North Yorkshire Council
Executive
6 January 2026
Creation of a new Wide Area Network Solution and Digital Services Company
Report of the Corporate Director Resources
The Appendices to this report contain information of the type defined in:
-paragraph 3 of Part 1 of Schedule 12A Local Government Act 1972 (as amended) as it contains -information relating to the financial and business affairs of NYnet Limited;
and it is considered that the public interest in maintaining the exemption outweighs the public interest in disclosing the information.
1.0 PURPOSE OF REPORT
1.1 To provide Members with the Business Case for the establishment of a new company for the provision of a Wide Area Network solution and digital services which would adhere to the Vertical Arrangement (also known as ‘Teckal’) exemption in the Procurement Act 2023.
1.2 To seek Members approval to the establishment of the new company which will be wholly owned by North Yorkshire Council and limited by shares on the basis of a Business Case.
1.3 To seek Member’s approval for the existing company NYnet Limited’s business model to be changed to enable it to operate on a commercial basis in the future without the benefit of the Teckal exemption.
2.0 BACKGROUND
2.1. NYnet Limited currently operates as a Vertical Arrangement exemption company in accordance with the Procurement Act 2023 (also known as the “Teckal” exemption and referred to as such within this report). It is wholly owned by the Council.
2.2. NYnet Limited was established in 2007 as a vehicle to aggregate public sector broadband demand with the Council as the anchor tenant. In 2014, NYnet Limited implemented its own network to service demand.
2.3. NYnet Limited have provided a business case (Appendix A) for the creation of NYnet Public Sector Limited, a new Teckal compliant company limited by shares (NPSL). NPSL will be wholly owned by the Council. NYnet Limited will become a commercial organisation and fall outside the scope of the Procurement Act 2023, and therefore the Teckal exemption.
2.4. In 2012, NYnet 100 Limited was established a wholly owned subsidiary of NYnet Limited to manage the Superfast North Yorkshire contracts. On 15 July 2025, the Executive made the decision to proceed with the dissolution of NYnet 100 Limited.
3.0 CURRENT POSITION AND PROPOSAL FOR RESTRUCTURE
3.1. Since creation in 2007, NYnet Limited has undertaken services for the Council but has also developed its commercial offer and expanded the reach of its network and its trading to organisations (both public and private) outside of the Council. In particular, NYnet Limited has recently secured a new contract via a YPO Framework with York and North Yorkshire Combined Authority for services to North Yorkshire Police. Whilst this success is a testament to the good work of NYnet Limited, this growth in external income generation could result in the loss of the ability for the Council to rely on the Teckal exemption.
3.2. In order to be a Teckal compliant company, the following criteria must be satisfied:
· the contracting authority is a ‘parent undertaking’ of the company; and
· no person other than the contracting authority exerts a decisive influence on the activities of the company (either directly or indirectly);
· more than 80% of the activities carried out by the company are carried out for or on behalf of the contracting authority or another person that is controlled by the contracting authority; and
· no person that is not a public authority holds shares in the company.
3.3. If NYnet Limited undertakes more than 20% work other than for the Council, the company would no longer fall under the Teckal exemption. The benefit of the exemption would be lost which would result in the Council no longer being able to make direct awards of contracts to NYnet Limited and having to ensure that any future contracts are subject to a procurement process open to the wider market.
3.4. The key drivers for the creation of a new company and a change to a commercial model for the existing company is:
3.4.1. to maintain a Teckal entity to allow NYnet to continue delivering services to the Council;
3.4.2. to allow NYnet to provide commercial services to North Yorkshire Police (via York and North Yorkshire Combined Authority); and
3.4.3. to allow NYnet to continue to grow its commercial offering, for the benefit of the Council and to allow NYnet to remain competitive in the market.
4.0 THE PROPOSAL – CREATION OF NPSL
4.1. The proposal is to create a new Teckal compliant company, limited by shares and transfer the Council contract to it. It is envisaged that the share capital will be one £1 share. The detailed business case sets out the full details of the proposal.
4.2. The Council will be responsible for the debts and losses of NPSL to the extent of the nominal value of its shareholding (i.e. 100%) and to the extent of any specific guarantee or contractual arrangement that it has entered into.
4.3. A Board of Directors will be required to be established for NPSL in order to provide the company with effective governance. It is proposed that the board composition shall match that of NYnet Limited. On 21 October 2025, the Shareholder Committee approved that, in line with CIPFA guidance, all elected Council member directorships on the Council’s company boards will cease with those members given observer status and voting rights of such companies being reviewed. In accordance with this decision, the elected Council members will be resigning as directors of NYnet Limited and it is proposed that the NPSL will similarly have no elected Council members on its board. This arrangement recognises that involvement and oversight of the Council's companies by its elected members is through the Shareholder Committee which is a committee of the Council’s Executive. It is proposed that Council directors on the Board will have two votes each.
4.4. The rights and obligations of the Council as shareholder of NPSL will be detailed within the Articles of Association.
4.5. The primary objective of NPSL will be to continue providing high quality wide area network solution services and other digital services to the Council and associated bodies, while being Teckal compliant.
4.6. All the existing commercial contracts would remain with NYnet Limited and it would become a non-Teckal company that operates on a commercial basis by providing services to external clients. NYnet Limited would continue to be a wholly-owned company limited by shares. Whilst NYnet Limited will operate on a commercial basis, it will still be subject to Council oversight via the Shareholder Committee, Reserved Matters and control of the Board of Directors.
4.7. Staff currently employed by NYnet Limited will transfer to NPSL through a TUPE transfer and, where appropriate, staff will be seconded across to NYnet Limited. The costs of secondments will be charged at market rates in order to comply with subsidy control rules.
4.8. The Council will provide support services to NPSL where required which will be charged at market rates to ensure compliance with subsidy control rules. The details of this will be worked through in parallel to the set up of NPSL.
4.9. The local full fibre network (LFFN) will remain in the ownership of NYnet Limited in accordance with the original grant funding agreement for the creation of the LFFN. NPSL will therefore enter into arrangements with NYnet Limited to access the LFFN.
4.10. The Council will need to enter into a new loan facility agreement with NPSL for initial working capital, including to purchase back office services from the Council as well as rights, assets and services from NYnet Limited. The loan will be provided at market rate and on market terms, again to comply with subsidy control rules.
5.0 CONTRIBUTION TO COUNCIL PRIORITIES
5.1. The services provided by NYnet contribute towards the Council’s priority of improving and advancing broadband connectivity in North Yorkshire, including closing coverage gaps.
6.0 ALTERNATIVE OPTIONS CONSIDERED
6.1. Alternative Option 1 – Do Nothing
6.1.1. This option is not considered viable as it would in future render NYnet Limited as falling outside the Teckal exemption and therefore affect the Council’s contract arrangements with NYnet Limited. It would also not permit growth of the company for commercial work. As such, the proposed creation of NPSL remains the most appropriate solution to ensure continued compliance with the Teckal exemption and future growth.
6.2. Alternative Option 2 – Create a new company and novate the York and North Yorkshire Combined Authority contract to this new company
6.2.1. This option would require novation of the contract with York and North Yorkshire Combined Authority to the new company which may not be permitted under the YPO Framework and/or under applicable procurement legislation. The new company would have no financial history which may create barriers to entry into a commercial market.
7.0 FINANCIAL IMPLICATIONS
7.1. The financial implications are set out in the Business Case at Appendix A which demonstrates the financial case for the recommended option to create NPSL.
7.2. The company would be limited by shares, with nominal share capital requirement to be established and funded by £1 share held by the council.
7.3. There are no financial implications arising from the TUPE for North Yorkshire Council.
7.4. Nynet Limited have a £10m overdraft facility in place with North Yorkshire Council at present. It is proposed that this will be replaced with two new loan facility agreements capped at £5m per company to cover cashflow. Interest will be charged on this loan at a commercial rate.
8.0 LEGAL IMPLICATIONS
8.1. The Council will rely on the general trading powers in conjunction with its powers to carry out the activity in question. Both general trading powers require the authority to trade through a company:
8.1.1. Section 95 of the Local Government Act 2003 enables relevant authorities “to do for a commercial purpose anything which they are authorised to do for the purpose of carrying on any of their ordinary functions” i.e. anything they are empowered to do in legislation. The section 95 power can be limited by order and authorities exercising it must have regard to guidance issued by the Secretary of State.
8.1.2. Section 4 of the Localism Act 2011 enables the local authority to do for a commercial purpose anything that it is empowered to do under section 1 (the general power of competence). The section 4 power is therefore wider than the section 95 power.
8.2. The section 95 and section 4 trading powers prescribe which company structures may be used, one of which is a company limited by shares.
8.3. The Council must prepare a business case supporting the exercise of the section 95 power, which the Council must approve (Local Government (Best Value Authorities) (Power to Trade) (England) Order 2009). The business case attached at Appendix A fulfils this purpose.
8.4. It is proposed that NPSL will comply with the Vertical Arrangement exemption (also known as the Teckal exemption) set out within Schedule 2 of the Procurement Act 2023. Paragraph 2 of Schedule 2 enables a contracting authority to directly awards contracts to a company it owns without undertaking a procurement exercise where the following criteria are satisfied:
8.4.1. the contracting authority is a ‘parent undertaking’ of the company; and
8.4.2. no person other than the contracting authority exerts a decisive influence on the activities of the company (either directly or indirectly); and
8.4.3. more than 80% of the activities carried out by the company are carried out for or on behalf of the contracting authority or another person that is controlled by the contracting authority; and
8.4.4. no person that is not a contracting authority holds shares in the company.
8.5. It is proposed that NPSL will be set up and operated in a way which will fulfil all four criteria.
8.6. The Council may provide equity to NPSL. The powers contained in the Local Government Act 2000 extend to authorising the local authority to giving financial assistance to any “person” and entering into arrangements or agreements with any “person”. Any agreement must be for a commercial purpose and may provide for grants, loans or guarantees. The provision of equity to the company by the Council is compliant with the Subsidy Control Act 2022 as capital is being provided in circumstances that would be acceptable to a private investor operating under normal market economy conditions. This can be taken to apply where a new company is set up with the public authorities holding the entire capital or a majority or minority interest, provided the authorities apply the same criteria as provider of capital under normal market economy conditions. The Council will be responsible for the debts and losses of the company to the extent of the nominal value of its shareholding (i.e. 100%) and to the extent of any specific guarantee or contractual arrangement that it has entered into.
8.7. NPSL’s activities will be bound by the Procurement Act 2023. The company will need its own Procurement and Contract Procedure Rules. It is proposed that where NPSL requires use of office accommodation it will enter into appropriate commercial leasing or licencing arrangements.
8.8. NYnet Limited will no longer be a Teckal company and will become a commercial company that is not subject to the Procurement Act 2023. This means that NYnet Limited will be subject to fluctuations in the market and the Council cannot provide performance or financial guarantees on behalf of NYnet Limited. NYnet Limited will continue to be subject to Council oversight, including via the Shareholder Committee, Reserved Matters and control over the Board of Directors.
8.9. Where work is required pursuant to the Council, it is envisaged that staff will be seconded across from NYnet Limited at market rates. The detail of this proposal is being worked through in line with the establishment of the company.
8.10. NPSL will have a Board of Directors to ensure proper governance and accountability to its shareholder. Proposals for the board’s membership are continuing to be reviewed but it is recommended that it should comprise the Chief Executive of the Council, the Assistant Chief Executive (Legal and Democratic Services) of the Council and the Chairman, Chief Executive and Non-Executive Director of NYnet Limited with the Council directors having two votes each which shall be sufficient to demonstrate control.
8.11. The staff within NYnet Limited will transfer to NPSL under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). Legal advice will be provided to assist with the transfer.
9.0 EQUALITIES IMPLICATIONS
9.1. There are no equalities implications as a result of this report.
10.0 CLIMATE CHANGE IMPLICATIONS
10.1. There are no climate change implications as a result of this report.
11.0 RISK MANAGEMENT IMPLICATIONS
11.1. The proposal will reduce the risk of non-compliance with the Procurement Act 2023.
11.0 REASONS FOR RECOMMENDATIONS
12.1. To ensure that NYnet can continue to deliver a Wide Area Network solution and other digital services to the Council in compliance with the Procurement Act 2023.
12.2. To allow NYnet Limited to continue to grow its commercial offering for the benefit of the Council.
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12.0 |
RECOMMENDATIONS
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Members are requested to
i) approve the Business Case at Appendix A; ii) approve the implementation of a new wholly owned company (NPSL), in accordance with the details set out in the Business Case at Appendix A; iii) approve the setting up of a company limited by shares; iv) approve the investment of a nominal share capital of one £1 share in NPSL; v) approve NYnet Public Sector Limited as the name of the new wholly owned company; vi) approve the appointment of the Chief Executive, the Assistant Chief Executive (Legal and Democratic Services), Alastair Taylor, Peter Scrope and Richard Doyle as directors of NPSL; vii) approve the appointment of the Assistant Chief Executive (Legal and Democratic Services) as company secretary of NPSL; viii) approve the appointment of the Corporate Director (Resources) as the Shareholder Representative for NYnet Limited and NPSL; ix) delegate the approval of the articles of association and any other governance documents associated with NPSL to the Assistant Director (Legal); x) delegate the approval of the amendments to the memorandum (including company objects) and articles of association, and any other governance documents associated with the change of NYnet Limited to a commercial company to the Assistant Director (Legal); xi) delegate to the Corporate Director (Resources), in consultation with the Assistant Director (Legal), to conclude all steps to agree a reduction of the current loan facility cap to NYnet Limited from £10m to £5m and a new loan facility of £5m to NPSL; xii) delegate to the Assistant Director (Legal) to progress and conclude the working arrangements of NPSL including the method of the provision of support services, staffing and secondment arrangements between NPSL and NYnet Limited; xiii) delegate all other necessary steps to secure the implementation of the proposed option to the Assistant Director (Legal); xiv) agree that the appointed officers to the board of directors of NPSL on behalf of the Council will be entitled to indemnity in accordance with the Council’s Indemnity Policy for Members and Employees; xv) delegate to the Assistant Director (Legal) the approval of the termination of the Council’s existing contract with NYnet Limited and the direct award of new contracts to NPSL under the Teckal exemption or novation of existing contracts as required;
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APPENDICES:
Appendix A – Business Case (Confidential)
Appendix B – Proposed Budgets (Confidential)
Appendix C – Equality Impact Assessment Screening Form
Appendix D – Initial Climate Change Impact Assessment
BACKGROUND DOCUMENTS: None
Gary Fielding
Corporate Director – Resources
County Hall
Northallerton
15 December 2025
Report Author – Kerry Metcalfe - Assistant Director (Property Procurement and Commercial)
Presenter of Report – Kerry Metcalfe - Assistant Director (Property Procurement and Commercial)
Note: Members are invited to contact the author in advance of the meeting with any detailed queries or questions.