ACE engages external advisors to support Covid loan management

Arts Council England (ACE) has sought external financial advisors to assist its in-house team in managing loans made to arts and culture organisations during the pandemic.

Details of a government contract, valued at £166,666.67, reveal ACE has procured a ‘framework of financial advisors’ to support the administration of the Cultural Recovery Fund (CRF) loans programme.

The description of the framework, which runs from February 2025 to February 2027, states, “from time to time, ACE requires an independent and impartial review of a borrower organisation and its financial model to support our decisions regarding their loans”.

The procurement, awarded to Festivals and Events International (FEI), closed on 20 February and was published on 5 March.

As a framework rather than a contract, winning the tender does not guarantee FEI work. Instead, they can be called upon to provide reviews of particular aspects related to a borrower’s CRF loan, if and when needed.

FEI offers strategic and operational advice to councils, government agencies and cultural organisations. It has previously been contracted by ACE, including to provide assessments of CRF grant applications in 2020/21.

Risk of borrower advocacy

On 10 February, at a Public Accounts Select Committee, MPs raised concerns over ACE continuing to act as a loan agent for the Department for Culture, Media and Sport (DCMS) despite the risk that the funding body may have a vested interest in the survival of the organisations awarded Culture Recovery Fund loans.

The committee examined DCMS’s handling of Covid loans for culture and sport awarded from October 2020 to March 2022.

ACE was appointed as a loan agent, responsible for the day-to-day management of the scheme and relationships with borrowers, although all decision-making remains with DCMS.

During the hearing, senior DCMS staff disagreed with ministers that there was an inherent conflict of interest in the scheme. Permanent secretary Susannah Storey said that, while there is “always a risk of borrower advocacy,” she did not think it was “unmanageable”.

Polly Payne, co-director for general policy at DCMS, said two safeguards were in place to address “tensions” between financial and policy objectives. One is having “discrete teams” within ACE that deal with borrowers to “maximise the return for the taxpayer”.

Secondly, she said DCMS has been “absolutely clear” that in any situation where a decision isn’t in pursuit of a financial objective, such as offering more favourable terms to an organisation struggling to make its repayments, it could only be made by ministers.

Arts Professional understands that the department’s loan book operating model also includes the option to employ specialist third-party guidance where required.

ACE has confirmed that any reviews carried out by FEI will inform the advice the funding body provides to DCMS to support their decision-making.

Delegation of decision-making

DCMS makes the vast majority of decisions across its loan book, but it has confirmed it is in the early stage of piloting the delegation of decision-making to ACE for specific low-risk policy decisions, as part of an efficiency drive.

A total of £256m was allocated to 37 cultural bodies through the repayable finance strand of the Culture Recovery Fund, with loans issued on an average term of 15 years and almost all charged at 2% interest for the entirety of the loan period.

To date, nine borrowers, two in culture – Supply firm Energy Generator Hire Limited and Nottingham Castle Trust – and seven in sport, have fallen into insolvency, with loans totalling £46.1m.

The two culture cases account for £2.5m of the total losses, and DCMS does not expect to recover anything from those organisations.

A DCMS spokesperson said: “We are working closely with our loan agents (Arts Council England) and borrower organisations to ensure [that CRF] loans are recovered on behalf of the taxpayer to ensure the effective management of public money.”