Meeting documents
Cabinet
Wednesday, 6th April, 2005
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Bath & North East Somerset Council |
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MEETING: |
Council Executive |
PAPER |
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DATE: |
6th April 2005 |
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TITLE: |
Combe Down Stone Mines Project Offer of Funding for Main Scheme UPDATE REPORT |
EXECUTIVE FORWARD PLAN REF: |
Ennn |
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WARD: |
Combe Down and surrounding wards |
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AN OPEN PUBLIC ITEM |
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1. Key Issues and risks with regard to the terms and conditions:
1.1 The offer is £6m less than the estimated cost of the works costed in the Funding Application. The offer has been made on a `pre-tender' basis however, and EP have verbally agreed to a full review of the situation when tenders are received.
1.2 Under the terms of the offer, funding can be withdrawn if the main scheme works are not commenced on time.
1.3 Under the terms of the offer, funding can be withdrawn, or be required to be repaid if the Council commits more than two breaches of condition within any 6 month period. Unless EP decide that a breach is irremediable, the Council has an opportunity to remedy it to EP's satisfaction. If remedied, the breach does not count. The obligation to repay is restricted to the amount of any `losses' suffered by EP and/or the First Secretary', rather than to the whole of previous investment of approved grant aid.
1.4 Under the terms of the offer, funding can be withdrawn, or be required to be repaid (subject to the restriction in 1.3 above) if the Council is in breach of any one of the material conditions. The material conditions are:
1.4.1 That the Council is obligated not to disclose material or make statements that refer to EP either without prior written permission, or prior approval. This condition is not one which the Council can entirely control, as English Partnerships may argue that it would include statements by Councillors or Officers not acting on behalf of the Council as a Corporate body. Discussions have been held on how to develop a workable solution to this issue, in line with other confidentiality agreements the Council has signed up to. In this regard it is important to note that EP do not seek in any way to obstruct the Council's disclosure duties imposed by law (albeit they could not do so in any event) and that there is benefit in sharing material, and English Partnerships recognise this benefit.
1.4.2 That the scheme is `abandoned' by the council at any time for any reason which is not an `approved' event, or by reason of force majeure, insolvency of the contractor, or of lack of funding by EP. EP will have full discretion over what constitutes other approved events.
1.4.3 That the Council must pay over any increase in value of property sold which relates to the scheme (After value)
1.4.4 That the Council shall exercise and oblige the works contractors etc to exercise the level of skill and care commensurate with a project of this nature.
1.5 EP require that the Council exercises `best endeavours' to arrange an adjustment to the programme and, if that cannot be done, to use `reasonable endeavours' to act as temporary banker in the event that EP have a `temporary' funding problem. Whilst they contract to repay the Council all reasonable costs incurred as a result of this condition there is a risk that they might not be in a position to do so. Should such situation become `permanent' at any time, English Partnerships have assured us in writing do undertake to reimburse the Council in respect of the temporary funding, however, should they be without funds, this may not be possible. Depending on the extent and timing of such an event, unlikely as it may be, this could involve many millions of pounds.
1.6 Many other more minor terms of the offer have implications for the Council, most particularly in relation to the two breaches condition. English Partnerships have gone a long way to accommodate the Council's concerns, however, the contract terms are still onerous compared to what might be expected in a strictly commercial contract, reflecting the fact that the contract is not commercial, but one of a grant aid offer, and will oblige the Council to work fully and in detail with EP in carrying out their duties under them and to complete the scheme. A fully effective management and organisation structure will be essential to ensure compliance with the requirements of the funders at all times during the seven year project.
1.7 No arbitration clauses exist within this contract, and there will be no redress beyond discussion and agreement between the parties, other than the Courts. English Partnerships retain a considerable degree of discretion, and have not generally proved amenable to undertaking a contractual obligation to act reasonably. Nevertheless, it appears reasonable for the Council to believe that the main funding body, as a Government Agency, will act in good faith, and will continue to operate in the spirit of partnership which has been enjoyed during the emergency works phase.
1.8 English Partnerships originally required that the final account should be settled within a year of completion. This has been substantially and helpfully modified to include a defects liability period and the possibility of an extension of settlement time. However officers' view is that this is still tight for such a major project. It is likely that the works will be undertaken in sectional release which will to some extent reduce the risk from this clause.
2 Council Risk update
The Council Risk Register has been updated for March 2005 to reflect the risks associated with the terms and conditions: -
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Change description |
Risk Exposure |
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Collapse risk - Due to the continued emergency works the project is better able to cope with collapse situations (improved underground infrastructure, emergency procedures, etc) |
Decreased |
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Progress of works to North Road have reduced the risk of a highways collapse |
Decreased |
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Development of the Procurement strategy has reduced uncertainty over how to deal with unknowns |
Decreased |
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Negotiations on Terms and Conditions - the negotiations have been extensive and EP have moved significantly to accommodate B&NES. However, certain clauses, with associated serious risks, remain |
Decreased BUT see note below ** |
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Consents strategy blanket MWA in lieu of individual consents. Resolves many issues up front prior to commencement |
Decreased |
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Compensation claims which arise as a right when MWA is invoked (confidence that claims liability will be relatively low value) |
Increased |
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Failure to demonstrate BPVM : Reduced following written definition of BPVM and agreement of decision making process |
Decreased |
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Delayed funding decision from Treasury - this has occurred, however the project team has vired funding and managed existing budgets to avoid overspending |
Occurred |
** It should be noted that one of the terms and conditions risks is excluded from the risk quantification exercise - this is the risk that a Councillor's remark is considered to be a contravention of the communications strategy in the funding offer and EP deem this to be a material breach with the potential consequence that they remove all funding and require and `losses' suffered by English Partnerships and/or the First Secretary. This is considered to be an un-quantifiable risk and ultimately would be a matter for the courts to resolve.
The risk allowance has been re-cast according the above update and the results are within the previously reported figure of £8m (90% certainty of not being exceeded).
3.0 Conclusion
3.1
At the time of writing the update, the final offer has still not been received. It is therefore possible that further changes and some improvement to the position could still be achieved on these terms. Any acceptance of the offer should therefore be subject to the final terms received being no less favourable than those now expected. Should the final terms be received prior to the meeting, these will be made available to members. If they are not, the latest version will be circulated.
3.2 The financial plan includes provision for the expected costs of this project to the Council, and the corporate risk contingency has taken account of the anticipated risk assessment on it. The proposal is accordingly within budget and thus within the Executive's power to approve. This will need to be kept under review.
3.3 It is clear that an offer on these terms would not normally be acceptable if the party to which we were contracting were a commercial organisation. However, it must be recognised that this is not a commercial contract, and that the purpose to which the grant aid is offered is one which is desirable as in the public interest. The offer, under such strict terms, is perhaps understandable from a respectable government agency which the Council is entitled to believe will act in good faith at all times. If the Executive is minded to accept the funding for this scheme on these terms, it would be prudent to require officers to continue to seek ways to limit the Council's exposure to risk on the scheme, and to write to the Minister responsible, setting out the Council's genuine concerns over the nature of the contract and the risks to the Council and the local tax payer which are implicit within it.
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Contact person |
Mary Sabina Stacey, CDSM Project Leader, Ext 7200 |