MIDDLESBROUGH COUNCIL

EXECUTIVE REPORT

Proposed re-development of Levick House and bungalows, Cambridge Road

Executive Member for Regeneration and Economic Development: Councillor David Budd

Executive Member for Social Care: Councillor Julia Rostron

Director of Regeneration – Kevin Parkes

Director of Social Care – Jan Douglas

Date 30th April 2010

PURPOSE OF THE REPORT

  1. To advise the Executive of a successful bid to Round 2 of the Homes and Communities Agency (HCA) Local Authority New Build (LANB) Programme to provide a scheme of new build affordable homes for older people at the site of Levick House, Cambridge Road. In particular, to apprise the Executive of the financial and contractual implications of HCA grant funding and to seek approval to deliver the scheme.
  1. To seek approval to enter into a formal partnership agreement with the Levick Trust to develop an integrated scheme on the above site for older people (above) and adults with learning disabilities.
SUMMARY OF RECOMMENDATIONS
  1. It is recommended that the Executive approves the proposed integrated scheme, funding, governance and management arrangements as described in this report, including proposals to enter into a partnership agreement with the Levick Trust.

IF THIS IS A KEY DECISION WHICH KEY DECISION TEST APPLIES?

It is over the financial threshold (£75,000) / 
It has a significant impact on 2 or more wards

DECISION IMPLEMENTATION DEADLINE

  1. For the purposes of the scrutiny call in procedure this report is

Non-urgent / 
Urgent report

BACKGROUND AND EXTERNAL CONSULTATION

  1. The Budget 2009 announced £100m to fund local authority new build housing as part of the Government’s response to the recession and its impact on house building rates and the construction industry. Further funding was announced as part of the Building Britain’s Future package. In Autumn 2009, the HCA invited bids to the LANB programme with a very tight timescale for submissions; the closing date for bids was 30th October 2009.
  1. Since October 2009, officers have been exploring the potential to submit a bid in respect of a scheme for the site of the former Levick House care home and bungalows. In the event of a successful bid it was agreed that further reports would be presented to Executive to seek approval to progress matters with the HCA. It should be noted that HCA has advised that the programme is increasingly of particular interest to the Prime Minister’s Delivery Unit (PMDU) and the Department for Communities and Local Government (CLG).
  1. The HCA received bids for funding from 86 local authorities under Round 2 of the Programme, which was oversubscribed by approximately £240m. Each bid underwent a rigorous assessment process focusing on value for money, fit with local priorities, quality and speed of delivery. HCA announced successful bids on Monday 11th January 2010, which included grant funding of £1.14m for older people’s apartments at Levick House.
  1. Nationally, 73 local councils will have access to over £230m of funding under Round 2 of the LANB. The funding, made up of £122.6m grant from the HCA and matched by a similar figure from the local authorities, will see over 1,900 new council homes built on 164 different sites. Every region in England has received funding, with around 40% of the new homes to be built in the North, 36% in the South and 24% in the Midlands. The North East region allocation is detailed in the table 1, below.

Table 1 LA New Build Round 2 Allocations, North East Region

Local authority / Scheme name/location / HCA Region / homes / HCA Grant £
Durham CC / Greenside Place, Crook- Family houses / North East / 17 / 850,000
Durham CC / Park Ave Close, Crook / North East / 50 / 2,600,000
Gateshead Council / Former Cranesville Site, Gateshead / North East / 5 / 325,000
Gateshead Council / Harlow Green (2), Gateshead / North East / 1 / 60,000
Gateshead Council / Millbrook, Gateshead / North East / 9 / 495,000
Gateshead Council / Norfolk Avenue (2), Gateshead / North East / 1 / 65,000
Gateshead Council / Portobello Way, Birtley, Gateshead / North East / 3 / 180,000
Hartlepool BC / Charles Street/Surtees Street Phase 2 / North East / 17 / 884,000
Hartlepool BC / Kipling Road, Hartlepool / North East / 20 / 920,000
Middlesbrough / Levick House / North East / 20 / 1,140,000
Newcastle City / Bungalows Drysdale NE13 7DW / North East / 11 / 567,500
Northumberland CC / Newsham First School Site / North East / 14 / 924,000
Northumberland CC / Nordale Way Blyth / North East / 6 / 378,000
South Tyneside MBC / Belsfield Gardens, South Tyneside / North East / 5 / 332,640
South Tyneside MBC / Druridge Crescent, Horsley Hill / North East / 20 / 802,784
North East Total / 199 / £ 10,523,924

Levick House - proposed scheme

  1. The integrated development, which is subject to consultation, comprises 20, 2 bedroomed apartments for older people (LANB funded) and short-term care provision for adults with learning disabilities, many of whom have elderly parents. The short-term care proposal includes an adjoining activity centre built for use by all residents of the integrated scheme. Several sites have been explored to date, but following consultation with carers of adults with learning disabilities, the Levick site is considered the most suitable.
  1. Project funding arrangements are described in detail in paragraph 27, below.
  1. Whilst Council ownership of the proposed development site is a LANB bid precondition, HCA has indicated that a long-term leasehold interest (at least 60 years) is acceptable. The land must also be made available at nil consideration. The development site is owned by the Levick Trust which agreed to these arrangements at its meeting of 14th December 2009. The Trust has also agreed in principle to broaden the scope of its founding objects in order to accommodate the scheme and will need to seek approval from the Charity Commission. It is proposed that a partnership agreement between the Council and the Trust will include agreements in both areas.
  1. The LANB funded scheme meets a number of local, regional and national strategic priorities, in particular those relating to older people’s housing as described in Middlesbrough’s Older People’s Housing Strategy (2007). The wider development meets priorities relating to support for people with learning disabilities and their carers.
  1. In line with HCA grant conditions the LANB scheme will:

a)offer permanent social rented properties (exempted from the Right to Buy as specialist provision for older people);

b)remain in Council ownership (managed by a HCA accredited housing manager, such as a local housing association);

c)achieve a minimum of Code for Sustainable Homes Level 3 (with every effort made to achieve a higher energy efficiency classification);

d)maximise opportunities for implementing local labour schemes and creating apprenticeships through the build contract; and,

e)target a 2010 start-on-site and 2011/2012 completion.

15.With regard to the start-on-site date it is considered desirable to secure early site clearance of Levick House and bungalows in order to minimise the risk to the public, the negative impact on the neighbourhood, and mounting security and maintenance costs. The original intention had been for the Council to fund the clearance and place a charge on the Levick Trust’s land asset. However, the long-term leasehold arrangement required to satisfy the HCA and Charity Commission would seem to preclude this, and is perceived as problematic by the Trust, which is concerned that the Commission might also react negatively to such a proposal. It is suggested, therefore, that the Council funds this work, estimated at £150k, without placing a charge on the Trust. This amount is identified in paragraph 27 and Table 2, which sets out the integrated scheme costs and funding package.

Project management and procurement

  1. A project steering group will be established which will include relevant Heads of Service/Service Managers from Regeneration and Social Care, Levick Trust and the HCA North East Investment Team. The group, which it is proposed will be chaired by the Council’s Head of Older People and Physical Disability Services, will also be charged with maintaining an effective dialogue with residents in the vicinity of Levick House, Ward Councillors and the Linthorpe Community Council.
  1. A multi-disciplinary project team will also be established comprising representatives from the Levick Trust (two Trustees and the Clerk to the Trust), Social Care, Strategic Housing, Urban Policy, Development Control, Resources, Legal Services, Strategic Procurement and Economic Development (given the local labour requirements). It is proposed that the project team be chaired by a dedicated project manager (see paragraph 20, below). Given its investment and involvement in the learning disabilities scheme, Tees, Esk and Wear Valley NHS Trust will also be represented. A consultative group, involving people with learning disabilities, their families and carers is already well established with dedicated officer support which will be represented on the project team.
  1. It will not necessarily be the case that all parties will be involved in each project team meeting, but it will be essential to establish and maintain effective lines of communication calling on expertise as required. Appropriate service nominations will, therefore, be required. Regular progress reports will be prepared for the Steering Group, Directors of Regeneration and Social Care, Executive Member for Regeneration and Economic Development, Executive Member for Social Care and the Levick Trustees. As mentioned, the Steering Group will engage with Ward Councillors, the local community and the Linthorpe Community Council to ensure they are fully informed and updated.
  1. The team’s first task will be to fully scope the project and prepare a detailed delivery plan, including project management arrangements. The procurement documents will also need to encompass the relevant conditions set out in the HCA offer of grant. Early engagement and ongoing dialogue with the Charity Commission and Almshouse Association will be important given the charitable status and objects of the Levick Trust and previous experience of dealing with the two organisations in respect of proposals for the Levick site.
  1. Given the project value, complexity, challenging timescales and keen interest from the Prime Minister’s Delivery Unit, CLG, the local community and families/carers of people with learning disabilities, it is proposed that a dedicated project manager is appointed from within the Council. This person will lead the project through the development partner selection process and project delivery. The project manager will chair the project team and report to the steering group. Key responsibilities will include, project scoping, procurement, partnership, resource and task management.
  2. The project team will explore the most appropriate method of procurement and future management arrangements in respect of the LANB homes. It will be important to consider how to maximise value for money by combining the HCA funded scheme with the wider development proposed for the site of Levick House, whilst accounting for the LANB scheme individually as required by the terms of the grant funding. Further reports will be brought forward as necessary as this work is progressed.

EQUALITY IMPACT ASSESSMENT

  1. An initial Equality Impact Assessment has concluded that neither a partial or full assessment is required.

OPTION APPRAISAL/RISK ASSESSMENT

  1. Given the limited resources available from the HCA under the National Affordable Homes Programme this scheme provides the Council with an opportunity to secure additional grant funding. This will help meet the town’s affordable/special needs housing requirements and re-provide the learning disabilities short breaks service in an integrated scheme, offering mutual benefits for this client group and older people by maximising the potential for shared staffing and communal facilities. It is also an excellent opportunity to provide additional job opportunities and training apprenticeships as part of the construction process.
  1. Risks relating to this bid are considered under Financial Implications (below) and centre predominantly on the viability of the business plan for the development of the HCA funded scheme, land ownership and charitable trust issues. The ability to deliver the proposals is obviously dependent on planning consent and constructive community engagement has already been identified as a key task. This process has commenced (see Ward Implications, below) and the physical development of the site has already been the subject of detailed discussions with Development Control and other relevant Council service areas with particular reference to concerns raised by the community about previous proposals for the site.
  1. A more detailed draft risk register has been prepared and will be updated and kept under review throughout project development and implementation. The current draft is shown at Appendix 1.
  1. Risks associated with the procurement and development programme will be addressed as necessary in future reports. This activity will involve an exploration of opportunities to maximise value for money by combining the Scheme with the wider development proposed for Levick House. However, as already mentioned the LANB scheme must be accounted for separately and any efficiencies arising from the scheme have to be applied with due regard to the benefit of the grant provider. Any change to project budgets will be notified and discussed with the funding agency in order to maintain clear lines of accountability for this element of the project. Scheme costs are considered in more detail in the following paragraphs.

FINANCIAL, LEGAL AND WARD IMPLICATIONS

Financial

  1. Table 1, below identifies a shortfall in capital funding of £150,000 in respect of the integrated scheme proposed for the Levick House and bungalows site. As already mentioned, it is proposed to identify a project manager whose responsibilities will include ensuring the scheme specifications are deliverable within the existing capital budget. The general accounting principles and development risks referred to in the following paragraphs apply to the integrated scheme.

Table 2 – Integrated scheme costs and funding

Details / Levick
Housing
£`000s / Short
Break
£`000s / Total
Programme
£`000s
Capital Expenditure :-
Older People’s scheme
Demolition of Levick House
Prelim. fees Short Break Scheme
Short Break Scheme / 2,390
150 / 17
2,983 / 2,390
150
17
2,983
TOTAL EXPENDITURE / 2,540 / 3,000 / 5,540
Capital Funding :-
HCA grant
Capital plan (borrowing)
TEWV NHS grant funding (Unconfirmed)
Performance Reward Grant / 1,140
1,400 / 0
1,100
500
1,250 / 1,140
2,500
500
1,250
TOTAL FUNDING / 2,540 / 2,850 / 5,390
FUNDING GAP / 0 / 150 / 150
  1. It should be noted that given the time available to prepare the original bid for HCA LANB programme funding for the older people’s element of the project the assumed build cost of £2.39m is based on estimated benchmarked costs. A number of assumptions had to be made where hard and fast information was not readily available. Build costs remain benchmark estimates and can only be more realistic after budgeted plans and drawings of the building have been prepared. The required completion date of the build project is 31st March 2012. The project will need to have due regard to the end value of the assets against initial spend outlay to ensure value for money.
  1. There is very limited scope to revise the funding arrangements prior to start on site, although the Council will regularly update the funding provider of any cost changes. The Council will need to commit to delivering the scheme by the agreed date and for no more than the agreed price, with potential penalties for non-performance. Should the actual scheme costs exceed the current budget the Council will need to negotiate with the HCA and may well have to consider additional borrowing. Conversely, if scheme costs are less than anticipated, the HCA and the Council will share the benefit, and grant and borrowing levels will be reduced accordingly in equal proportions. After entering into the grant agreement, should the Council decide not to progress the development, then the HCA will encourage the Council to substitute the withdrawn scheme with another development which will deliver similar outputs for the same level of grant funding. Withdrawal at such a late stage will be damaging to the Council’s reputation. Potential substitute development sites will, therefore, be explored by the project team as a contingency. No grant monies will be drawn down until the project is viable.
  1. Any land to be developed as part of the LANB programme must be made available at nil consideration. The Levick Trust has accepted in principle a leasehold agreement, of sufficient term, and on a peppercorn basis. Dialogue is ongoing with the Charity Commission and, whilst it is anticipated that such an arrangement will be acceptable to the Commission, this has yet to be confirmed. The required lease for the older people’s apartments is 60 years and it will be important when framing the detailed terms to take account of asset disposal at the end of this term to ensure that the Council and HCA investment is appropriately safeguarded.
  1. As mentioned, it will also be necessary for the Trust to seek approval to broaden the scope of its original objects in order to accommodate the proposed scheme, and it has agreed this in principle. Previous discussions with the Commission have indicated a willingness to consider any such proposal. It is important that such matters are resolved at the earliest opportunity in order for Council to enter into any contractual arrangements for works on site.
  1. The rental income will cover the ongoing management and maintenance costs of the new build HCA funded properties. If the properties are not fully tenanted, however, the Council will be liable for void costs. A vacancy and bad debt income loss assumption of 3.5% per annum has, therefore, been factored into the funding model.
  1. The Council will have to fund the cash flow costs of development as the HCA grant draw down process means that 60% of the overall build costs will be drawn down at start on site and the remainder on completion. The Council will also need to fund the interest element of the prudential borrowing costs until properties are completed and let. It will be important to incorporate these factors into the detailed project plan as a project cash flow to ensure costs to the Council are minimised.
  1. Council ownership of 50 or more residential dwelling units may require the re-opening the Housing Revenue Account with potentially significant financial and accounting implications. However, informal advice from Communities and Local Government has suggested that a degree of discretion can be exercised in this area in terms of the unit threshold. Legal advice on the statutory definition of HRA dwelling units has been applied to the Council’s current portfolio and it is not considered that the proposed development of 20 older people’s apartments will constitute a breach of the 50 unit threshold.
  1. It is understood that expenditure relating to the HCA funded scheme can be deemed to be non-business and will not impact on the Council’s non-exempt VAT calculation.
  1. Secure tenants can exercise a statutory Right to Buy and enjoy a substantial discount on open market value. However, it is possible to exempt homes from the Right to Buy on grounds of their being specifically for older people. It is intended to ensure that development and ongoing management arrangements satisfy these exemption criteria; in part to protect the Council’s investment, satisfy the charitable objects of the Levick Trust and address any concerns expressed by the Charity Commission and Almshouse Association about appropriate targeting of the beneficiaries of the older people’s provision.

Ward Implications