BISC: a progress report

BISC: THE GOVERNMENT RESPONSE

A Retrospective Review and Progress Report

The Government Response to the Business, Innovation and Skills Committee’s Tenth Report of Session 2010-2012 is now some 6 months old and we have all had an opportunity to reflect upon it. This is brought into sharp focus by reported comments by Eric Pickles (the Secretary of State for Communities and Local Government). If reports of his comments are correct he seems to have implied that there was more to do beyond what was in the Government Response. Reports from the Morning Advertiser of his comments are:

“I can see there has been a lot of improvement already, the strengthened industry code, greater transparency, a new arbitration and conciliation service – all this is good work. But there is still quite a lot to do and now is [the] time to make good on your promise and go further faster. Do what you need to do to convince the doubters that things have changed…………the last thing you need is the cold dead hand of Whitehall feeling you collar”.

Bearing in mind that the Government’s Response to BISC was:

• An Industry Framework Code to be legally binding
• PICAS to be set up under PIRRS to provide mediation on any Framework or Company Code related matter
• Three yearly accreditation of Company Codes
• A new PAS for offering initial advice
• A strengthened Framework Code with particular focus on FRI leases (specific items mentioned were rent, insurance, BDM training, dilapidations and pre- entry training and a commitment to discuss further improvements with “industry partners”.

What exactly was Eric referring to and what can the sector do beyond what it has done already? Here are some thoughts:

Does size matter?
Most family brewers and pub companies of a certain size have adopted codes of practice. Some of them are enormous and extremely difficult to take in all at once. An issue is smaller operators. Is there a minimum size of estate before you have to have a Code of Practice based on the Framework Code? If there is, I haven’t seen it and don’t know what it is.

BBPA as industry spokesman
Paragraph 65 of the Government’s response refers to BBPA having agreed to make substantive changes to the industry framework code. This appears to assume that BBPA speaks for the industry but nowhere is it compulsory to be a member of BBPA and not everybody is. The Response suggests that Greene King is not a member. Does BBPA speak for the industry?

Annual compliance
Paragraph 59 of the Government Response suggests including an annual statement of compliance properly signed by the Managing Director or the Chairman. The comment relates, specifically, to reaccreditation but it is possible to see that the statement of annual compliance could or should relate to full adherence to the Code in any event. The issue will, therefore, be one of audit trail. To what extent can it be demonstrated that you have complied and what is the quality of the compliance? I expect quality of compliance to be a feature. A good example might be pre-entry training. BISC expressly stated (see paragraph 36) that training was being “widely sidestepped” and Neil Robertson commented that it is for pubcos to show sufficient prior experience in order for applicants not to undergo PEAT (Pre-entry awareness training). The conclusion was that “creeping informality of the granting of waivers” was a concern. This is one very clear area for improvement.

Giving and taking of advice
How do you make people take advice? This writer’s experience has been that most tenants or lessees don’t take advice and, frankly, the pub company or family brewer cannot make them. There are some answers to this which will include:

• PEAT (as above)
• Reduction of information to core information which can easily be taken on board (I do realise that this is much easier said than done)
• Continuous training and not just PEAT.
• Not to be frightened to give clear advice. This has always scared everybody to death but why should it? The lawyer in me says it is because you may have a duty of care to ensure that, when you give opinions or advice, you have taken reasonable care to ensure that these are reliable and accurate. Is that so scary? It seems difficult to believe it is and can be dealt with on an open and transparent information giving basis which can be audited.
•  Be prepared to say “no” to new tenants and assignees. This is particularly the case where there has not been full disclosure to you and can lead to some exceptionally difficult conversations.. Although you can never completely counter the problem of, say, under the counter payments by assignees you can at least tell the assignee what you know. Unless I have misread this BISC refers to a number of EIP cases which were, so far as I can see, assignments which seemed to have gone wrong.

Role of BDMs
What exactly should the role of the BDM be? If we have learnt anything from the last few years it must be that there has to be enough in it for the tenant to make it worth his or her time. Balancing this with the need for the brewer or pub company to make a return can be difficult. My own view of the matter is that people will expect different rates of return and will take on pubs for a range of different reasons. What is a satisfactory living for them can often be a very subjective matter. Accordingly one of the core roles for the BDM must be to ensure that the tenant is actually getting enough to make it worth his while and he has a range of tools at his disposal to achieve this. There is, obviously, the issue of discounts which may be adjustable as well as sharing of machine income. However, the single biggest issue is likely to be rent and this is dealt with in the next paragraph.

An ideal rent model?
The express stated improvements required for Company Codes of Practice for FRI leases are clearly set out in the Government Response and do not require to be repeated here. Does this go far enough to readdress the balance of bargaining power with the right balance of risk and reward which so concerned the Government? The answer is not obviously yes. Probably the best and simplest answer is the correct rent model and the industry is moving in the right direction if recent reports are anything to go by and examples include:

•  Caps on increasing rent. The tenant should not be penalised for his own success although the full potential of the pub should be explored by reference to a good average operator.
• Avoid double-counting and, obviously, the AWP income sharing arrangements are part of this.
• Agree a minimum reward and income for the operator.
• Don’t lump in costs which the tenant simply can’t meet (this includes dilapidations, repairs, certification etc).
• Make it worth his while. Again and at the risk of repeating points made above the BDM has a sufficient range of tools at his disposal to ensure that the tenant does have enough of a reward in all of this.

I would conclude that this is not actually the end of this long running saga, but for the time being operators and tenants need to live with the new regime and make it work.