Tory council 'gave contract to officer without tender': Privatisation of computer services could cause further embarrassment to Conservatives. Tim Kelsey reports

A CONSERVATIVE local authority has been accused of impropriety and mismanagement after awarding a contract worth several million pounds to one of its own staff without an open tender in breach of EC law on competition and contrary its own standing orders.

The disclosures over the contract for the privatisation of South Oxfordshire's computer department and its transferral to a private company will cause embarrassment to the Government, which is trying to defend the ethics of Tory local authorities following the highly critical District Auditor's report into housing policy at Westminster council.

A similar privatisation at West Wiltshire was reversed after fierce criticism by the District Auditor, amid allegations of impropriety and conflicts of interest.

Documents leaked to the Independent and to Computer Weekly, the trade magazine, show that in 1990, the deputy treasurer, John McLintock, was given a contract to set up a company, McLintock Ltd, to run the council's computer services without open tender. There was no open tender because the council felt that the company would not win a bid against outside suppliers. Mr McLintock said: 'There was no open tendering. I could not see how we could win on open tendering.'

It has emerged that Bob Watson, the council chief executive who was then treasurer, paid a 'massive big cheque' on the authority of the council to Mr McLintock to subsidise the privatisation and ensure that the new company suffered no commercial risk. In particular, Mr Watson seemed concerned to protect the company against high interest rates.

The contract, which did not contain any service level agreements, was designed so that the company was financially viable for three years. It was also designed so that the company was able to bid for work outside the council and generate additional fee income. Initially, Mr McLintock returned a percentage of these fees as royalties to the council, but this arrangement has now ceased. The company recently recorded a pre-tax profit of more than pounds 500,000.

The idea for the privatisation arose in talks between Mr Watson and Mr McLintock and was then agreed by the council. Mr Watson has denied that there has been any conflict of interest: 'There's no more a close relationship between me and John McLintock than me and anybody else.'

The council admitted yesterday that the deal was contrary to standing orders and in breach of EC rules. The council said it had a right to waive standing orders and had done so on this occasion.

McLintock Ltd was reawarded the contract last year. This time the contract was submitted to open tender. In an internal memo, Mr Watson urged opposition to an open tender as disruptive to the continuity of computer services, but was persuaded by the district auditor to have one.

Standing orders, in spite of the protests of opposition councillors, were waived once again, this time to restrict the number of tenders. Tenderers have complained that the process was biased in favour of McLintock. All were told that in order to win the contract they would have to sub-contract work to McLintock at a price to be set by the company.

Councillors rejected McLintock's bid, but it was resubmitted at a lower price. Even if McLintock's had not been selected, Mr Watson said, 'we would still have recommended to the committee that he (Mr McLintock) be accepted for the next three years'. The contract was worth pounds 4m.

It was the first sizeable privatisation in the history of the council and one of the first of a council computer department. It attracted interest from senior Tory politicians, Mr Watson said. 'Ministers watch very closely for criticism or any evidence of failure on our contracting out of financial services. This council has been at the forefront of delivering government policy.'