North Yorkshire Council
Executive
13 May 2025
A59 Kex Gill Highway Diversion
Update
Report of the Corporate Director of
Environment
Appendix A to
this report contains exempt information as defined in paragraph 3
of Part 1 of Schedule 12A to the Local Government Act 1972 as
amended by the Local Government (Access to Information)(Variation)
Order 2006
1.0 PURPOSE
OF REPORT
1.1
To provide a contractual update on
the A59 Kex Gill highway diversion works in progress.
1.2
To request increased budget for the
project along with a further risk contingency budget.
2.0
SUMMARY
2.1 The A59
project has been in construction delivery since February 2023 when
mobilisation commenced; now just over halfway complete, substantial
progress has been made, while also experiencing issues leading to
an emerging outturn forecast estimated to be above the original
risk contingency allocation. This report sets out that while works have
continued in terms of the construction, compensation events have
arisen which increase the cost of the project. The key reasons
being:
§
Late contract entry due to delayed
Full Business Case by grant funding body
§
a fundamental change in the design
from a Piling to an Earthworks solution,
§
the completion of watercourse design
to meet environmental regulations and
§
substantial areas of poor ground
being encountered that cannot be incorporated into the finished
works requiring export off site and conversely filling with
suitable imported classification materials.
2.2 These
issues are leading to claims for Compensation Events (CEs) for
extra over works under the contract. To ensure sufficient budget is
available along with project risk contingency, increased Council
sourced match funding is required following additional grant
support avenues being declined by the Department for Transport
(DfT). To ensure validated CEs are funded within contractually
determined timeframes, thus de-risking Council exposure to further
claims, approval is requested for additional funding, to ensure
necessary additional works continue uninterrupted on site in
parallel with original scope and are commercially financially
covered.
3.0
BACKGROUND
3.1
The
A59 is a key trans-Pennine highway corridor, subject to a long
history of land instability and slippage above and below the
A59’s southern flank, to the west of Blubberhouses at Kex
Gill. Short to medium term management measures are continually
being undertaken which has remediated 15 landslides in the last two
decades at a cost of c£6m.The latest event was over the 2025
New Year period when the A59 was closed for five weeks while
engineering repairs were enacted; the third such closure
necessitated during the live capital project works in progress.
Significantly the previous landslip and closure in the first half
of 2024 cost in the region of £2.8m to repair.
In this respect there is an ongoing
risk of further costs being incurred to keep the existing A59 open
until it its closed permanently when this section of highway is
diverted to the new road. Without the capital works there would be
a significant risk to the Council if the existing A59 was sought to
be remediated for in perpetuity, including the risk of high value
injury accident claims, which could exceed direct works costs
should a landslip be the reason.
3.2 The works represent
the largest capital highway project ever undertaken by the former
County Council (NYCC) and now North Yorkshire Council (NYC). It
comprises a 4km highway diversion to the northern (stable) side of
Kex Gill valley, a 27.8 hectare working site,12 new structures
including two underpasses, walls and culverts, 4km new bridleways,
7km of dry stone walling works, 9km of new drainage, two new
surface water outfall reservoirs, diversion of Hall Beck, 12km of
utility diversions, c370,000m3 of earthworks excavated,
the permanent closure of existing A59 reverting back to moorland
along works parallel length and planting of c12,000 new
trees/shrubs on completion and a new wetland habitat.
3.3
The
project gained entry to the Department of Transport (DfT) Major
Roads Network (MRN) Programme in February 2021 and following return
of construction tenders NYCC Executive on 19 July 2022 resolved:
The award of the procurement to the successful tenderer be
approved, subject to receipt of the DfT funding and statutory
processes being completed, including the full financial assessment
of the preferred bidder. Executive approved a funding allocation of
£12.7m from the Council.
3.4 On 02 February 2023
the Full Business Case (FBC) was approved by DfT with a grant award
of £56.1m, completing the necessary funding source approvals
to enable continuation into main construction delivery, however of
note this approval was over three months later than
anticipated.
3.5
The project was the first nationwide
to gain DfT FBC approval from within their wider £1.4billion
MRN portfolio and the first to commence works on site. This
achievement at the time attracted significant publicity for the
Council when the project was formally confirmed by TV media
coverage of a Ministerial visit in February 2023 to announce the
award.
3.6
Executive Members meeting for
Highways and Transportation on 21 December 2022 under delegation
conferred by Executive (19 July 2022) approved a report which
recognised the delayed DfT FBC approvals and to mitigate against
programme interruption proceed with expenditure of Council match
funding at risk until the full grant funding award was confirmed.
This early match was recouped and to date no Council match funding
has been utilised, with call off on NYC allocation not forecast
until 2026/27 when the grant funding is exhausted.
3.7
Following a procurement exercise the Council awarded an
Advance Works contract on 20 October 2022 and subsequent main works
construction contract to the successful tenderer:
JJohn Sisk & Son (Holdings) Ltd, a tier one contractor
in the UK/Ireland and European Civil Engineering markets on 16 June
2023. The same contractor had delivered significant highway works
recently for Leeds City Council/West Yorkshire Combined Authority
and is currently engaged upon York Central and Station gateway
development establishing a large portfolio regionally.
3.8
Progress on site has been positive and delayed start aside,
is largely to the updated programme with the main structures
visible from A59 roadside complete to divert the beck, introduce
bridleway underpasses and retain the hillside adjacent new road
alignment at top of valley. New bridleway paths are near complete
with c5km of new drystone walling, drainage outfall holding ponds
complete and major earthworks cut and fill operation along the full
length is reaching a position where subgrade profiling is complete;
this season’s activity will focus upon above ground surface
layer works, new embankments, utility diversions and highway
subbase.
4.0 DETAIL
OF THE ISSUES SUBSTANTIATING THIS REQUEST
4.1 The
construction works are being enacted via industry standard New
Engineering Contract (NEC) three, Engineering and Construction
Contract (ECC) Option A, which is lump sum priced based upon
completed activities of work. This cost buildup at tender was
across 27 individually priced activities, contained in the
Department for Transport (DFT) Manual of Contract Documents for
Highway Works (MCHW). While the project is priced as an all-in lump
sum including an inflation risk, the Contractor can via a
Compensation Event (CE) process seek additional payment for
contractor’s extra time and/or costs for dealing with
unexpected changes. This also applies to the Consultant support
engaged upon the project, who via their Professional Services
Contract can seek recompense for costs above the original scope of
commission or duration.
4.2
An NEC programme plays a crucial role in project
management within the context of the NEC three ECC form of
contract, and the primary aim of an Accepted Programme is to
encourage effective project management by ensuring that all parties
involved understand their responsibilities and deadlines. It also
facilitates the timely assessment of CEs (such as extensions of
time) during the project. At tender the submitted programme was for
a duration of 113 weeks commencing in January 2023 culminating in a
March 2025 new highway opening followed by phase 2 decommissioning
existing A59/Landscaping of the works up to November 2025. The
current accepted contract programme moves the new road opening to
June 2026 and a completion of the Phase two works in March
2027.
4.3 An
increased programme duration on site in turn increases the works
costs, underwritten by the Preliminary Item cost incurred by the
contractor establishment overheads due weekly; in this case at
tender the original duration overhead was for the 113 weeks only,
meaning programme prolongation will increase whole contract cost,
as a baseline position before pricing the actual increased
additional applicable direct works. The project baseline funding
profile contained a risk allocation of £6.390m to capture
increased costs from both Contractor and Consultant. In early April
2025 as the contract neared its halfway point this risk reserve had
been expended against validated CEs to almost the full allocation
amount, leaving the project without continued contingency float to
mitigate against ongoing CE derived change.
4.4
Under the contract, CEs have
specified response periods, with several in the CE register
requiring responses in April and May 2025. Given the urgent nature
of these contract events and risk to the Council conferred by
non-responses, a Delegated Decision report for urgent top up
funding was raised for consideration by the Corporate Director of
Resources on 16 April 2025. This action was in line with approval
at Executive 20 August 2024 to draw down on the Capital Supply
Chain Reserve delegated to the Corporate Director of Resources, in
consultation with the Assistant Chief Executive Legal and
Democratic Services and the Executive Member for Finance. This
action released increased funding of £2m to address timely
expedient CEs of an estimated £1.3m, whilst also providing an
ongoing float of risk monies of an estimated £700k as a
working contingency. A wider outlook determines a further increase
in budget is required above the delegated advance noted, to fund
pending large value CEs; these details are contained in the
commercially confidential Appendix A, along with estimated future
costs that could potentially be incurred.
4.5 The
agreed and pending CEs are drawing upon the risk allocation at a
higher and quicker rate than originally envisaged and can be
divided into four categories: contract change; statutory
obligations; ground conditions; and design change. Furthermore,
this is leading to increased consultancy support required both in
resource intensity and increased durations implicating a higher
forecast spend on consultancy support.
4.6
Compensation Events have arisen due to the following
reasons:
·
Contract Change:
The first CE was associated with the
late confirmed funding award from DfT following a delay to Full
Business Case approval. An Advanced Works contract had to be
entered into to ensure key seasonal activities were undertaken
ensuring a full year’s delay did not occur, but planned
programme disruption was still experienced with the late start
affecting planned earthworks timetable and therefore resulting in
additional costs.
·
Statutory Obligation:
this related to Hall Beck water
course redesign following a requirement to comply with Planning
Conditions and Environment Agency notices.
·
Ground Conditions:
Poor ground has been encountered in
several locations across the site, which has required removal and
replacement with load bearing material. To mitigate this
unpredictable risk against potential high contractor's pricing in
the tender, poor ground is an Employer’s risk.
·
Design Change:
Throughout the construction
programme, the design has continued to be developed and optimised
against changing conditions on site, ensuring robust high quality
and adaptable engineering. Significantly the design has changed
from a piled solution to an earth-reinforced embankments
solution.
4.7 To date
a total of £6.439m has
been paid in Compensation Events and these can be categorised in
Table 1 below as follows:
Table 1
|
Category
|
Amount
|
|
Earthworks
|
£1.728m
|
|
Design
Change
|
£2.080m
|
|
Contract
Change/Award Delay
|
£2.463m
|
|
Smaller
Compensation Events (various)
|
£0.168m
|
|
Total
|
£6.439m
|
4.8
The project still has a main works
programme duration of 14 months to run under a sectional completion
phase, targeting new road opening in late June 2026, followed by a
final completion phase to extinguish the existing affected A59 and
carry out landscaping through to March 2027. During this period
further CEs may come to the fore from both Contractor and
Consultants, thus increased funding of £11.7m is sought to
fund known current CEs in the validation process which includes
£1.5m for additional costs from the Council’s design and
management consultant due to the prolongation of the scheme
programme; and an additional contingency allowance for potential
pending CEs forecast as the scheme continues is also outlined in
Appendix A. This increased funding would be in addition to the
£2m already released from the Capital Supply Chain Reserve and
discussed in section 4.4 to address urgent CEs. Appendix A contains
commercially sensitive information to inform this forecast
outturn.
5.0
CONSULTATION UNDERTAKEN AND RESPONSES
5.1
Consultation has been undertaken
with the Department for Transport across two letter correspondences
dated 19 January 2024 and 28 May 2024; a request for additional
grant funding support was declined by Guy Opperman MP the former
Minister for Roads and Local Transport in both instances reasoning
‘As the Kex Gill scheme is currently under construction we
consider that the local authority has already clearly demonstrated
that is able to secure the funds required and meet the cost risk,
as part of the overall costs of the scheme and in addition to the
department’s substantial financial
contribution’.
5.2 The
project position has been reported to the Corporate Management
Board, Council Kex Gill Project Board, Highways and Infrastructure
Capital Board and Corporate Capital Programme Board, prior to the
preparation of this report to Executive.
6.0
CONTRIBUTION TO COUNCIL PRIORITIES
6.1
Whilst short to medium term management measures are
continually being undertaken, the Council recognises that in the
longer term there was a need to develop proposals for a permanent
solution. This requires a major realignment of the route. As such,
improvements to the A59 at Kex Gill are identified within the
Council’s Local Transport Plan and Strategic Transport
Prospectus.
6.2
The
project features in the Council Plan 2024 – 2028 and on page
6 contains both a narrative and photograph highlighting it as a
Council priority project. Of the 5 key visions and ambitions the
project supports Place and Environment ‘a well-connected and
planned place with good transport links and Economy ‘new and
existing business can thrive and grow’. This key East / West
route’s road closures due to land slippage create journey
unreliability, while highway safety is a key factor, resilience is
also to the fore as, an A59 diversion implicates a 20-mile cross
county meander into the Yorkshire Dales network or neighboring
Authorities’ towns Otley / Ilkley, all of which add
considerable journey time disruption.
7.0
ALTERNATIVE OPTIONS CONSIDERED
7.1 There
are no alternative options as the additional costs
associated with any validated
CEs are due to the contractor
under the terms of the contract.
8.0 IMPACT
ON OTHER SERVICES/ORGANISATIONS
8.1 Over the
duration of the works the A59 has been closed three times due to
land slips; between February and June 2024 and the latest 5 weeks
across New Year 2025. During the longer closure of February
to June 2024, some local businesses made claims for business rates
reductions to the Valuation Office. The recent road closure
highlighted premium collaborative working required between Comms
& media, Highway Operations Area team and the Major Projects
Capital team to co-ordinate remedial and closure/diversion
efforts.
9.0
FINANCIAL IMPLICATIONS
9.1 The
total agreed budget for the project is £68.8m with £56.1m
of this being funded by grant from the DfT and the remaining
£12.7m being funded from Council reserves.
9.2
The A59 Kex Gill Road Scheme project
has been in delivery since February 2023 when site clearance
commenced. In the intervening time, progress has been made on the
ground, while in parallel we are continuing to experience increased
commercial positioning from the contractor and consultant partners
as set out in the confidential appendix E to the Q1 Capital Report
to Executive of 20 August 2024. This report highlighted that this
development led to an outturn forecast in excess of the agreed
budget. In order to ensure project continuity through to
completion, in light of DfT declining to increase grant support,
additional Council funding was required. The report of 20 August
2024 granted delegated approval to the Corporate Director
Resources, in consultation with the Assistant Chief Executive Legal
and Democratic Services and the Executive Member for Finance to
draw down on the totality of the Supply Chain Reserve to fund cost
overruns on this scheme. This delegation was utilised on 16 April
2025 in a report to the Corporate Director Resources which
approved release of additional
urgent project funding of £2m in line with the delegation of
the Executive meeting, 20 August 2024 from the Capital Supply Chain
Reserve in order to agree contractual time-critical compensation
event costs estimated at £1.3m, along with estimated
contingency funding of £700k ahead of this report being
prepared for the Executive meeting on 13 May 2025.
9.3 The
original project budget contained a risk allocation of £6.390m
to fund the increased costs resulting from CEs from both Contractor
and Consultant. As of 16 April 2025, £6k of this budget
remained and it was necessary for this to be increased via a
delegated decision of the Corporate Director, Resources as set out
above. The agreed compensation events to date total £6.439m
and can be divided into categories as follows:
Table 2
|
Category
|
Amount
|
|
Earthworks
|
£1.728m
|
|
Design
change
|
£2.080m
|
|
Contract
change
|
£2.463m
|
|
Various smaller
CEs
|
£0.168m
|
|
Total
|
£6.439m
|
9.4
In addition to the list above, the
time critical compensation events due in April prior to the
consideration of this report, that required the urgent funding,
totalled an estimated £1.3m. This funding was approved as part
of the delegated decision report of 16 April 2025.
9.5
Following on from the urgent decision, additional funding is now
required to provide financial cover for:
·
Necessary changes and improvements
to the design and the associated construction costs
·
To accommodate the additional work
associated with increased areas of poor ground encountered on site
and exporting material off site, not originally covered.
·
Contractual commercial cover
necessary to progress the project, keep to DfT timescales and
ensure the approved programme’s critical path is maintained
in cognisance of Environmental / seasonal constraints mitigating
impact on planned completion dates.
·
To keep a contingency float, against
risk register for CEs towards works completion.
9.6 The
estimated total of the additional CE costs which need to be agreed
is £10.2m (in addition to the £2m already agreed in the
urgent decision report). There are also additional costs being
incurred by the Council’s design and management consultant on
the project. It is therefore proposed that a contingency budget of
£1.5m is established in relation to these costs.
9.7 This
report sets out in Appendix A the detail of the Compensation Event
(CEs) costs incurred on the scheme to date, the breakdown of the
estimated value of the further CEs which need to be agreed (total -
£10.2m), the rationale for the additional costs that are being
incurred, the details of the increased consultants costs
(£1.5m) along with an estimate of the additional budget
required for the remainder of this year. This gives a forecast of
the total budget required as a live update while acknowledging the
outturn project costs will continue to be refined as the works
progress.
9.8
A large proportion of the
implemented CEs are due to programme delays at works mobilisation
and compliance with statutory obligations. However, pending
CEs are principally due to design change that has taken place
following the commencement of the scheme. More work is still needed
to understand the nature of all the costs, including the total
amount that should be sought to be met by the contractor as a
contractor risk or by the designer as a design risk. A latent risk
also remains that unknown future additional CEs may also require
further project funding support as the works progress on site if
any further significant engineering problems are encountered or
there are delays due to elements for which the council carries the
risk such as weather delays.
9.9
In summary, at this stage, in
addition to the £2.0m released from the Capital Supply Chain
Reserve in April 2025, additional funding of £11.7m is
required to fund the implementation of CEs above the existing risk
contingency and additional consultant costs to enable the works
programme to continue along with the establishment of a risk
contingency as set out in Appendix A. However, a latent risk
remains that currently unknown future CEs may necessitate further
project funding support as the works progress on site if any more
significant engineering problems are encountered.
9.10 Further requests for financial support cannot
therefore be ruled out at this stage.
10.0 LEGAL
IMPLICATIONS
10.1 NYC entered an NEC3
ECC Option A contract for the A59 Kex Gill project, under which
Compensation Events can be submitted by the Contractor. The
Compensation Events detailed in this reports Appendix A have been
assessed by the project team under the provisions of the
contract.
11.0 EQUALITIES
IMPLICATIONS
11.1 Consideration has
been given to the potential for any adverse equalities impacts
arising from the recommendations of this report. It is the view of
officers that the recommendations included in this report do not
have an adverse impact on any of the protected characteristics
identified in the Equalities Act 2010. However, it is worth noting
that a full Equalities Impact Assessment has been carried out as
part of the scheme development and planning application. A copy of
the EIA is attached in Appendix B.
12.0 CLIMATE CHANGE
IMPLICATIONS
12.1 There are no
climate change issues arising from this report; however, it should
be noted the projects strategic focus of diverting the highway away
from climate perpetuated landslides mitigates against future
climate impact on this principal highway corridor.
A copy of the initial assessment is
attached in Appendix C.
13.0 RISK MANAGEMENT
IMPLICATIONS
13.1 Section 4 above
covers in detail the risk management implications which are the
rationale for the report’s recommendations.
14.0 HUMAN RESOURCES
IMPLICATIONS
14.1 An increase in
staffing resource is required to facilitate the escalating
contractual demand and works prolongation, to be managed by
consultant outreach and internal Major Project team
attention.
15.0 ICT
IMPLICATIONS
15.1 The contract
utilises a NEC project management software called CEMAR, (Contract
Event Management and Reporting) which is licenced for the duration
of the works and is the portal for all formal communication. The
increased works duration implies a longer licence period
requirement and cost increase.
16.0 COMMUNITY SAFETY
IMPLICATIONS
16.1 The project seeks
to improve highway safety by delivering safe passage through the
Kex Gill valley on this high Pennine pass, against a catalogue of
landslides and a poor accident record including
fatalities.
17.0
CONCLUSIONS
17.1 Project continuity is at risk due to commercial
pressure being experienced with works delivery; in this respect the
baseline risk monies allowance is now insufficient to contain cost
increases and therefore consideration is being sought towards
increasing the Council's capital allocation, following DfT
declining to increase grant funding support.
18.0
REASONS FOR
RECOMMENDATIONS
18.1 The Council has
entered contract under NEC 3 ECC terms which allows risk to be
apportioned between the signatures. Delayed start, Statutory
obligations, ground conditions and design change on site have
contributed to costs escalating beyond the risk attributed to the
project at time of tender. Although that risk has now occurred in
several instances the Employer will only pay for the actual cost to
remedy. It would have been much more expensive should the
Contractor have priced for this risk at time of tender. Although
various mitigating solutions have been examined the route that
offers best value is considered to be a continuation of the
contract in its current form, while applying the necessary
contractual resourcing as required and completion of the scheme in
the shortest time. Given the project is essentially half built,
continuing through to completion predominates requiring an
increased budget to ensure additional costs arising from the
project can be funded.
|
19.0
19.1
|
RECOMMENDATIONS
It is recommended
that Members of Executive:
|
|
|
i)
note the contractual position being
experienced in delivery of the A59 Kex Gill highway
diversion:
ii)
approve release of additional
project budget from the Capital Supply Chain Reserve totalling
£11.7m, plus an allowance for a further risk contingency
funding as described in confidential appendix A and delegate
release of the risk contingency from the Capital Supply Chain
reserve to the Corporate Director of Resources in consultation with
Corporate Director of Environment and the Assistant Chief Executive
Legal and Democratic Services.
|
|
|
|
APPENDICES:
Appendix A
– Commercial sensitive information - confidential
Appendix B
– Equality Impact Assessment(s)
Appendix C
– Climate Impact Assessment(s)
BACKGROUND DOCUMENTS
A59 Kex Gill
Executive Committee report 19 July 2022
A59 Kex Gill
Executive Committee report 21 December 2022
A59 Kex Gill
Executive Members report 28 February 2023
A59 Kex Gill
Full Business Case 8 Sept 2022
A59 kex Gill
Advance works contract 20 Oct 2022
A59 Kex Gill
Main works contract 16 June 2023
A59 Kex Gill
DfT Quarterly returns
A59 Kex Gill
DfT letter correspondence 19 Jan 2024/28 May 2024
A59 Kex Gill
Delegated Decision Report Corporate Director of Resources 16 April
2025
Corporate
Director – Karl Battersby
County
Hall
Northallerton
2 May
2025
Report Author
– Richard Binks – Head of Major Projects and
Infrastructure
Presenter of
Report – Richard Binks – Head of Major Projects and
Infrastructure
