Call for inquiry into company where salaries ballooned and thousands spent on hospitality

City Building – previously a department of the local authority – allowed salaries for senior managers, some closely associated with the Labour Party, to balloon after it became a much-feted "arms-length" company wholly owned by the public.

The firm, whose managing director is Willie Docherty, the husband of Glasgow Labour councillor Sadie Docherty, was last night facing calls for an inquiry into whether it provides good value for council taxpayers.

Scotland on Sunday has learned that City Building executives:

&149allowed the wage bill for senior staff to more than double from at least 730,000 in 2007 to at least 1.5m in 2009, in the first two full years of nominal independence from the council;

&149approved a vehicle leasing scheme that allowed executives to rent luxury cars, including Mercedes Benz, from the business;

&149spent nearly 20,000 in a single year on 18 dinner events, 11 of which were attended by Labour councillors;

took a table at the cost of 2,000 at a Labour Party fundraiser, where it entertained senior Labour figures, including Scottish leader Iain Gray and his wife, despite long-standing conventions that public bodies do not make contributions to political parties.

agreed a salary hike from at least 110,000 to at least 140,000 for Docherty.

City Building was set up in 2006 as an "arms-length" company to take over the work of the council's former building services department and offer its services beyond the city boundaries. In 2008-9, it turned over 179m worth of business, making it one of the biggest operators of its kind in Scotland.

But opposition politicians have questioned the company's close links to Labour. Three of the four councillors on its board are Labour appointees and the former general secretary of Scottish Labour, Lesley Quinn, was made a senior manager at the firm in 2008.

They are now criticising the escalating salary bill at a time when the economy was going through a severe downturn.

Bill Kidd, an SNP Glasgow MSP who sits on the Scottish Parliament's Audit Committee, said: "Some of these managers seem to be living high on the hog. It is high time that we determined whether we are getting best value from this organisation, especially when you look at the size of the management structure now and back when it was a council department."

John Mason, the SNP MP for Glasgow East, said: "This (the salary rises] was almost inevitable. What we are talking about here is a kind of semi-privatisation when a council department starts to act like a private company. What has also happened is that we have lost democratic control of the business."

The revelations about City Building come after the chief executive, chairman and vice-chairman of another Glasgow-based and Labour-dominated quango, Strathclyde Partnership for Transport, all left office last month after an expenses scandal.

In his initial resignation statement, Purcell cited stress over the SPT affair as part of his reasons for quitting.

While leader, Purcell had regularly feted City Building, praising its management and its projects. So too had Gordon Brown, the prime minister, and other very senior Labour figures. The company's "spin off" was seen as the flagship project of Purcell's drive to modernise public services in Glasgow, making a profit for the city council of 2.2m in the 2008-9 financial year.

The company ran one of Scotland's biggest programmes of construction apprenticeships, providing skills to hundreds of young men and women for the much-vaunted building boom in Glasgow before the economic crash of 2008.

But, according to papers lodged at Companies House, the company dramatically expanded its teams of highly paid employees during the boom years, after it became what council jargon described as an arms-length external organisation, or Aleo, in 2006.

In its first financial year as a separate company, City Building paid its 11 executives a total of at least 730,000. By 2008-9, the firm was paying 23 senior employees a total of at least 1.51m. The wage bill does not include the 20,000 paid to a Labour councillor, Gerry Leonard, a key ally of Steven Purcell, to chair the company's board.

Generous pay and perks for a growing army of managers have angered many of the company's 1,400 rank-and-file workers and several Labour insiders.

One party source, who asked not to be named, said: "We are furious that the wages for managers have risen so much in a council-owned business just as workers are being asked to accept pay freezes or redundancies."

The company has not been immune to the economic downturn, despite retaining lucrative public-sector contracts following its "spin-off" from the council. It is currently laying off some of its workers. It has also failed to keep on 70 of the apprentices it trained last year.

City Building, meanwhile, has defended its wage hikes. In internal papers obtained by Scotland on Sunday, senior executives told councillors they needed to raise salaries to compete with the private sector.

Other perks, including an allowance for car users and a in-house vehicle-leasing offer, were also defended as standard practice in the private sector.

City Building became free to offer its services beyond the borders of Glasgow after it became an Aleo. Most of its work, however, remains firmly in Glasgow; one of its biggest customers is Glasgow Housing Association, the council's former housing department.

The company, therefore, insists it requires good relations with the public sector in the west of Scotland. This, its internal documents explain, is why it has entertained numerous Labour politicians from the region.

The papers show City Building spent at least 19,497 on 18 hospitality events in the financial year 2008-9. It entertained Labour politicians at 11 of them, including the controversial Labour Party fundraiser in 2009 attended by Iain and Gill Gray.

According to the documents, City Building has never entertained any councillors or figures from other parties at these events.

Politicians who regularly featured on their guest lists included Alistair Watson, the Labour councillor who recently resigned as chairman of SPT, and senior figures in Purcell's Labour cabinet in Glasgow.

City Building last night denied that its wage bill for senior managers had doubled over the two years, saying that some of the people listed as "highly paid employees", those earning more than 50,000, were tradespersons.

It added that its executives had decided not to take any salary increase this year – and that they did not enjoy the share options or bonuses common in the industry.

The company also said that it had dealt with politicians of all parties as part of its lobbying on public procurement rules affecting its manufacturing division, Blind Craft, a factory which employees disabled people.

The company defended the City Building table at the Labour Party dinner, saying: "We are satisfied with our cross political party approach to this matter. City Building is a limited liability partnership and it has broken no rules whatsoever nor has it made any contribution to a political party."

City Building continues to entertain Labour figures. Its chairman, Leonard, has declared that he has attended nine events so far this financial year as a guest of the firm, including a Scottish Football Hall of Fame event sponsored by City Building in November.

Wined and dined

Here are three of the 11 events at which the council-owned City Building entertained Labour politicians in 2008-9.

Labour Party annual fundraising dinner, Glasgow, 23 January, 2009. Iain Gray and his wife joined Michael McCann, a senior Labour councillor in South Lanarkshire, and Glasgow Labour stalwarts Gerry Leonard, Gordon Matheson, Stephen Curran and Aileen Colleran. Also present was City Building's then newly appointed business development manager, Lesley Quinn, the former general secretary of the Labour Party in Scotland. Total cost: 2,000.

Scottish Football Association Hall of Fame, Glasgow, Sunday, 16 November, 2008. Company directors and managers entertained Glasgow Labour councillors Gerry Leonard, James Scanlon, Bob Winter, George Redmond, Frank Docherty, Gordon Matheson, George Ryan, Alistair Watson, Philip Braat, John McKenzie, Euan McLeod and Jim Todd. They also hosted Labour's leader and deputy leader from North Lanarkshire, Jim McCabe and Jim Smith. Total cost: 2,112 as part of sponsorship deal for event.

Professional Footballers' Association Annual Dinner, 20 April, 2008. Guests, aside from five private-sector contractors and a council official, were made up of Labour councillors, including Allan Stewart, Gerry Leonard, Bob Winter, Jim Todd, Gordon Matheson, Paul Rooney, Alistair Watson, Euan McLeod, Irfan Rabbani and Archie Graham. Total cost: unknown – dinner was part of sponsorship deal for event.