Meeting documents

To consider a report from the director (NE) on the Scarborough Town Centre Regeneration (Student Accommodation Scheme) (ref:21/193).

The Committee considered the report of the Director (NE) (Reference 21/193) in relation to the Scarborough Town Centre Regeneration (Student Accommodation Scheme).

As a background to the report, the Director (NE) reminded the Committee of the following motion of the Conservative group in respect of the project to redevelop the former Argos building:- "the Conservative Group on Scarborough Borough Council today call for residents of the Borough’s financial interest in the project to be protected by a full review of the business case in light of the cost pressures being experienced in the building industry at the current time".

The submitted report advised the Committee in detail of the existing contractual provisions contained in the development agreement with Buccleuh Property (Scarborough) Limited.

The Director (NE) then outlined in detail the salient aspects within the report to the Committee.  In particular, he drew attention to paragraph 5:5 of the report – communications and that it was intended that a further report containing a full review of construction costs associated with the scheme would be brought back to this Committee at the viability condition stage. Assuming the planning application was determined in November/December 2021, it was anticipated the report would be brought back to this scrutiny committee in February, 2022.  

The Director (NE) then invited and responded to the Committee’s questions, comments and concerns.

Prior to the discussions the Director (NE) confirmed that it had been announced earlier that morning that it had been announced that the consideration of the planning application had been deferred to the December meeting of the Planning Committee.  The Chair also reminded those Members of the Scrutiny Committee, who were also Planning Committee Members, not to pre-determine anything today before the matter came to Planning Committee.

A Member made the following statement to the Committee on this matter and quoted from the resolution passed at the meeting of the Borough Council last month: "a fullreview of the business case in light of cost pressures being experienced in the building industry at this time."

The report by the Director (NE), together with his input today, very clearly sets out the contractual provisions contained in the development agreement; it includes the safeguards that were built into the paper that was approved by Council in 2019.

However, notwithstanding that comprehensive report, he contended that the Committee had not been provided with the remainder of the information that would have been expected following the Council resolution last month.

The Member referred to paragraph 3.4 of the submitted where the Director (NE) had stated "Significant increases in construction costs have been reported in recent months and this may have an impact on the deliverability of this scheme."

The concern expressed at Full Council was specifically in regard to the escalation of building costs that had been widely reported in the media and confirmed by people in the construction and civil engineering sectors as well as others.  Consequently, the Member expressed both disappointment and concern that there was no mention of whether the costs of the Argos Project had escalated or not and, if so, to what extent.

The Member further expressed his view that if the Committee were merely being asked to accept that all would be revealed at a later stage, he was most apprehensive and not prepared to accept that suggestion. He added that he had expected the Committee to be have been furnished with a report at this meeting which would have stated either (a) the costs have risen but are still within budget, or (b) the costs have risen beyond the current budget, and that some detail would have been provided to substantiate either (a) or (b).

The Member added that it was now seven weeks since Full Council instructed that the costs should be reviewed.  He accepted that full and final financial figures would not be available until later in the process and certainly after the planning application has been determined. However, the figures from 2019 that were approved by Council were available and he expressed the view that all that was required was   for those basic figures to be updated to allow this Committee to undertake the task given to it by Council last month.

He also added that we know that there are safeguards built in to the process but the first milestone that commits the Borough Council to significant expenditure is if, and when, planning permission was granted.

He reminded the meeting that the decision to review the scheme cost previously approved by Council in July 2019 was taken at the September 2021 meeting of the Borough Council, and for that review to be undertaken by the Places and Future Overview and Scrutiny Committee, hence this item on the agenda today.

The reason for the review was the reported escalation in the cost of building materials, directly and indirectly, linked with delays and either Covid-19 and Brexit or all.

The scheme costs approved in July 2019 were shown in the table in the Confidential Appendix ‘C1’and the Member expressed the view that at least, he would have expected a table comparing the figures contained in the 2019 report with the current situation.

In the absence of such essential information in regard to the costs of the project, the member had undertaken his own investigation, including visiting the websites of a number of well-known and respected Institutions that publish various indices in relation to changing industrial costs. The websites visited include the Office of National Statistics, i.e. the official Government figures. These published Indices cover various sectors of industry and are sometimes used to validate claimed price increases during the lifetime of a project. Indeed, such information is frequently used by our own officers during SBC projects.  Without exception, the information from those Institutions shows a significant increase in costs over the last 2 years.

Additionally, the Member had also contacted one of the major contractors previously engaged by the Borough Council to undertake major projects.  It was confirmed that material and labour costs have escalated to varying degrees over the last 2 years.  Indeed to such a degree that, even if the proposed development was already well underway, the cost of the overall project, in the Member’s opinion, would be very close, if not exceeding, the authorised borrowing of £22 million.

Allowing for the extended project programme, due in the main to Covid-19, the cost of the overall development was, in his opinion, most likely to exceed the authorised budget. He added that if he could identify these significant increases in Cost Indices, it was not rocket science or an onerous task to provide this Committee with the necessary information.

He re-iterated his request that Members were provided with the information necessary to carry out the task to satisfy the decision of full Council last month and that it would be useful to know the Index in July 2019 together with both its predicted figure for 2 years later and the actual October 2021 figure.  Similarly, due to the delay in the development scheme the overall cost at the revised projected completion date compared to that of the original completion date.   

He further added that having some experience in preparing for major projects, including the securing of the necessary funding, he accepted it was always prudent, indeed vital, to include a realistic amount of contingency funding to cover various reasons for cost increases such as delays, alterations to specifications, cost of materials and labour.

The Member added that looking back at the 2019 report, in his opinion, it was clear that a significant contingency was included. However, we were now two years down the line and, from the evidence he had identified, it was clear that the vast majority of that contingency has been swallowed up before we have even had the planning application determined let alone a start on site.

The Project Programme included in the July 2019 report to Council suggested that the main building works would be more than 60% complete by September 2021, with all the Main Building Works complete by May 2022.

Whilst fully appreciating the delay due to COVID, the Member expressed the view that this programme also needs to be revaluated together with the knock on effect to the costs of Labour, Materials, Professional Fees and Sub Contractors.  Additionally SBC were only committed to purchase the building following the formal granting of Planning Permission together with other matters but the planning approval was the first financial major milestone.

Significantly, the confirmation of build cost & viability was shown in that programme as following both the determination of planning and the purchase of the building.

A concern that has only been increased by the total lack of pertinent and essential financial information being provided to this meeting today.

The Member concluded by requesting that Officers be instructed to prepare a full report with those up to date costings based on Indices to allow proper consideration by this Committee at a special meeting of this Committee.

The Director (NE) responded to the Member and his comments.  He reiterated it was his intention to bring the full costings back to this Committee. However, in terms of timescales, the Director (NE) added he wanted to bring back that report after the Planning Committee had met and made a decision on the matter. He also mentioned the conditions, legal obligations and the Council was in contract with Buccleuh Property (Scarborough) Limited.    

The Director (NE) provided clarity in the matter and that the building was currently owned by Buccleuh Property (Scarborough) Limited and the next stage was to await the planning committee’s determination of this matter.   The Council was legally bound to follow its contractual remit it had in this matter and were legally bound to follow the procedures that were in place.

Another Member asked a number of technical questions on the costs, interest rates quoted and the Public Works Loans Board (PWLB) as detailed in the confidential appendix to a report on this matter.   He also asked a question around "value engineering" and more efficient use of resources should that give us any cause for concern?  

The Director (NE) responded on the matters raised, some of the matters would be confirmed through due diligence and when the full costings come back to the Committee.

Other Members felt having heard from both the Deputy Monitoring Officer on legal aspects and the Director (NE) that the way forward in this matter would be to receive the full costings at the February, 2022 meeting of this Committee.

In response to another Member’s question, the Director (NE) responded regarding income, that it was an important part of the viability process and for a financial return to the Council. Would there also be a report to full Council if there were any circumstances beyond the £22m costs limit already agreed contractually? The Deputy Monitoring Officer confirmed if there was any such variation, a report would have to go back to Full Council.  

RESOLVED: that

(a)  Officers be requested to prepare a full report with those up to date costings based on Indices to allow proper consideration by this Committee at a special meeting of this Committee; and

(b)  a further report containing a full review of construction costs associated with the scheme be submitted to the February, 2022 meeting of this Committee for consideration at the viability condition stage.