The regional business centre, at 1 Providence Place in West Bromwich, was constructed in 2011 to help modernise the council’s support services.
But the building has already run up a loan and interest costs of more than £31m and will likely be sold for only around £8m.
A school, partnered with City of Birmingham Symphony Orchestra, will then be created on the site to cater for 750 pupils. It is said to be the first such school in the country to be sponsored by a world famous orchestra.
It was in July 2014 when the cabinet of Sandwell council approved the purchase of the regional business centre for £23.5m.
According to the audit report, the acquisition of the building was to “avoid onerous rent increases on the property”. Sandwell council was the main tenant of the building.
Grant Thornton UK LLP, the auditor of Sandwell Council’s financial accounts, they reported this was a “significant loss” of money to the tune of £22.5m.
The report also states Sandwell council is “still committed” to making the loan and interests payments, used to purchase the building, at £31.69m.
Mark Stocks, external auditor at Grant Thornton LLP, who delivered the presentation, said: “I can understand the individual decisions in terms of the original purchase, and I can understand the council’s aims in terms of trying to attract something as prestigious as the symphony orchestra.
“It is a lot of money. All I think we can do at this stage is to ask you to reflect on it again, and just make sure that that loss is something you are willing to bear.”
He added: “Make sure when you do enter into these long-term strategy purchases, you stick to what you aim to do. It is rather a lot of money.”
In 2007, Sandwell Council signed a 15-year ‘Strategic Partnership Agreement’ with BT for the outsourcing of support services – including ICT, human resources, the customer contact centre, accounting and other business processes – all previously handled in-house by the council.
This agreement was envisioned to support Sandwell council’s ‘Office Accommodation Strategy’, and was brokered by Transform Sandwell, the strategic partnership between BT and Sandwell council, as part of a £200m regeneration plan.
The outsourcing contract was estimated to be worth £300m.
A total of 450 jobs with BT were also created, alongside housing 500 Transform Sandwell employees.
But in March 2014, Sandwell council terminated its contract with BT, after becoming unhappy with the level of service it was receiving from the telecommunications giant.
Chris Hilton, interim manager for land and assets, said he was “not uncomfortable” with this decision, suggesting the council saved money.
“The council was on the hook for rent, so [if the council] hadn’t purchased it, we would have stayed as tenant until 2026, and we would have paid out something like £18 million pounds in rent,” he said.
“The council’s operational requirements changed. The opportunity came up to attract a new school, and what we’re left in 2021 is an empty building that is not worth as much as it would be if it had a blue chip tenant in paying top rent.”
But Tory Councillor Jay Anandou said it was a “humongous mismanagement”.
“This is a humongous mismanagement of asset has resulted in a loss of more than £15m, a short-sighted decision making and lack of member scrutiny,” he said.
“An internal review of SEND is already pending to published. Do we need yet another internal review on this matter? We need a full and complete white paper published on this asset management issue so that this never happens again.”