Review heavily criticises Derbyshire council’s relationship with its controversial Dragonfly development companies

Bolsover District Council’s relationship with its wholly-owned Dragonfly development companies has been heavily criticised following a review after risks have been identified including a lack of good governance, a lack of a business plan and a conflict of interest between the roles of the organisations.
The council has two wholly-owned Dragonfly companies – the Dragonfly Management company representing the services that used to be run by the authority and the Dragonfly Development company which is involved in construction like council properties and developments for third parties.
Bolsover District Council’s Dragonfly was established by the former Council Leader Stephen Fritchley when Edwinstowe-based Woodhead Construction fell into administration in 2022 while working on Elmton-with-Creswell Parish Council’s costly Creswell Heritage and Wellbeing Centre project which Dragonfly subsequently completed.
Dragonfly Development has since overseen much of the council’s building projects but it has attracted concerns from members of the public about possible conflicts of interest with the mixing of a commercial company with a public authority’s work.
Bolsover District Council subsequently appointed Local Partnerships – which is linked to the Local Government Association – to review the authority’s governance arrangements with its Dragonfly companies after they had originally been set up to deliver social and affordable housing.
The Local Partnerships review report stated: “During the past two years, tensions have arisen between the council and the companies regarding ways of working. The council has had a number of concerns which has prompted it to undertake some investigations which raised issues around governance, conflict of interest and reporting.”
It added: “This report has been commissioned at a timely juncture, two years after the creation of the companies. Whilst the review has identified a number of risks associated with oversight and governance, these risks have not crystallised and the council has the opportunity to ensure that these risks can be managed.”
The report found despite progress in challenging circumstances with some achieved objectives, the Dragonfly Development company has not delivered all of the objectives originally envisaged so the council has been considering the costs of running the companies compared with the outcomes achieved alongside concerns about control and value for money in relation to Dragonfly Management.
It identified many instances where good governance has been absent or not fit-for-purpose including; A lack of a clarity of purpose causing confusion and conflict between the council and companies; The lack of an up-to-date business plan; The lack of a suitably robust governance framework including the company board’s composition and skills; The shareholder board’s prominence and that it has not been part of the committee system; The clienting capacity and capability within the council and capability gaps in the companies and governance bodies; And finally, the presence of conflicts of interest between the companies and council roles and the different roles within the companies.
The report also identified issues with the working relationships between the companies and the council as a consequence of the governance difficulties despite both sharing the same objective of wanting the companies to be a success.
It stated: “In combination, these matters create risks that are potentially significant enough to pose a threat to the council in terms of governance, finance and reputation; the council is unable to gain assurance that the companies are delivering council objectives, value for money and meeting the expectations of funders and regulators.”
Risks to the council, according to the report, have also been compounded by the fact that the companies support council services but delivery of important aspects of the services lies with the companies.
The companies, according to the report, also manage third party funding on behalf of the council where responsibility for this rests with the council but spend and delivery lies with the companies and subsequently poor performance could pose a threat to future council funding.
Other concerns have been that, according to the report, a lack of clarity and weaknesses in reporting means the council is often unsighted on the companies’ corporate and operating risks and the perceptions of external stakeholders including community stakeholders have highlighted concerns relating to governance, conflict of interest and an ability to demonstrate value for money.
The council is considering report recommendations should it choose for its Dragonfly companies to continue including revisiting its business case to determine whether there remains a need for the companies and the report has recommended that the council further considers both companies to determine their future.
These recommendations include: Ensuring necessary management resource and clienting capability; That the companies ensure sufficient resource including a dedicated finance function; A clarity of purpose in a refreshed and more comprehensive companies’ business plan; The creation of a working group to reset the relationship between companies and the council; Changes to board memberships; Adherence to all company rules; a more robust framework around meetings including a regular meeting of senior management of both companies and the council to underpin an improved working relationship.
The report has also advised a business case should be updated at least every five years, that a document should be produced for stakeholders, and that the shareholder board should be dissolved and replaced with a shareholder committee and that the council should consider bringing the former board members from Dragonfly onto this committee subject to a political balance with meetings.
It highlighted that a large proportion of the board has been formed of elected members presenting a risk of conflict of interest with some councillors having to withdraw from meetings to the detriment of their other responsibilities.
The report also stated there is little evidence that the current board has access to all of the skills required to run such a high-risk company so it has also recommended the creation a new board with an independent chairperson, a senior council officer, one other independent, a non-executive director, and the companies’ Chief Executive Officer.
Board members should also have commercial finance, development and housing management experience with a knowledge of the supplier and competitor markets, according to the report, and there should be an updated agenda and minute taking process of meetings.
The report stressed the companies should develop a business plan that is fit for purpose and the council should consider all the risks including funding, legal challenges, value for money and reputation.
Bolsover District Council has felt the companies have not shared sufficient financial information at a strategic level to enable it to have a clear oversight of activities so the report has also advised that the council should require the companies to put in place their own finance function with trained individuals to address strategic objectives.
If the council decides to bring the services back in-house and to dissolve the companies, according to the report, it will need to ensure that it is capable of doing so and that there is capacity to support a working group to lead the transition, and that it is aware of its limits and that there is sufficient financial resource to cover TUPE implications and staffing implications.
The council will also need to understand that it has the resources and due diligence for the transfer of contracts from company to the council with a clear stakeholder and staff plan and that any adverse financial implications are understood.
An action plan has been outlined by the report for the council to convene a joint meeting to signal a reset, dissolve the Dragonfly Board and recruit new directors, review membership of a shareholder board to ensure suitable political representation and to convert it to a committee, and finally to set up a task force to review an updated business case to determine if there remains a case for the Dragonfly companies.
Bolsover District Council has confirmed the Dragonfly shareholder board had ongoing concerns regarding the governance arrangements, potential conflicts of interest, achievement of value for money and effective working relationships.
The council also acknowledged that the report has confirmed many of these concerns and its Chief Executive Officer Karen Hanson and Council Leader, Cllr Jane Yates, have fully accepted the findings.
Cllr Yates said: “I pushed for this review, and I want to be completely transparent with this report and allow people to see the findings in the full report which is available on the council website.
“The results of the review are not entirely positive, and I see this as an opportunity to review all options for the Dragonfly companies in the best interests of staff, councillors and the public.
“I want to reassure people that the projects currently being undertaken by the Dragonfly companies will continue as planned. It is essential the council has full control over our statutory duties including housing management and this will be the priority for me going forward.”
Following the review an options appraisal will be developed which will allow councillors to understand the different ways forward and make an informed decision on how to proceed with the companies.
An Extraordinary Council meeting will take place in July where these options will be discussed with the final decision being made by the Executive committee at a later date.
Ms Hanson said: “I welcome this report and [I] am fully committed to finding the right way forward that provides the best outcomes for the residents and businesses of the district.”
Prior to the announced publication of the review, a separate Auditor’s Annual Report for the 2023-24 financial year identified ‘significant weaknesses’ and ‘risks of significant weaknesses’ in Bolsover District Council’s governance and efforts to establish value for money arrangements with its development company Dragonfly.
The audit found that draft accounts had contained errors and there had been a six-month delay in providing the financial statements of the Dragonfly companies Dragonfly Development Ltd and Dragonfly Management (Bolsover) Ltd.
This report subsequently identified ‘risks of significant weakness’ and ‘actual significant weaknesses’ in the council’s Value for Money Arrangements regarding Dragonfly which have led to the council and Dragonfly taking action to prevent any similar shortfalls during 2024-25 or in the future.
Following former Council Leader Cllr Fritchley’s resignation in 2024 as Chairperson and Director on the Dragonfly Group Board of Directors, Cllr Deborah Watson was elected as Chairperson and Cllr Anne Clarke was elected as a director.
Four Independents now represent nearly all the council board members including Cllrs Watson, Clarke, Emma Stevenson and Janet Tait with one Reform councillor, Carol Wood, on the authority’s development company Dragonfly Development Ltd.
Both former District Council Leader, Cllr Fritchley, and former Deputy Leader, Cllr Duncan McGregor, have both previously had to weather criticism in the debate over whether Dragonfly posed a conflict of interest – something that was strongly disputed by Cllr Fritchley when he was the former Council Leader.