Agenda item

            The Committee considered the undernoted report:

 

“1.0  Purpose of report

 

1.1    Members will be aware that there are a range of projects under the Investment Programme which are subject to EU funding via either ERDF or Peace III.  It was agreed last month that a report on these projects and the potential implications for the Council is brought to Committee in September.  Members will appreciate that this is a detailed report given the complexity of these issues, however it should also be noted that the situation in relation to these projects continues to evolve and Members will be verbally updated at Committee on any related developments.

 

2.0    Relevant Background Information

 

2.1    7 projects are subject to EU funding - the £29.5m Waterfront Exhibition and Conference facility; the £430k Adventurers Learning Centre at the Zoo; the £1.86m relocation of the Visit Belfast Centre; the £9.1m Innovation Centre; the £4.1m Creative Hub and the £8m infrastructure at the North Foreshore which are funded via ERDF and managed via Invest NI/NITB and the £9.7m Girdwood Community Hub which is Peace III funded and managed via SEUPB. Together these 7 projects account for approximately £44million in external funding.

 

2.2    As EU funded projects these are all subject to an immovable deadline of 31st Dec 2015 for expenditure meaning that all monies have to be committed and spent by this date.  The Council is required to self-finance the full cost of any expenditure post this date.  There are two key issues arising in relation to these projects which present a serious financial and reputational risk for the Council which Members now need to consider.  

 

1.     Ongoing delay in letters of offer (LOOs) for projects being received– we are now just over 15months from the 31st Dec deadline however final LOOs are still outstanding for the Innovation Centre and the Creative Hub.  The implications of these ongoing delays are outlined in Section 3 and Members direction is sought over the next steps in relation to these projects. 

 

2.     Grant claims and lack of flexibility over spend profiles - Correspondence has also been received from the sponsoring organisations in relation to holding the Council to the spend profiles submitted as part of the application process.  The implications of this are outlined in Section 4. 

 

2.5    Members will appreciate that the Council has put significant resources into assuring that these projects are delivered within the tight timescales however the cumulative impact of the above issues now needs to be looked at a programme level. Discussions have been ongoing between the Chief Executive/Directors and senior officials in the DFP, DETI and the managing authorities and the urgency of these issues have been highlighted. Some key progress has been made however all the outstanding issues have not yet been resolved.

 

3.0    Key Issues

 

         Ongoing delays in receiving letters of offer

 

3.1    Final LOOs still have not been received for the Innovation Centre, the Creative Hub and the North Foreshore, however, there has been significant movement in the last few days. The ongoing delay in receiving these not only has a major impact in terms of deliverability but also on the financial viability of projects. Members will also be aware that construction projects by their very nature are difficult as any number of unforeseeable situations can arise which have a consequential impact on the programme. Given the ongoing delays Council officers have now carried out an in-depth analysis of these projects including their current status, their deliverability and their financial risk to the Council. An overview of this analysis is presented below. 

 

         Creative Hub – Current status and key issues

 

3.2    The refurbishment of a property located at 19-21 Donegall Street to support the city’s creative and digital media industry

 

         Appraisal and approval process

 

-       The application for the Creative Hub was submitted 16months ago in September 2013.  A detailed chronology for the Innovation Centre has been circulated.

 

-       There have been a number of iterations of the supporting business case in response to queries from the appraiser. In August 2014 INI summarised three options to Council. i) proceed with the information submitted to date in anticipation of a negative economic appraisal ii) supply further information to strengthen the economic merit of the project iii) withdraw the application and seek programme support from ERDF in the next programme.

 

-       Option ii was agreed and a further 4 pages of queries were received from the appraiser which were submitted on 24th September

 

-       The appraisal process is estimated to be 6/8 weeks from receipt of the supplementary information –i.e. end of November with the earliest provisional estimated date for the LOO being mid December (Original Programme was based on 7th July LOO date).

 

         Property

 

-       This project requires the acquisition of a building and the Council has already delayed this twice while a LOO is awaited.  There is a risk that the property will not be available to the Council by the time a letter of offer is received on the terms is previously agreed.

 

         Design Team Appointment and Contractor Procurement

 

-       The construction programme for the Creative Hub is estimated at 9 months however as the Council has not yet acquired the building it has not yet been able to carry out a full condition survey - therefore there are still many unknowns which could have an impact on the programme.

 

-       Procurement of the design team has concluded subject to receipt of funding.  The design team appointment is a staged work programme with break clauses and staged payments so the option does exist to proceed with this on a stage by stage basis. Members are therefore asked to agree to appoint the design team at risk to progress this project subject to a satisfactory outcome with the proposed meeting with Invest NI.

 

         General

 

-       Members are asked to note that the SP&R have approved that up to £150k can be spent at risk on this project.  To date expenditure has been very low however given the level of risk now associated with this project it is recommended that any further expenditure is progressed with caution as all expenditure incurred is at risk.

 

         Innovation Centre – Current status and key issues

 

3.3    A 55,000sq ft capital build with 35,000sq ft net lettable space located off the Springfield Road.

 

         Appraisal and approval process

 

         The application for the Innovation Centre was submitted 20 months ago in February 2013.

 

         The Council understands that this project was positively appraised at the end of June by the InvestNI board and was forwarded to DFP for sign off and a LOO was originally anticipated in July. It is understood that a letter of offer for this project is imminent 

 

         Construction Programme

 

         The construction programme for the Innovation Centre shows a 16 month design and build programme – it should be noted that this assumes that there will be no unforeseeable delays.   It is therefore essential that the LOO is received as soon as possible in order for the construction to begin.

 

         Planning permission was submitted in April 2014 and the project is being considered a large scale investment with an estimated assessment timeframe of approximately 6 months.  Permission has not yet been granted and discussions with the planners have indicated that there a number of issues to be resolved including technical issues over the use classification, although these are not considered to be insurmountable.

 

         The tenders for the Innovation Centre have been appraised and the Council is in a position to award this work however this cannot be done until a LOO is received and planning etc is in place.

 

         Procurement of an Operator 

 

         It is envisaged that an operator will be appointed to run the Innovation Centre on behalf of the Council. It will be Sept/Oct 2015 before this is in place. Members will be aware that they agreed last month that £130k be set aside to progress this procurement and for sales and marketing for the Centre. Further financial modelling work is underway on the ongoing implications for the Council in terms of revenue costs.

 

         North Foreshore

 

3.4    The development of infrastructure to support a green economy business park. This  project will act as a catalyst in terms of unlocking the potential of the wider site and therefore can be viewed as an ‘invest to save’ project .

 

         Approval Process 

 

-       A draft LOO for up to a maximum of £6m for this project was received by the Council on 22nd September – this is still subject to Invest NI management and solicitors advice before a formal LOO can be forwarded.  Invest NI have highlighted that they are working hard to expedite this process and it is anticipated that the final LOO will be forwarded week commencing 1st October. The Council will have 3 months to respond to this LOO.

 

         Letter of offer issues

 

-       There are a number of issues in relation to the LOO (charges on land and procurement potentially requiring the use of CPD) however none of these are considered to be insurmountable.

 

-       The LOO indicates that future amendments to the expenditure categories can be made with the agreement of Council & Invest NI (as long as the changes do not exceed the Total Grant).  

 

         Construction Programme

 

-       The construction programme shows a 12 month build programme and assumes a start date of March 2015 – it should be noted that there are a number of critical inter-dependences which have to be met before this including surveys and planning permission.   On this draft programme the project would not be completed until the end of March – i.e. 3 months past the eligible expenditure date.  The Council is working closely with the integrated design team to look at ways that this programme can be expedited and Members will be kept up to date in relation to this.

 

3.5    The Committee is asked to note the delays with these projects and that further reports will be put before them in the near future.  Should the letters of offer not be forthcoming in the near future or should other risks escalate, then it may be necessary for the Council to considering withdrawing one or more ERDF applications.

 

         Key Issues

 

4.0    Grant conditions and lack of flexibility 

 

4.1    Members will be aware that LOOs are already in place for the Girdwood and the new Adventurers Learning Centre at the Zoo where construction has already commenced and for the Waterfront where the enabling works have recently been completed. As part of the application process each project is required to submit an expenditure profile. As outlined above, correspondence has recently been received from the sponsoring organisations (NITB and SEUPB) in relation to holding the Council to the original spend profiles submitted for these projects which presents a risk in terms of grant recovery.

 

4.2    In terms of both the Waterfront and the Zoo the correspondence highlights that the Council needs to adhere to October spend profile dates. The Council understands that the October deadline is for budgeting purposes only and has been set by the managing authorities in relation to internal management of ERDF funding which is particularly acute given the financial pressures within the NI Executive. Legal Services have reviewed the LOOs and there is no reference or implication in these in relation to this October profile. The Council has been in intensive discussions with the NITB in terms of the Waterfront and Zoo projects and SEUPB in terms of Girdwood where the Council is being requested to adhere to the spend profile for 14/15 to ensure the risks around the spend profiles for these projects are minimised.  Updated profiles have been submitted for all these projects.

 

         Waterfront Exhibition & Conference Facility

 

4.3    Members are asked to note that planning permission has now been granted and the construction notice has  been issued to McLaughlin & Harvey which allows them to commence work on site. As outlined about the Council is aware, via the NITB, that the projected spend profile does present a financial risk but NITB have stressed their commitment to working with the Council and the contractor over the next couple of weeks to mitigate this risk. 

 

5.0    Recommendations

 

5.1    Members are asked to note the contents of this report and 

-       agree to a cross party meeting with Invest NI to resolve the issues around the Creative Hub.

-       agree to appoint the design team at risk to progress this project subject to a satisfactory outcome with the proposed meeting with Invest NI.

-       agree that the Innovation Centre, the North Foreshore and the Creative Hub projects are kept under review and that an update is taken to Committee next month.

-       note that the insistence that the Council adheres to outdated expenditure profiles and targets is seriously impacting on both the deliverability and financial viability of some projects.

-       as these issues are subject to change, agree to further reports on progress being presented to committee at regular intervals.”

 

            The Committee adopted the recommendations.