Broadband and Mobile Phone Connectivity Group

The update report of the Broadband and Mobile Phone Connectivity Task Group of the DCC Corporate Infrastructure and Regulatory Services Scrutiny Committee, published on January 31, 2018 makes the following statements in Section 4.6, “Take Up Clawback and Gainshare“:

Take up clawback monies are what BT owe to CDS where take up exceeds the BT base used in their financial model of 20%. This is set out in the contract

Where take up is higher than the 20%, the model would have required less public investment, as it would have triggered more commercial investment from BT and less public subsidy from CDS. Under the terms of the contract and required under state aid, this ‘over payment’ needs to be clawed back by the public sector from BT – this is known as Take Up Clawback.

Clawback is calculated at the end of the deployment phase in the contract, then again after two years, again two years later, and finally after the final year – the BT contract is for 10 years in total.

When Take Up levels were projected to be higher than the 20% baseline used by BT they offered to release some of this money early to local bodies including CDS – this is what is referred to as ‘gainshare’. Government were required to re-negotiate the national State Aid Approval Scheme, and as part of agreeing a new National Broadband Scheme, reached an agreement that across the UK local bodies could reinvest up to £129m of Take Up Clawback sums (including early Gainshare) with BT and without running a new open procurement.

The early Gainshare offer from BT was calculated by BT and the sum offered to CDS was £4.8m. It is expected that Take Up Clawback will exceed this sum over the next seven years.

Please answer the following questions:

In mid-2017, Kerry Denton told the DCC CIRS Scrutiny Committee that take up for the BT Phase 1 contract was at that time 36% (and will by now be higher than that). The Clawback/Gainshare clauses in the CDS/BT contract are triggered when take up exceeds 20%, but it is understood that a higher 30% threshold allows Clawback/Gainshare recovered from BT to be spent without the restrictions/limitations set by the contract when take up is less than 30%, but more than 20%. Please detail the restrictions/limitations, as specified by the contract, on how Clawback/Gainshare can be claimed and spent (a) when take up is over 20% but less than 30% (b) when take up exceeds 30%.

There is no reference in the Contract between Somerset County Council and BT to Gainshare. The contract makes provision for Take Up Clawback. This is calculated at each Take Up Review Point. The first is at the Full-Service Commencement Date, then every two years after and a final review at the end of the 7-year post deployment phase of the contract. The parties work together to agree on utilising the Take Up Clawback sums in accordance with the Commission Decision, on capital investment in the Network. There is no distinction in the contract for the % above 20% in how the mechanism operates.

Kerry Denton has previously confirmed to the CIRS Scrutiny Committee that the “deployment phase” of the CDS/BT Phase1 broadband contract was completed on March 31st, 2017. This was three months later than was required contractually (December 31, 2016) because BT failed to connected the contractually specified number of properties by December 31 2016. It is therefore now 14 month since the deployment phase was due to be completed contractually and 11 months since the deployment phase was actually completed. The January 31, 2018 CIRS Scrutiny Report makes it clear that no Clawback/Gainshare monies have yet been paid by BT to CDS, BDUK or Devon & Somerset County Councils. What amounts do CDS and Devon County Council expect to receive from BT in the form Clawback/Gainshare payments? (Please specify dates and amounts)

The agreed end date for the Network Deployment phase of the contract was 31st March 2017. Devon County Council does not expect to receive Clawback or Gainshare sums as the contract is between BT and Somerset County Council. The Gainshare sum of £4.8m is expected to be received by Somerset County Council and CDS and BT are currently engaged in how to model and invest this. Take Up Clawback will be calculated at the first review point as part of the Contract Closure process for the deployment phase of the contract. Our response above sets out the process and timescales for further Take Up Clawback calculations

The January 31st, 2018 CIRS Scrutiny Report states that BT has calculated and offered £4.8M in “Gainshare” to CDS. Presumably the CDS/BT Phase 1 contract specifies how Clawback/Gainshare must be calculated. On which date was the offer of £4.8M made by BT to CDS and what amount does CDS calculate the Clawback/Gainshare monies due to CDS to be, today (at 36% take up minimum or whatever take up actually is today)?

Take Up Clawback and Gainshare are not the same thing. Gainshare is the term used by BT to represent an advanced sum to a local body, based on BT’s own methodology and calculation. BT have confirmed the Gainshare offer of £4.8m was calculated based on 30% take-up for the build completed by June 2014 (160,811 THP) for the full duration of the contract. The total Gainshare offer from BT is £4.8m and is netted off from future Take Up Clawback sums. BT presented a Gainshare offer to CDS in early 2016. 

When BT do eventually pay Gainshare/Clawback monies to CDS how will CDS spend those monies?

The approach to investing the Gainshare Sums agreed by the CDS Board is to focus this investment where possible on the areas across Devon and Somerset with the poorest levels of speed, where there is no credible and declared commercial proposal, and where there is a high level of deprivation. The first stage is to run a public consultation of the proposed areas that could benefit, and this has now been launched by CDS. BT and CDS are working on scenarios on a co-design basis. Future Take Up Clawback sums will be offered to market via a new OJEU procurement. These sums are calculated at the Review Points stated under answer 1 above.