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EXECUTIVE MEMBER DECISION

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NORTH MIDDLESBROUGH ACCESSIBILITY – FULL SCHEME APPROVAL

COUNCILLOR CHARLES ROONEY - EXECUTIVE MEMBER FOR TRANSPORT

IAN PARKER - DIRECTOR OF ENVIRONMENT

4 July 2008

PURPOSE OF THE REPORT

  1. The purpose of this report is to advise the Executive Member of the implications and potential risk associated with the Transport Secretary’s announcement of full scheme approval for the North Middlesbrough Accessibility project and to seek approval for a set of proposals to address the risks.

BACKGROUND AND EXTERNAL CONSULTATION

  1. The NMA project has been designed and developed over a period of years to improve access to Middlehaven and Riverside Park. The process culminated in a submission to the Department for Transport (DfT) in January of this year. The Transport Secretary has subsequently confirmed full scheme approval in a letter dated 6 June 2008.
  1. In consultation with the Joint Strategy Unit (JSU) and the DfT it was concluded the bid should include details of preparatory costs of the project in line with current Major Scheme Bidding guidance, that this should equate to £850,000 (i.e. maximum claimable), and the ERDF/ONE contribution to the scheme be allocated to the remainder, i.e. £1.03m. Consequently, the final bid submitted to DfT in January was based upon a target project cost of £15.411m (2007 prices) as the following table indicates.

Preparatory Costs / Other costs / Total
2008/09 / 2009/10
(£m) / (£m) / (£m) / (£m)
DfT contribution requested / 0.850 / 8.830 / 3.434 / 13.114
LA Contribution / 0.400* / 0.397** / 0.797
Others (ERDF/ONE) / 1.030 / 0.470 / 1.500
Total funding requirement / 1.880 / 9.700 / 3.831 / 15.411

*Available from commuted sums budget

**Contribution from Major Bus Bid - approval awaited

OPTION APPRAISAL/RISK ASSESSMENT

  1. The scheme received approval from the Transport Secretary, but the DfT approval letter quotes the ‘scheme cost’ as £13.531m. This is correct but when the total preparatory costs of £1.88m (of which £1.03m are to be covered using ERDF and One North East contributions) are added, the total funding requirement equates to £15.411m.
  1. The approval states that the DfT contribution is capped at £12.264m pending separate application for preparatory costs of £850,000, which consequently remains at risk with the Council.
  1. The guidance relating to Government funding for major transport schemes has changed since the provisional approval. The letter from the DfT suggests the scheme falls under the ‘old rules’ and transitional rules for reimbursement of preparatory costs should be used. In an earlier e-mail, the DfT asked that the business case be prepared in line with the new guidance. At the same time DfT stated that costs of the scheme would be dealt with in line with transitional arrangements. The bid was subsequently prepared to satisfy the more onerous current (new) scheme bid requirements of locally sourced financial contributions to the scheme, and a maximum value for preparatory costs.
  1. The preparatory costs need to be the subject of a separate application to the DfT in accordance with published guidance, after full scheme approval.
  1. Applications must be accompanied by a statement from the Council’s Chief Financial Officer confirming that provision for the costs claimed has not already been made by Central Government, that the costs are reasonable and provide value for money.
  1. Ultimately, decisions on whether to provide contributions towards preparatory costs and the level of funding provided will rest with Ministers. No guarantees can be given about the success of individual applications in advance of those applications being considered, nor of the level of funding that may be provided. All applications will be considered in the context of the wider position on available local transport funds in any given year, but if unsuccessful local authorities are expected to fund the costs incurred from other resources available to them.
  1. In the opinion of the JSU, the Council’s case for preparatory cost reimbursement is justified.
  1. Consequently the following options may be considered:

Option 1 - Best Option

  1. Apply for reimbursement of preparatory costs (£850,000) and authorise the contractor to proceed with construction. If the bid subsequently fails, the preparatory costs would need to be taken from LTP allocations, over the 2006-2011 LTP programme, which will affect the performance of the LTP delivery.

Option 2

  1. Apply to the DfT for reimbursement of preparatory costs (£850,000) and stall the construction programme. There is no information regarding the time taken for approval for reimbursement to be decided upon. Financial risks are as option 1. However, additional financial risks would accrue in that further delay to the start of construction would increase construction costs due to inflation, and reduce the potential for ERDF drawdown.

Option 3 - Abandon the Scheme

  1. If the scheme were to be abandoned at this stage, the £1.88m already spent on the project would have to be sourced locally. Additionally, the £1.50m contribution already received from ONE would have to be refunded

FINANCIAL, LEGAL AND WARD IMPLICATIONS

  1. For Option 1, the use of £850,000 LTP funding in addition to providing £397,000 contingency in the event of the Major Bus Bid being unsuccessful against an annual allocation of £2.6m would have a detrimental effect on the delivery of the LTP objectives, and would affect all wards. Whilst this would need to be programmed across more than one financial year to minimise the impact it would still be significant and would affect highway maintenance, road safety arrangements, cycleway construction and street lighting replacement. The detailed sums which need to be held against the annual LTP allocation are shown in the table below:

Financial Year / 08/09 / 09/10 / 10/11
LTP Total allocation / £2,616,000 / £2,633,000 / £2,688,000
Contingency against preparatory costs / Nil / £225,000 / £625,000
Contingency against local contributions / Nil / £397,000* / Nil
LTP remaining / £2,616,000 / £2,011,000 / £2,063,000

*Major Bus Bid contribution - contingency necessary in the event of the bid not being approved

  1. Delaying the contract start date will have the impact of reducing eligible ERDF spend and increasing the contract inflation and the impact would be as shown in the table below:

Contract Start Date / Inflation
£m / ERDF Shortfall
£m / Total
£m
End of June / £0.342 / £0.110 / £0.443
End of July / £0.404 / £0.190 / £0.594
  1. The inflation shortfall will be first call on the contract contingency budget of £650,000. In terms of ERDF officers have had discussions with GONE and are currently preparing a proposal to amend the eligibility rate to remove the shortfall. In the event of the contract contingency being fully used, then this will place a further demand on the LTP.

RECOMMENDATIONS

  1. The least risk exposed to the Council is that identified in Option 1. It is therefore recommended that:
  • The contractor be instructed to proceed with the construction of the North Middlesbrough Accessibility scheme.
  • The current budget shortfall pending application for preparatory costs be underwritten by the LTP.
  • Preparatory costs be applied for within the next three months in discussion with the JSU.
  • The appropriate (old/transitional/new) qualification rules for preparatory costs be clarified with the DfT.

REASONS

  1. The Council has succeeded in achieving full scheme approval status for North Middlesbrough accessibility and the scheme is vital to support other areas of regeneration such as Cannon Park, whilst maximising the full range of funding opportunities and minimising risk associated with those funding arrangements.
  1. The opinion of the JSU is that the reimbursement of preparatory costs of £850,000 is justified.

BACKGROUND PAPERS

  1. The following background papers were used in the preparation of this report:
  • Government decision letter 6 June 2008
  • Individual Executive report of 22 January 2007, North Middlesbrough Accessibility Study
  • Confidential CMT report of 7 June 2007 (Director of Resources), North Middlesbrough Accessibility Scheme
  • Guidance for Local Authorities seeking Government funding for major transport schemes:

(www.dft.gov.uk/pgr/regional/ltp/major/majorschemeguide/majorguidemain)

AUTHOR: Ian Busby

TEL NO: 728114

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Address:

Website: http://www.middlesbrough.gov.uk

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