King's Lynn Innovation Centre: Council 'naive' over unpaid loan

King's Lynn and West Norfolk Council loaned NWES £2.75m towards the King's Lynn Innovation Centre (Klic)

A council was "naive" over a business centre building project that left it millions of pounds out of pocket, an internal inquiry found.

King's Lynn and West Norfolk Borough Council lent £2.75m to Norfolk and Waveney Enterprise Services (NWES) for King's Lynn Innovation Centre (Klic).

But NWES defaulted in November 2018 due to financial problems.

An inquiry found conflicts of interest, procedural irregularities and a lack of checks to safeguard public funds.

The report from a cross-party working group said: "There was a degree of naivety demonstrated by both officers, who had no experience of partnership working on a high-profile project, and elected members, nearly 40% of whom were newly elected when the project was in its infancy."

The report will be handed to the Local Government Association which is also holding an inquiry.

The Klic joint venture between the council and enterprise agency was completed in June 2016, costing more than £6m, and provides office space for businesses.

It has recently been valued at £2.3m, after the council took control of it upon the default of the £2.5m loan.

NWES also failed to pay back a £250,000 loan provided part way through the project to help it deal with financial problems.

Among the problems identified were a "misplaced sense of trust" in NWES, conflicts of interest between employees of NWES, the council and the project management company Nautilus Associates, as well as insufficient checks on how the loan would be repaid.

John Balch's firm Nautilus Associates was awarded contracts by NWES while he was the latter's strategic director

The report did say the centre was generating £150,000 a year and was offering a favourable return comparable to a cash investment.

An auditors' report into the loan previously disclosed concerns by officers of a potential conflict of interest in NWES's decision to use NWES director John Balch's company Nautilus Associates to project-manage the construction of Klic.

NWES was the construction partner for the Klic building in King's Lynn

Former Conservative council leader Nick Daubney was a NWES director, as well as sitting on the project steering committee for the council, and the report said he may potentially not have had to prioritise the interests of the council as a result.

Mr Daubney did declare an interest during council meetings, but there was no record of him reporting back to the council regarding NWES, the report said.

Nautilus, which was not appointed through a public procurement process, and its employees may have had "undue influence" on the steering group, the working group said.

Brian Long, council leader, said the working group's report echoed the findings of the original audit. and that an external review would now formally start.

He said the original report had highlighted shortcomings that were being addressed to ensure "robust management of future projects".

He added: "The project has been successful in that the building is virtually full, rental income is being received, and the council has ownership of the asset.

"We have learned a lot from the process and this will benefit any future projects we deliver."

Mr Daubney, Mr Balch and NWES and have been approached for comment.