Pub companies: follow-up - Business, Innovation and Skills Committee Contents


Memorandum submitted by Brulines Limited

SUMMARY

  1.  Pub Companies utilise Brulines Monitoring Systems as part of their efforts to manage tied compliance and provide Licensees with information which can be used to improve operating performance. The purpose of the system is to identify variances between draught product delivered to the Licensees premises by the Pub Company and the volume of these products dispensed by the Licensee. Licensees are not "fined" for buying outside the tie but charged "liquidated damages" as provided for in the commercial agreement with the Pub Company.

2.  Licensees utilise Brulines Monitoring Systems to monitor performance in their pubs on a range of variables which add real value to the bottom line. Multiple operators use the information both from a "pub company" perspective and an "individual licensee" perspective

3.  Brulines has two systems: the 1st generation system (the majority of our installations in licensed premises) is a basic system requiring the processing of volume data to differentiate and separate beer and water volumes. The 2nd generation system automatically differentiates between beer, water and cleaning fluid.

  4.  Following a comprehensive assessment by Trading Standards and LACORS which required Brulines to submit all its operating procedures and equipment, Brulines was informed on 30 September 2009 that its equipment is not prescribed under section 11 of the Weights and Measures Act 1985 thus is not required to be passed as fit for use in trade. However, this does not mean that Brulines is unregulated. Under Section 17 of the Act there is an obligation on Brulines to ensure that the equipment being used is neither "false nor unjust."

  5.  Stockton Trading Standards, Brulines principal point of contact, has confirmed that contrary to the point made by Mr Harrison in the BIS Committee meeting of 8 December, Brulines has not been asked to submit its equipment for further testing, voluntarily or otherwise.

  6.  The flow-meters used by Brulines are accurate and reliable at measuring liquid flow to a high degree of repeatability over a sustained period of time, and are already in use in Weights and Measures approved dispense systems. Due to the unique properties of each beer line, Brulines calibrate each flow-meter in-situ using vessels calibrated by Tees Valley Measurement to Weights and Measures approved standards. These same vessels are used to verify the calibration as part of any investigation into a negative volume variance.

  7.  Titan Enterprises Ltd the manufacturer of the flow-meter, possess substantial expertise in calibrating flow-meters to the standard required for Weights and Measures approved dispense. They have described the SGS report as being based on "assumptions and poor science" and noted that in its laboratory testing, SGS mistakenly tested Titan's 800 series flow-meter and not the 300 series used by Brulines. If nothing else this casts serious doubt on the rigour with which testing was conducted by SGS.

  8.  Mr Clarke's expertise has often been relied upon as a source of what we believe is unfounded criticism of Brulines Dispense Monitoring System. In his evidence to the Committee on 8 December Mr Clarke made a statement regarding the accuracy of the system being up to 33 or 40% inaccurate. Brulines has provided evidence in Section 5 demonstrating that Mr Clarke's statement was erroneous, perhaps due to his lack of understanding of how the system functions. Mr Clarke also volunteered that nine out of ten buying out admissions were purely due to Brulines data and a signed confession from the tenant. Analysis of the last three months volume and compliance data demonstrate that only one in five investigations into volume variances result in a formal signed admission from the Licensee and that corroborating evidence was sought and provided. 32% of the admissions comprised packaged product which does not rely on the accuracy of Brulines data but is evidenced by the presence of foreign stock on the premises.

1.  BRULINES GROUP PLC AND DIRECTOR OVERVIEW

  (i)  Brulines Group plc is an Alternative Investment Market ("AIM") listed company employing 257 people across two operating divisions at its Headquarters in Stockton-on-Tees and regional office in Dunfermline, Scotland.

  (ii)  As an "AIM" listed plc Brulines complies fully with the rules of the London Stock Exchange and is fully up to date with the submission of audited financial accounts under these rules. The Auditor of Brulines Group is Grant Thornton UK LLP through their Leeds office.

  (iii)  Brulines Group is focused on the provision of real time monitoring systems and data management services for the UK's leisure and petrol forecourt sectors. Since its admission to AIM in 2006, the Group has grown both organically and through a series of strategic acquisitions to give the Group access to key markets. The Group operates two divisions comprising five key products. These are presented in the following section.

  (iv)  Brulines has seven Directors (five executive, two non-executive) who between them have substantial experience of the beer industry and personal profiles reflecting the responsibility and accountability required of plc Directors.

  (v)  Brulines is a trade member of the ALMR and several of its senior management team are members of the BII. Brulines also sponsors and participates in industry initiatives which aim to help tenants and freeholders improve their business performance through using the data available to them and provide support to the Cask Marque organisation in their drive to improve sales of cask ales.

2.  BRULINES OPERATING DIVISIONS

2.1  Leisure Division

Dispense Monitoring (DMS)

  The Group's core product, DMS, is widely used by owners and operators in the UK licensed on-trade, especially the tenanted/leased pub sector, where the system is usually used to monitor the volume of tied beers dispensed against the volume delivered. Flow-meters connected to draught dispense lines send data via an on-site communication panel to a secure central database. Liquid volumes by beer tap, draught wine or post mix are tracked thereby helping customers to maximise sales, service and quality as well as managing their costs. DMS is installed in over 21,000 pubs in the UK.

i-draught

  A more recent and rapidly growing product offer is i-draught (TM), an extension of the Group's DMS, which scrutinises the quality of products running through beer lines in a bar; measuring volume, temperature, flow rate and liquid type (eg beer, cleaning fluid or water) at the point of dispense. i-draught is the first system to provide effective measurement of true yields on draught products. Actual dispense volumes can be compared with till transactions to identify losses from products given away, pilferage and wastage. i-draught measures the precise temperature of every drink as it is dispensed, the time taken to dispense each drink, and automatically identifies the liquid allowing customers to know exactly when and how effectively lines are cleaned. Customers can stay in control through accessing their information on a secure web site.

Gaming and Machine Data Services

  The acquisition of Coin Metrics in May 2007 was a strong strategic fit with Brulines' existing Machine Insite business which already provided gaming machine data management and consultancy services to operators within the pub, club and leisure markets. Brulines currently manages data from 8,500 gaming machines across 6,000 sites specifically within the pub marketplace. Customers benefit from management and development of their machine income stream as well as analysis and verification of the data from the collections undertaken from the machine as well as state-of-the-art real-time data capture and reporting systems that deliver improved machine profitability and operational security.

Vending Telemetry

  The Group's subsidiary Vianet is a Global provider of telemetry solutions and data applications to the vending industry. Vianet provides data and services for all vending management needs with the aim of optimising machine profitability and return on investment

2.2  Forecourt Services Division

UK Petrol Data Forecourt Services

  The Group's wholly-owned subsidiary, Edensure, supplies key management information to independent, multi branded owner, and supermarket petrol forecourt operators in the UK which helps reduce loss of fuel and improve profitability. Edensure provides petrol retailers with an unrivalled level of accuracy in the monitoring and management of their wet stock, using the most sophisticated statistical analysis techniques available worldwide. The principles involved are widely accepted in the petrol forecourt industry and broadly similar to those used in beer dispense.

3.   BENEFITS OF THE SYSTEM TO LICENSEES

  (i)  The data from both the basic Dispense Monitoring and advanced i-draught system can be used by Licensees to increase operational efficiency, improve beer quality and ultimately improve the profitability of the business.

  (ii)  Although relatively limited, the data from the basic Dispense Monitoring System, which Licensees can access on Brulines secure website via a link from the Pub Company, can be used to support the following actions:

    (a) Comparing dispensed volume against till sales to verify whether all drinks dispensed reach the Till.

    (b) Monitoring line cleaning frequency to help maintain serve quality.

    (c) Evaluating sales by brand enabling the reduction of unnecessary taps or brands.

    (d) Utilising the hot spot report to assess and implement staffing rotas to ensure the correct amount of staff are on duty at the right time.

    (e) Monitoring success levels of promotions and product launches.

    (f) Remote assessment of the above to verify whether operational actions are being taken in their absence.

    (g) Verified draught trading performance to assist negotiations with Pub Companies for investment, rent and business support

  (iii)  The recently launched and more advanced i-draught system offers a more comprehensive suite of information and can be linked to the EPOS data from the Till. In addition to the Dispense Monitoring System above the Licensee can:

    (a) Identify the cause of product and Till yield variances which adversely impact profitability (eg wastage through over pouring, faulty equipment, staff training needs; pilferage).

    (b) Monitor the temperature of all beer lines and associated equipment to ensure beer is being served to the correct specification.

    (c) Receive alerts regarding potential equipment issues so that any fault can be rectified before there is an adverse impact on the operation.

    (d) Assess the thoroughness and frequency of line cleaning to ensure that quality of serve is optimal.

    (e) Assess individual tap performance and remove underperforming taps to save costs.

    (f) Receive data online every 15 minutes.

  (iv)  In Appendix 9, a recent article published in the Morning Advertiser outlines the benefits of i-draught and provides a sample of case studies from Licensees who have benefited from using the information.

  (v)  Without Brulines data a lot of licensees would not be able to obtain this level of transparency as the majority do not have till systems or operational systems that allow this level of analysis.

4.   BRULINES HAS BEEN THE SUBJECT OF A RECENT INVESTIGATION BY TRADING STANDARDS

  (i)  Following their recent investigation into Brulines, Trading Standards and LACORS concluded that Brulines' equipment is not prescribed under Section 11 of the Weights and Measures Act 1985 thus is not required to be passed as fit for use in trade.

  (ii)  This confirmation of the status of Brulines' licensed premise flow monitoring equipment follows a comprehensive assessment by Trading Standards and LACORS of the equipment and methodologies employed by Brulines to help manage tied compliance, and effectively means that under the Weights and Measures Act of 1985 Brulines is not required to have any item of equipment used in this process "stamped".

  (iii)  However, this does not mean that Brulines is unregulated. Under section 17 of the Act there is an obligation on Brulines to ensure that the equipment being used is neither "false nor unjust."

  (iv)  Brulines was informed of this decision by LACORS by its principal point of contact in Stockton Trading Standards on 30 September 2009.

  (v)  Trading Standards undertook certain accuracy tests under controlled conditions on the Brulines equipment. Whilst the tests undertaken were successful, Trading Standards instructed Brulines not to put this information in the public domain as they cannot be seen to accredit the system. However, it is noted they have referred to this testing in a recent press story which Brulines are aware of:

    "David Kitching, Stockton Council's Trading Standards and Licensing Manager said 'Stockton Trading Standards has, under controlled conditions, tested equipment used by Brulines and found it to be accurate at that time" (Teesside Evening Gazette: 26 November 2009)

  (vi)  Stockton Trading Standards has also confirmed that contrary to the point made by Mr Harrison in the BIS Committee meeting of 8 December, Brulines has not been asked to participate in further testing of its equipment, voluntarily or otherwise. This is confirmed in the correspondence received from Trading Standards which can be found in Appendix 8 (not printed here).

  (vii)  Even if as has been suggested the meter were calibrated in the factory under Weights and Measures legislation "for use in trade", any calibration setting would be rendered unusable once the meter was installed in the beer line as each beer line is in itself unique. This is due to the variety of conditions present in individual beer dispensing systems, and principally as a result of the different liquids and pressures present in each beer line making it a unique entity. To overcome this problem of uniqueness, Brulines calibrate each line in situ using vessels calibrated by Tees Valley Measurement to Weights and Measures approved standards. An example of the calibration certificate held for each vessel can be found in Appendix 4 (not printed here).

  (viii)  Titan Enterprises Ltd, the manufacturer of Brulines flow-meter, has provided a statement in support of Brulines submission. This can be found in Appendix 2 (not printed here). The statement provides a detailed summary regarding the accuracy and reliability of the flow-meters used by Brulines and, based on Titan's substantial experience and expertise of manufacturing and calibrating flow-meters for use in Weights and Measures approved dispense systems, explains why calibration in the factory for "trade use" would lead to greater inaccuracy rather than improved accuracy.

  (ix)  Brulines has co-operated fully with the investigation by Trading Standards, and as a result of informal observations made by them has made several changes to further improve its operating procedures.

  (x)  Brulines accept that the statements in Sections v and ix above in no way constitute approval of its system by Trading Standards.

5.  BRULINES EQUIPMENT AND METHODOLOGIES

5.1  Purpose

  (i)  Pub Companies utilise Brulines Dispense Monitoring System as part of their efforts to manage and control tied compliance and provide their Licensees with information which they can use to improve operating performance.

  (ii)  The purpose of the system is to identify variances between draught product delivered to the Licensees premises by the Pub Company and volume of these products dispensed by the Licensee. Where a negative variance is found this will normally merit further investigation.

  (iii)  Where Brulines is contracted to do so, its Volume Recovery Service ("VRS") (as explained in Section 5.2 below) will further investigate the negative variance and where required furnish this and other supporting evidence to the Pub Company to estimate the liquidated damages owing as provided for in its commercial agreement with the Licensee. Brulines do not issue "fines" or any other sort of "toll" or "levy".

  (iv)  Brulines earns its revenues entirely from the sale of hardware and support services. Brulines is not remunerated or incentivised on the number of buying out admissions or level of liquidated damages.

5.2  Volume Recovery Service—Customer Account Managers

  (i)  Brulines VRS Customer Account Managers ("CAM's") visit the Licensees of Pub Companies contracting the VRS service to review negative variance data. This is initiated whenever possible through a discussion with the licensee.

  (ii)  34 CAM's work for Brulines with individuals often being recruited from either Her Majesty's Armed Forces or Police Service as the qualities required of a CAM (see point v below) are generally found in individuals who have been trained in the Services. Of the 34 CAM's currently working for Brulines, 21 were recruited from HM Armed Forces or Police Service.

  (iii)  All CAM's whether employed or self-employed, undergo a rigorous selection process and a minimum of one months training prior to commencing activities in the field. They are monitored closely by their Line Manager over the following six months. Every CAM is formally assessed in the field twice a year in respect of performance and procedural compliance.

  (iv)  The nature of the CAM role and the data under review can occasionally lead to a difficult discussion with a licensee although confrontation is very rare. The qualities we seek in any individual recruited to the role as a minimum are: highly diligent; disciplined; methodical; assertive (but never aggressive); and the ability to remain calm when difficulties arise. Brulines experience is that these are qualities often found in people with an HM Services or Forces background.

  (v)  Allegations of "intimidation" have been made against Brulines and its CAM employees, although it is noted that no evidence to support these claims has been forthcoming. If any evidence is provided to us we would take it extremely seriously and if the Committee has such evidence we would welcome the opportunity to address it.

  (vi)  Under the Health and Safety at Work Act 1974, Brulines is obliged to record all instances where a CAM is abused or assaulted in the course of his duties. To date in 2009 there have been nine recorded instances of unprovoked incidents.

5.3  Equipment

  (i)  Two different flow-meters are used by Brulines with the core component of both being manufactured by Titan Enterprises Ltd. The flow-meters are used due to them being highly accurate and reliable at measuring liquid flow to a high degree of repeatability over a sustained period of time. A statement from Titan Enterprises Ltd confirming this and the use of these flow meters for Weights and Measures approved drinks dispensing systems can be found in Appendix 2 (not printed here).

  (ii)  The 1st generation flow-meter found in the dispense monitoring system installed in the majority leased and tenanted pub estates cannot differentiate between the type of liquid flowing ie beer, line cleaner or water. However, this does not mean that the data subsequently presented to pub companies contains all liquid which has flown through the meter as this is removed in the post processing of the data by Brulines Data Audit function. The methodology used to do this can be found in Appendix 3 (not printed here).

  (iii)  The 2nd generation flow-meter is an intelligent flow-meter which can differentiate between liquid types and is used in Brulines i-draught system. Of larger Pub Companies, Punch Taverns has over 100 of these advanced systems installed in its leased estate, and Greene King Pub Partners has already installed 100 systems as part of a plan to install 600 by May. By mid 2010 Brulines expects to have around 1500 of these systems installed and in use.

  (iv)  The SGS report commissioned (we understand) by Fair Pint, casts doubt on the accuracy of the flow-meters. The submission by Titan Enterprises (Appendix 2) (not printed here) completely refutes both the SGS evaluation and methodology used to make this assessment as being based on "assumptions and poor science". In addition, in its laboratory testing SGS mistakenly tested Titan's 800 series flow-meter and not the 300 series used by Brulines, thus casting real doubt on the rigour with which testing has been carried out.

5.4  Calibration

  (i)  Brulines always calibrate each meter in situ under the same conditions as the beer is dispensed in the line. Each line in use in a pub is individually calibrated as Brulines do not use pre-set values. Due to the nature and environment of beer dispense, if the meter is not calibrated in this way the measurement results are meaningless. It is the view of Titan that "with varying installation conditions, calibration in situ is the preferred option for any calibration authority". This is confirmed in their statement in Appendix 2 (not printed here).

  (ii)  Calibration is carried out using a specialised calibrated measuring vessel. The glassware used is manufactured by Aimer Products Ltd a specialist manufacturer of scientific measurement glassware, and each vessel is individually calibrated by Tees Valley Measurement to the highest accuracy levels required by weights and measures and local standards. A calibration certificate for one of the measurement glassware vessels can be found in Appendix 4 (not printed here). Brulines holds a calibration certificate for each vessel used. Both companies were suggested as reliable suppliers by Trading Standards who use the same companies to supply and calibrate their measurement glassware and this suggestion has been acted upon by Brulines.

  (iii)  In respect of Brulines calibration process (for which the full company instructions are detailed in Appendix 5 (not printed here)) the following areas should be noted:

    (a) Every meter is individually calibrated using the specialised calibrated measuring vessel on installation, or if the meter is replaced for any reason.

    (b) Brulines do not rely on one measurement being taken; the calibration process requires that the calibration reading can be repeated to within the tolerance level set out in Appendix 5 (not printed here) before the calibration value is accepted. If the calibration cannot be repeated a new meter is installed in the line.

    (c) If the volumes measured by the Brulines system appear unusual or show a change from their previous history a calibration check is carried out by a Brulines Engineer.

    (d) If the site changes the type of product dispensed from the line and Brulines is informed of this (ie lager for keg beer), an Engineer will be despatched to check the calibration figure and recalibrate the line where necessary. If Brulines are not informed this will be picked up at the data audit by the Auditor as there will be product delivered for which there is no dispense data. The Auditor will then request a calibration check. In the event that the Auditor overlooks the change, the calibration verification conducted during an investigation acts as a failsafe.

    (e) Before any dispense volumes measured from the Brulines system are used to calculate potential liquidated damages, the calibration values are checked and confirmed by a Brulines engineer or Customer Account Manager (See further details in Section 5.7)

5.5  Data Auditing

  (i)  Because the standard Brulines dispense meter does not differentiate between liquid types, Brulines have a rigorous audit process to ensure all volumes used in the line cleaning process are removed from beer dispense totals. These processes and procedures formed part of the comprehensive submission to Trading Standards and a full explanation of the process can be found in Appendix 6 (not printed here).

  (ii)  When Brulines remove line cleaning volumes they remove all liquid flow every hour where cleaning is suspected. This means some beer volumes are also removed resulting in a process that always under-states the total volume of dispensed beer in favour of the Licensee. A full explanation of this process can be found in Appendix 3 (not printed here).

  (iii)  Brulines displays the site line cleaning on its website. Therefore if a licensee ever has a suspicion that line cleaning has been missed they can check against this data, and if necessary contact Brulines with any concerns.

  (iv)  The meter installed in the water ring meter is not calibrated as it is simply one of the methods Brulines use to identify if line cleaning has occurred. It is not used to measure precise quantities therefore any volume measurement displayed by this meter is irrelevant to the overall volumes calculated.

5.6  Opening and Closing Stocks

  (i)  Brulines reports potential negative variances as a trend of beer delivered versus dispensed. To allow for stock movement the minimum assessment period for a variance is 12 weeks, although the norm is 18 weeks.

  (ii)  In addition, wherever there is a negative variance Brulines always review the prior weeks before any period in question to identify and allow for any stock build up. Brulines always takes the prudent view of potential stock movements, in favour of the Licensee, when assessing a negative.

5.7  Negative Variance Assessment

  (i)  Brulines have rigorous procedures once a negative variance is identified which include a calibration check of each line affected

  (ii)  Where the customer contracts the Brulines VRS service (which is in place for 16,300 of the sites currently managed by Brulines), Brulines CAM's visit sites with a negative variance and conduct an investigation into the variance. CAM's have to follow specific procedures, strict protocols and standards of behaviour in respect of the investigation as some investigations can be contentious and difficult. Brulines guidelines for their CAM's can be found in Appendix 7 (not printed here).

  (iii)  Where a customer does not use the Brulines CAM service Brulines have explained the procedures they follow to all their customers and have recommended the customer uses a similar process and confirms the calibration on site via a Brulines Engineer before any damages claim is issued.

  (iv)  Whenever Brulines assesses a negative variance, and before any claim is pursued, a Brulines representative will check that the calibration value of the meter agrees to the uniquely registered calibration value.

    (a) In the unlikely event the calibration check shows the value is out of the tolerance range and dispense volumes have been over-stated the negative variance is adjusted to the lower value.

    (b) In the unlikely event the calibration check shows the value is out of the tolerance range and dispense volumes have been under-stated the negative variance is maintained at the previous lower value.

  (v)  All visits undertaken by Brulines are documented with the visit notes made available to the customer pub company on a secure web service.

  (vi)  Due to the minor uncertainties in cask beer measurement and in 100% detection of all line cleaning activity, Brulines will always take an even more prudent view on any negative variance that relates to cask dispense.

5.8  Non-Compliance with the tie—Statistics and Evidence

  (i)  It is noted that in the minutes of the Committee Session of 8 December 2009 references were made by Mr Simon Clarke regarding buying out admissions and the evidence used by Brulines. The Committee may therefore find it useful to note the following in respect of corroborating evidence used to assess non-compliance with the tie and the outcome of these assessments.

  (ii)  In relation to draught keg and cask beer, the level of buying out admissions relative to share of overall volume dispensed is articulated in Table 1.1 below. This supports the view that Brulines are significantly more cautious when reviewing and assessing negative variances on cask products.

Table 1.1


Keg BeerCask Beer


Share of Dispensed volume85% 15%
Share of Buying Out admissions that include each beer type 97%7%




  (iii)  Based on the last three months data, a total of 6,259 customer's premises were visited by Brulines Customer Account Managers as a result of having a negative variance or other data trend requiring review. Of these, 2,368 (37%) were assessed as having a negative variance requiring further investigation which resulted in 1,381 (22%) admissions of buying outside the tie, the breakdown of which and be found in Table 1.2 below.

Table 1.2


Product Type or other reason
Number of
liquidated
damages claims


%
Brulines system
accuracy used
in assessment

Other evidence used to support the claim

Draught Keg and Cask Beer
1,251 90.5YesProduct order history

Stock count

Foreign stock in Cellar

Best before and racking dates

Photographic evidence
Packaged Products441 31.9NoProduct order history

Stock count

Foreign stock in cellar or fridge

Best before dates
Tampering with the system52 3.7NoPhotographic evidence

Flow-meter bypasses

Secondary cellars

Unauthorised dispense equipment



  (iv)  To assist understanding of the data in tables 1.1 and 1.2, one full admission of buying out by a Licensee may consist of draught cask, keg and packaged product. This explains why claims by product type do not reconcile to 100%.

  (v)  At the Committee meeting on 8 December Mr Clarke asserted that "nine times out of ten the corroborating evidence that is used to back the Brulines' evidence is a confession by the tenant which is usually obtained by using Brulines' evidence". The statistical evidence demonstrates that of the 6,259 sites visited by a Brulines CAM, only one in five Licensees (22%) signed an admission of buying outside tie and that in these cases further evidence of buying out was gathered to corroborate the data. Of the 987 who did not sign, the data and supporting evidence was passed to the Pub Company for review and action where appropriate.

  (vi)  31.9% of buying out admissions did not even rely on Brulines data or its accuracy as these comprised packaged product which can only be evidenced by foreign stock found on the premises.

  (vii)  Licensees who formally agree with the results of the investigation and who sign the UTL (legal letter of undertaking), are provided with a letter itemising the details of the claim which will be used to assess and estimate the level of liquidated damages. If a site does not agree with the findings or the level of the suspected negative variance the matter is passed to the Pub Company for review.

6.   RESPONSE TO SPECIFIC COMMENTS MADE BY THE IPC IN THE COMMITTEE SESSION OF 8 DECEMBER 2009

  In relation to Q130 Chairman: "the accuracy of the raw data and the interpretation of that data, which is the crucial point because at the moment one cannot distinguish between beer and water, though we were told one could. The question then is: is that sufficient evidence for buying outside the tie? Here you say that additional prima facie evidence must be provided. What is the nature of the additional evidence that will be required?"

  Mrs Simmonds: In the annex we talk about the nature of some of the evidence required which would be third-party information as well as other considerations, for example being absolutely honest as to whether there are other kegs and casks available from another brewery. There is a whole range of things put forward in the annex to be taken into account, not only the Brulines equipment.

  Brulines Response: Clarification of what other evidence Brulines identifies to corroborate its estimate of liquidated damages can be found in Table 1.2 in Section 5.8 and in Appendix 7 (not printed here).

  In relation to Q195 Mr Hoyle: The BBPA has said that pub companies should develop a protocol on the operation of flow monitoring equipment. What would you like to see in such a protocol?

  Mr Harrison: First, we have been doing some work on this with regard to Brulines which is pretty well the only flow monitoring device that is installed in the vast majority of tenanted estates. We have commissioned a report, which we have submitted to the Committee, from SGS which is the world's leading expert in verification instrumentation and certification. In its detailed report it concluded that the system was not fit for purpose, inaccurate and ought not to be put to the use that it is being put. Second, it is not true that LACORS and Trading Standards have approved this system.

  Brulines Response: Titan Enterprises, a worldwide supplier and expert in the manufacture and calibration of flow-metering equipment, and the supplier of Brulines flow-meter, have called the methodology used by SGS to assess the accuracy of the flow-meter as being based on "assumptions and poor science". Additionally, that SGS apparently failed to test the actual meter type used by Brulines if nothing else casts serious doubt on the rigour with which the testing has been conducted. Brulines have never stated that the system has been approved by LACORS or Trading Standards, but simply that as a result of a comprehensive investigation and review it has been given a classification for use. Brulines have sought and gained clarification from Stockton Trading Standards that Mr Harrison has for whatever reason, misinterpreted the letter from Wendy Martin of LACORS which can be found in Appendix 8 (not printed here).

  In relation to Q196 Chairman: It is said they do not need to.

  Mr Harrison: LACORS do not say that at all but that in their view—we have a letter from Ms Wendy Martin, their policy director—the system is likely to be in use in trade. We have taken leading counsel's advice, which we have also submitted to the Committee, that it is also in use in trade and as such probably falls under weights and measures legislation. LACORS have also suggested that Brulines ought voluntarily to submit their system for testing in government labs. That has not been volunteered yet and we believe that is because it is not accurate and does not work. What we do know about it is that it is inaccurate; it is possibly unlawful and we have been advised that it perhaps also falls foul of the Misleading Marketing Regulations 2008. We know that it is used largely for the intimidation of tenants; that is what happens on the ground and it continues to be the case. Mrs Simmonds did know about direct debits which were used to take money directly out of people's bank accounts because I told her personally when I met her some weeks ago. I spent about 15 minutes talking about Brulines and not much of it seemed to sink in, to be frank, but that is the case. We have done some work on it, so our view is that it is inaccurate; it is possibly unlawful; and it is used for intimidation.

  Brulines Response: Appendix 8 (not printed here) contains the relevant extract from the letter referred to by Mr Harrison from Wendy Martin of LACORS. Also attached is a synopsis from the Trading Standards officer from the Home Authority for Brulines who is the case officer Brulines have dealt with throughout this process. This document highlights the following points.

    — LACORS do not say the equipment is likely to be use in trade, they say it may be in specific circumstances, but each situation should be looked at on its own merits. The equipment is not prescribed and therefore does not require to be passed as fit for trade.

    — Mr Harrison has incorrectly stated to the Committee that Brulines has been asked and has refused to submit its equipment for further testing and even goes as far to provide his hypothesis to the Committee as to the reasons for this. As the note from Trading Standards in Appendix 8 (not printed here) confirms, Brulines has not been asked to submit its equipment for further testing.

    — The testing undertaken by Trading Standards under controlled conditions confirmed the accuracy of the system at that time. The testing undertaken by Slough was carried out using water on a system calibrated using beer. As stated previously in this document, this would result in a different calibration setting and underpins the reasons why the product must be calibrated in situ using the product the line will dispense.

    — Brulines employ professional people to undertake their field investigation role and each operates under strict procedural guidelines and protocols. If any evidence of intimidation is provided to us we would take it extremely seriously and if the committee has such evidence we would welcome the opportunity to address it.

  In relation to Q198 Mr Hoyle: But is there anything else to add?

  Mr Clarke: Corroborating evidence would be necessary for any sort of action to be taken. The discovery of foreign barrels in a cellar is perfectly good evidence, but nine times out of ten the corroborating evidence that is used to back the Brulines' evidence is a confession by the tenant which is usually obtained by using Brulines' evidence. It is a self-fulfilling process. You could go to court with all this evidence about singing and dancing and nicely coloured graphs. Here is also a confession by the tenant. When faced with that information at the outset the tenant would consider that a nominal fine and confession would probably be better than the forfeiture of the lease which is what he is being threatened with.

  Q199 Mr Hoyle: It is as draconian as that?

  Mr Clarke: Absolutely.

  Brulines Response: As noted in Section 5.8 the statistics and evidence do not support Mr Clarke's assertion.

  Q200 Mr Hoyle: And the equipment is questionable?

  Mr Clarke: I had Brulines' calibration two weeks ago in my pub, The Eagle. Obviously, you have had plenty of evidence about my pub before. It was a Brulines technician who undertook the calibration test. He dispensed 14 pints from eight of our pumps, I believe, and all the time it was going on the proceedings were live with HQ and an analyst sat in front of a screen and said that, yes, he had just pulled half a pint through a particular pump. When we got the final report three days later the system failed to record five of the 14 pints they had pulled. Bear in mind that this was when the pub was closed and other than us there was nobody else to interfere with the dispensing or anything like that. Their own technician and analyst were totally unhindered; we gave them free rein to do what they considered to be their job. The result was a 33% or 40% inaccuracy.

  Brulines Response: There is a very straightforward explanation for this. The standard Brulines system consists of a primary control unit to which a maximum of 16 flow-meters can be connected. If a site requires more than 16 flow-meters (such as Mr Clarke's pub The Eagle) an expansion module is attached to which a further 16 meters can be connected. As this was a calibration (which Mr Clarke alluded to in his evidence) the live dispense data from the calibration is only visible in the Calibration Software used by the individual in the Calibrations team on the other end of the telephone. It is never visible to the Engineer which ensures that the accuracy of the calibration is independently verified.

  During the calibration, nine pints were taken from lines with flow-meters connected to the primary control unit and five from flow-meters connected to the expansion module.

  When the final report (which Mr Clarke refers to in his evidence) is produced, Brulines do not include the very small volumes from the calibration of flow-meters attached to the expansion board, which in this case is the five pints Mr Clarke has assumed are "missing". This only ever happens during a calibration and the volumes involved are insignificant in respect of the overall dispense trend. By not including these volumes Brulines slightly under record the total beer volume dispensed which is in the Licensees favour. A record of all the beer dispensed is maintained in the raw data at Brulines which is how we are able to verify this.

  The full reconciliation of the 14 pints means that Mr Clarke's resulting hypothesis that "nine out of 14 pints means a 33 or 40% inaccuracy" is therefore erroneous, and gives rise to concern regarding the authenticity of Mr Clarke's expertise of the system.

  Q201 Chairman: That is why you have so much beer in your cellar?

  Mr Clarke: We still have 2,000 gallons sloshing around in the cellar.

  Brulines Response: Brulines are unsure over what exact period the 2,000 gallon surplus claimed relates, however there are various factors which can significantly affect the volume measured. This is why Brulines always initiates an investigation into any volume variances before any action is taken. In respect of The Eagle, a relatively unsophisticated review of the data and service records has identified the following.

    — In 2005 following a CAM visit to discuss negative variances at the Eagle, it was accepted that Brulines may not have been detecting water flushed through the cask lines on the change of each barrel. Mr Clarke claimed it was his policy to flush the lines after every change. Brulines accepted Mr Clarke's explanation and sent him a formal written apology.

    — Since this date Brulines have tried to be especially prudent in the assessment of line cleaning volumes on cask products at the Eagle and allowed for a volume of cleaning allowance on the slightest suspicion of cleaning on the cask lines. Based upon an analysis of a 12 week period in the 2008 dispense figures, Brulines removed a total of 125 cleans with an average volume of 20 pints each. Assuming three pints per clean would be beer (which would be normal industry beer wastage for a clean), this would equate to circa 1625 pints (203 gallons) per annum being removed from the beer dispense figures and would have added to any declared surplus.

    — In June 2008, Brulines installed three flow-meters in three previously unmonitored cask lines at the Eagle. From the dispense figures it appears that the new lines were installed in February 2008. Over this 17-week period (based upon trading statistics at the pub) it appears that Brulines had not been recording circa 60 gallons per week, resulting in a total volume of just over 1,000 gallons that would have made up a large part of the surplus noted by Mr Clarke.

    — In the recent Brulines visit on November 2009, the Brulines Engineer discovered that Mr Clarke was dispensing cask beer through one of the lines that was previously used to dispense his untied Cider dispense (previously two lines and now one). Brulines cannot be sure when this change happened but it appears from the data to be from May 2009. Analysing the data we estimate that over this 26 period, circa 18 gallons per week of dispense was being classified as cask beer resulting in a total surplus circa 470 gallons.

    — Despite the efforts of Brulines to identify all cask line cleaning, Mr Clarke still maintained that some cleaning was being missed. From the beginning of 2009 under instructions from Enterprise Inns (the pub company) the data at The Eagle was subject to an intensive audit, and results were sent in detail each week to Mr Clarke. Our instructions were to remove line cleaning volume on every cask line every 76 pints. Based upon an analysis of a similar 12 week period in the 2009 dispense figures, Brulines removed a total of 201 cleans with an average volume of 25 pints each. Assuming the same average cask beer dispense of 136 gallons per week, this means there was an average line clean on each cask line every 8 gallons. On top of the beer removed during every clean (circa 4 gallons per week), if the clean was not carried out every keg change or if the product was delivered in any container larger than a nine-gallon size then a surplus will quickly amount.

The specific line cleaning regime calculated for The Eagle is at the insistence of Mr Clarke. Brulines does not carry out this methodology for any other sites and believe that accounting for this level of cleaning will inevitably lead to significant surplus such as those present for the cask lines.

7.  BRULINES: DEBUNKING THE MYTH

  Brulines is acutely aware that there are many "facts" or "opinions presented as facts" in the public domain. Some of these are presented below:

    (i) Data provided by Brulines identifies Licensees who are "buying out". This is incorrect. The data initially provided by Brulines simply identifies a "negative variance" between what has been delivered and dispensed. Further investigations are carried out and evidence gathered before any allegation of buying outside the tie is made.

    (ii) The data in Brulines reports used to identify buying out is taken directly from the flow-meter. This is incorrect. The volumetric data taken from the flow-meter is audited and subject to various measures including the removal of water and line cleaning volumes and stock balance verification as a minimum.

    (iii) Brulines take the data in the report and apply a "fine" to the tenant for buying outside the tie. This is incorrect. Where Brulines Volume Recovery Service is contracted, each negative variance is thoroughly investigated with additional evidence of buying out being sought. Brulines do not assess "fines" or "levies" but provide an estimate of liquated damages as a result of the Licensee's buying out under the terms provided for in the commercial agreement between the Licensee and the Pub Company.

    (iv) Brulines system is "loaded in favour of the Pub Company". Brulines thresholds and processes are designed and agreed with the Pub Company to always give the benefit of the doubt to the Licensee.

    (v) Brulines will charge a Licensee even if there is a discrepancy of a few pints. This is incorrect. There are agreed minimum thresholds below which Brulines will not pursue the investigation of a negative variance. Variances are always assessed over a minimum 12-week period but more normally an 18-week period.

    (vi) Brulines receive a share of the liquidated damages charged to Licensees as a result of buying outside the tie. This is 100% incorrect. Brulines generate revenue through the sale of hardware and services which are entirely unrelated to the number or level of liquidated damages charged or recovered a Pub Company.

    (vii) Brulines have no legal right of entry to the premises. Brulines have legal right of entry to premises under the terms provided for in the commercial agreement between the Pub Company and the Licensee.

30 December 2009






 
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