed, as asset values increased and different assumptions about pensioner lifetimes were made, and the requirement for contributions reflected this. When the contract came to an end the county council assessed the EMS account and found that a surplus of assessed assets over liabilities of around £6.5 million existed.”
Government legislation changes in 2018 introduced the concept of the ‘exit credit’, where an assessed surplus in the fund when an admission body ceased to be one was to be paid out to that admission body.
But the DDC officer report states that the £6.5million sum would be a ‘wholly unjustified windfall’ for EMS, adding: “Prior to the 2018 regulations it would have had no expectation of such a payment and would not have priced the environment services contract in anticipation of it.”
Northampton Borough Council leader Jonathan Nunn added at the cabinet meeting: “At some point, this might be to the detriment of the pension fund holders. We have made the government understand the full implications of the changes that have been made in legislation.”
The cost of defending against the claim is ‘difficult to determine at present’ according to DDC, as it is ‘unclear which stages the case would need to go through’.
Both NBC and DDC have obtained legal advice from ‘leading counsel experts’ in the field, which they claim have said the authorities have ‘good grounds for resisting payment’.
A Northampton Borough Council spokesman said: “Our council’s view is that the £6.5 million is taxpayers’ money, invested in a pension fund that will pay people’s pensions when they retire, and paying this to Enterprise was not at all intended or envisaged when the contract was entered into.
“We are, together with Daventry District Council and Northamptonshire County Council – as pensions authority – defending the claim. The Government is currently consulting on a change to the regulations.”
But a spokesman for Amey, which now owns Enterprise, said: "Amey ran environmental services for Northampton and Daventry District Councils until 2018. As an exiting employer, we are entitled under the current regulations to payment of an ‘Exit Credit’ if a surplus in the relevant pension fund is identified. It is regrettable that we now find ourselves in court to secure this Exit Credit."