b'A company set up to tender for a large contract did not win the work. With no other strands to its business plan, it eventually became dormant and never managed to repay the initial working capital loan. Common forms of failure arise due to:over optimistic growth assumptions; lack of sensitivity analysis with regard to future council budget assumptions; lack of modelling of revised contract terms, for example from block- to activity-based; and changes in methods of service delivery, for example from direct care to preventative services; in particular, where LATCs have not diversified services, this can leave them highly exposed. In some instances, councils have needed to liquidate local authority trading companies and bring services back in-house. More Guidance and information on the establishment of local authority trading companies can be found in Rob Hanns sister publication Local Authority Companies and Partnerships.Summary 4.13 Although this chapter has highlighted some of the legal issues with commercial trading powers, it should be remembered that the aim of any trading activity is commercial success. If the private sector is not providing a service, this may be because there is no demand for itat least, not at a price which would generate enough revenue to support the undertaking. If there is already a developed private sector, the authority may be criticised for competing with those businesses and risks challenge under competition and State Aid rules. Because of this, careful planning is needed before starting any commercially based operation. The current state of local government finance has encouraged a renewed interest in trading by local authorities. In many cases the proposals are in a very infant stage of consideration when the local authority seeks legal advice. Councils would do well to consider the issues set out in this chapter and Chapter 6 in detail before starting on the practicalities of setting up a trading company.57'