Heating system that cost council £11.5m 'lesson to all' says report A troubled community heating system landed a council with an £11.5m bill and serves as an "expensive lesson" to all local authorities, a report has said. Councils across Scotland should take note of the failings in the Caithness Heat and Power project, set up by Highland Council a decade ago, the Accounts Commission concluded. Douglas Sinclair, chairman of the commission, said: "Arm's length external organisations can be an option for delivering council services but only if the necessary safeguards are built in from the start. Caithness Heat and Power was an example of how not to do this. Serious deficiencies in the governance of the project have led to significant loss of public money. Highland Council has learned an expensive lesson but there are lessons for all councils to learn from this project. The project began in 2002 with a plan to provide a wood-fuelled system for hot water in Wick, gaining council approval two years later. An arm's length company was set up to deliver the project, which was to be extended beyond council homes, housing association and private owners by generating income from the national grid. The aims were brought together in 2005 and equipment was installed, but three years later financial and technical difficulties emerged and the project failed. Between 2004 and 2008, when the scale of problems became clear, only three reports were made to the council - each with the project team "urgently seeking funds," the commission said. The council took control of the project in 2008, finally handing it over to new owners Ignis, which started supply in 2012. The commission has looked at the project before. An investigation revealed "fundamental failings" with management four years ago. A follow-up report identifying "serious weaknesses" in governance. The council had estimated the total cost of its involvement would be as high as £15.4m. The commission said the council has shown a commitment to building on the lessons of the experience. "It is clear that the council has taken this seriously and continues to approach matters in an open and transparent manner," the report concludes. A Highland Council spokesman said: "The council fully recognises and deeply regrets the failings of Caithness Heat and Power during the early years of its operation. Since taking control of the enterprise in 2008, the council has worked tirelessly to minimise the losses and to learn lessons to ensure that the failings are not repeated in any future venture of this nature. Through these efforts the council has been able to protect the interests of local residents and see carbon emissions reduce.