9 th March LGF Capital Programme Approvals. This paper includes approvals for projects which have progressed through the Appraisal Framework.

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1 9 th March 2018 LGF Capital Programme Approvals Purpose of Report This paper includes approvals for projects which have progressed through the Appraisal Framework. Thematic Priority Secure investment in infrastructure where it will do most to support growth. Freedom of Information and Schedule 12A of the Local Government Act 1972 Under the Freedom of Information Act this paper and any appendices will be made available under the Combined Authority Publication Scheme. This scheme commits the Authority to make information about how decisions are made available to the public as part of its normal business activities. Recommendations 1) Project Approval. SCR CA are asked to consider and approve one Housing Fund project, Former Park Gardeners Club, to full approval and award of contract at a cost of 0.517m subject to the conditions set out in the appraisal panel summary table attached at Appendix A. 2) Project Changes: SCR CA are asked to consider and approve six projects requesting changes as set out in Appendix B. The BIF project is requesting acceleration in 2017/18 of 0.708m and in 2018/19 of 8.678m expenditure. STEP PTE ( m), STEP SCC ( ) and Disadvantaged Learner Pilot (- 1.5m) are de-committing expenditure. The Skills Capital Fund requests slippage of 1.072m from 2018/19. The Housing Fund spend profile increase by 1.880m re-instate the full 10m Housing Fund budget which was previously approved. The Knowledge Gateway project is reporting an update to the contracting / payment basis from a loan (which converts to grant) to an outcome based contract in line with other such approvals. 3) Housing Fund SCR CA are asked to note the membership of the Sheffield City Region Housing Investment Board as set out in Section 2.3 and Appendix C 4) Update on the Open Call. The appraisal of the 53 applications has completed. We are awaiting confirmation of the outturn position for 17/18 and annual spend targets from DCLG for 18/19 prior to making recommendations regarding progression of the schemes. 5) The CA are also asked to consider and approve delegated authority to Head of Paid Service and Section 73 Officer in conjunction with the chair of the CA to maximise the outturn spend position at year end to mitigate against any potential loss of funding. The CA will be informed when these delegated approvals take place. 6) Consider and approve delegated Authority to the Head of Paid of Service, in conjunction with the S73 Officer, to enter into contractual arrangements required as a result of the above approvals. 1. Introduction 1.1 The SCR Assurance Framework requires that all schemes seeking investment undergo a thorough and proportionate scheme appraisal following the Treasury Green Book approach. Prior to consideration by the CA, the schemes have been through a process of technical appraisal and consideration by a Panel of Officers representing the SCR Statutory Officers

2 culminating in the recommendations presented for approval. These findings will inform the s73 Officers view regarding the Value for Money Statement and the Monitoring Officers view regarding the relative risks of the scheme presented. The LGF Programme as reported to the January2018 meeting of the CA is profiled to underspend in 2017/18 by 10.8m. Leaders are reminded however that the allocation from government to SCR was 8.8m greater than SCR had in its approved programme for 17/18 spend. The overall effect of the changes proposed in this paper is to slightly improve 2017/18 proposed underspend by 0.980m to 9.78m. This underspend equates to an underspend of 11.3% of the 2017/18 LGF allocation. When compared to the indicative allocation used to set the budget in March 2017 it equates to an underspend of just 1.2%. The LGF budget and effect of the changes proposed in this approvals paper is summarised in the diagram shown in Appendix D and is further explained in Paper Proposal and justification 2.1 Project Approval Former Park Gardeners Club Support from the SCR CA will unlock the delivery of 38 new affordable homes for rent on the site of the Former Park Gardeners Club, with the first new homes available for occupation by Summer 2019.This is the first scheme supported by the SCR Pilot Housing Fund representing a major milestone for the Combined Authority, with this funding recommendation made less than 6 months after the launch of SCR s own Housing Fund. The Full Business Case for this scheme (a summary of which can be found at Appendix A) has been appraised in line with MHCLG s (Ministry for Housing, Communities and Local Government) guidance, as well as tested against the agreed principles which guide the operation of the SCR Housing Fund. The project is considered to deliver high value for money with a BCR of 6.1 and NPV of 2.6m As set out at Appendix C, and in line with the delegations in place from the CA, funding decisions in relation to the SCR Housing Fund would ordinarily be made by the SCR Housing Investment Board (HIB). However, the HIB is yet to be formally established. Its membership was agreed at the Housing and Infrastructure Executive Board meeting on 9th February 2018, with the meeting of the 9th March 2018 being the first opportunity to notify the Combined Authority of this. It is anticipated that future funding decisions will be considered by the HIB in line with the delegations agreed by the CA at its meeting on 30th October The Full Business Case has been progressed at pace and therefore it is presented for consideration by the CA in order to ensure a timely decision which will assist to mitigate the risks detailed in the Appraisal Panel Summary in Appendix A. 2.2 Project Changes Six projects have reported Q4 movement or decommitment of expenditure, with one project providing clarification on the method of contracting / payment: The BIF (Business Investment Fund) Programme requests 0.708m to be reprofiled into 2017/18 and 8.679m into 2018/19 from future years of the Programme. The BIF Programme has a very strong pipeline of projects and there is capacity in the LGF Programme during 2018/19 to incorporate the BIF funding. The STEP PTE project is reporting 0.224m of underspend and the STEP SCC project (on behalf of all SY LA) is reporting underspend of 1.383m in 2017/18. This funding will be returned to the LGF Programme, final value of the underspend will be confirmed at 2017/18 outturn. Disadvantaged Learner Pilot, whilst approved by Government, MHCLG are advising that they are now unable to provide the funding as revenue for SCR CA to deliver this scheme. Albeit the government had already approved the business case submitted. This proposes

3 to reduce the full allocation of 1.5m, with 0.750m removed from years 2017/18 and 2018/19. Skills Capital Fund requests slippage of 1.072m from 2018/19 to 2019/20 to allow sufficient time for business cases to be developed. Housing Fund- On the 22 nd March 2017 the SCR CA agreed to the establishment of a Housing Fund at a cost of up to 10m. At the 12 th June CA meeting, it was reported that the 2016/17 allocation would be 8.1m to match the available budget at outturn in 2016/17. The Housing Fund has an active pipeline with project value of 17.9m. On the basis of the schemes which are available in the pipeline and the underspend position of the LGF Programme the SCR CA is requested to reinstate the Housing Fund approved allocation of 10m. Knowledge Gateway project was approved at the 30 th of October 2017 CA meeting. Its approval was on the basis of a loan which converts to grant as the works are completed and the outcomes created. Whilst the approval and conditions remain the same, for the purpose of clarity the project will receive an upfront grant payment which will be clawed back if outcomes are not achieved, this is referred to as an outcome based contract. SCR CA are asked to consider and approve the six change requests presented above. In addition to these changes slippage has been reported from seven projects which will result in further slippage of around 11m from 2018/19 to future years. These changes will be brought at a future CA meeting for a decision once further information is understood on possible carry forward of the 2017/18 underspend position into future years and the 2018/19 MHCLG expenditure target. Therefore, the 11m changes have been incorporated within the CA Capital Programme paper (Paper 12) and are presented in Appendix B and D, but are not included here at this time for a change decision. 2.3 Housing Investment Board Membership At the meeting on 30th October 2017 the SCR Combined Authority approved the decisionmaking arrangements for the SCR Pilot Housing Fund, noting that the membership of the Housing Investment Board (previously referred to as the Housing Advisory Board) would be reported to a future meeting of the Combined Authority. Following discussion at the SCR Housing and Infrastructure Board on 9th February 2018, the Combined Authority is asked to note the agreed membership of the Housing Investment Board as set out in Appendix C. 2.4 Update on the Open Call 2.5 The appraisal of the 53 strategic outline business case applications has completed. Confirmation of the outturn position for 17/18 and notification of annual spend targets from MHCLG for 2018/19 are awaited prior to making recommendations regarding progression of the specific schemes. Delegated Authority Leaders will recall that at the end of 2016/17 financial year the SCR property fund was created which utilised the Financial Intervention Holding Company (FIHC), a special purpose vehicle, to support the financial arrangements of such a fund. The FIHC remains in operation and can be utilised to further support the financial arrangements of Investment Funds where a commitment to invest has been agreed from the current programme. This approach is complementary to the use of outcome based contracts but where the CA seek to retain full oversight of the funding. As we approach the end of the financial year it is important that work continues towards reaching the financial expenditure targets. In this respect, the CA are asked to approve delegated authority to Head of Paid Service and Section 73 Officer in conjunction with the chair of the CA to maximise the outturn spend position at year end to mitigate against any potential loss of funding. The CA will be informed when these delegated approvals take place.

4 3. Consideration of alternative approaches 3.1 For the open call consideration has been given to progressing projects in advance of notification of the 2018/19 expenditure target and possible MHCLG rollover of the 2017/18 target. However, uncertainty around next year s target and potential for an over-commitment position during 2019/20 due to existing pipeline projects further slippage indicates it will be prudent to wait until April to be able to make better informed funding decisions. 4. Implications 4.1 Financial The overall effects of these changes on the LGF Programme is a 0.981m reduction on the anticipated underspend in 2017/18. Work continues to accelerate further expenditure to reduce the 2017/18 underspend position. All projects are developed through a rigorous Assurance Framework and the financial implications of each project have been fully considered by a representative of the s73 officer and included in the recommendations agreed by the Appraisal Panel as presented in the supporting information. 4.2 Legal The legal implications of each project have been fully considered by a representative of the Monitoring Officer and included in the recommendations agreed by the Appraisal Panel as presented in the supporting information. 4.3 Risk Management Risk management is a key requirement for each of the submissions and is incorporated into the business case submissions. Where weaknesses have been identified in the Business Cases in terms of risk management, further work to capture and mitigate these risks is included as suggested conditions in the appraisal panel summary sheets. 4.4 Equality, Diversity and Social Inclusion The principles of equality, diversity and social inclusion are built into the application process and continue to be considered and addressed by all applications. 5. Communications 5.1 The approval of the business cases presents an opportunity for positive communications; officers from the SCR Executive Team will work with the relevant local authority officers on joint communications activity. 6. Appendices/Annexes Appendix A Former Park Gardeners Club Appraisal Panel Summary Report Appendix B Project Changes Summary Appendix C Housing Investment Board Appendix D Summary of LGF position REPORT AUTHOR Carl Howard POST Senior Programme Manager Officer responsible Ruth Adams, Deputy Managing Director Organisation Sheffield City Region Combined Authority Ruth.adams@sheffieldcityregion.org.uk Telephone Background papers used in the preparation of this report are available for inspection at: 11 Broad Street West, Sheffield S1 2BQ Other sources and references:

5 Appendix A Former Park Gardeners Club Appraisal Panel Summary Report Scheme Details Appraisal Panel Summary Recommendations / Conditions SCR Board Project Name Scheme Promoter SCR Funding Total Scheme Cost Housing Investment Board Former Park Gardener s Club The Guinness Partnership Ltd 517,060 4,580,165 Strategic Case Value for Money Risk State Aid The Guinness Partnership Ltd (TGPL) provides affordable rented homes to people who are not able to buy their own properties or who can t afford to rent on the open market. The site is in an established residential neighbourhood, and close to the city centre, train station and tram stop, with excellent vehicular links. This project will therefore provide 38 affordable and accessible homes. This project has a BCR of 6.1 and a NPV of 2.6m and therefore delivers high value for money. Tender expires 27/01/18 and contractor has option to increase price before SCR funding is secured. This is being mitigated by close liaison between Employer s Agent and Contractor. The FBC asserts that the development is for 100% social [affordable] housing. Therefore, the sponsor explains that the grant would be exempt from State Aid as a SGEI project. Funding Approval Requested Grant Award Grant Recipient Payment Basis LGF Full approval and award of funding 517,060 The Guinness Partnership Ltd Grant

6 % SCR allocation 11% Delivery The contract will incorporate monthly valuations. TGPL commission Employers Agents to manage and sign-off monthly valuations. The EA will regularly inspect the works and negotiate monthly valuations with the contractor. TGPL s own Clerks of Works will regularly inspect/monitor progress and quality. The CoW will also be involved in the monthly valuation discussion. TGPL s Project Delivery Manager will manage the works, monitor progress and liaise with the Employers Agent to arrange payments. If additional costs are encountered the project team will look to make savings elsewhere. In the unlikely event that cost overruns occur, they will be funded by TGPL. Claw Back Clauses Clawback on outputs TGPL s in-house development team successfully delivered 2,731 new homes over the past 3 years.

7 Description The scheme is a new build development of 38 general needs flats for affordable rent. HCA (now Homes England) funding was secured from the 2015/18 Affordable Housing Programme and work commenced on site in 2016/17. However, works stalled on site in March 2017 after Demolition Contractors discovered unforeseen underground structures and ground conditions under the Park Sports Bar, rendering the scheme financially unviable due to increased costs. Conditions of Award 1. That any unspent contingency funds are returned to SCR CA. 2. Clause that use of the asset should remain as set out in the business plan for a 10 year period after completion of the project. To minimise the impact of the adverse ground conditions, the scheme has been redesigned, value engineered and retendered. Total costs have increased since original approval by TGPL s Board and are now 119% above the scheme value, exceeding TGPL s acceptance criteria of 100% cost/value ratio. Without additional funding the scheme cannot proceed. SCR funding is being sought to offset the increase in scheme costs, which will enable the scheme to recommence and new homes to be delivered.

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9 Appendix B Project Changes Summary

10 Appendix C Housing Investment Board At the meeting on 30 th October 2017 the SCR Combined Authority approved delegation to a newly established Housing Investment Board (HIB) for schemes requesting funds below 2m 1. This delegated Board will enable funding decisions to be made in a timely way, whilst ensuring detailed scheme scrutiny is carried out. As this Board will be a decision-making Board responsible for Local Growth Funds, the national guidance for Local Enterprise Partnership decision making boards apply and business will be carried out in accordance with the SCR Combined Authority Publication Scheme, namely: All key decisions to be published at least 28 days in advance via the Combined Authority Forward Plan; All papers must be published 5 working days in advance; Minutes must be published on the appropriate website within 10 working days after the meeting; All members must provide a register of interest and this must be updated at each meeting; In addition, prior to the consideration by the HIB, Full Business Case documentation for all schemes seeking investment will be reviewed and recommended to the HIB by SCR Statutory Officers. All decisions made by the HIB will be reported to the Housing and Infrastructure Executive Board and the Combined Authority meeting(s) following the decision via the delegated approvals report. At its meeting on 9 th February 2018 the Housing and Infrastructure Executive Board agreed the following membership for the HIB Lead Local Authority Chief Executive for Housing (Huw Bowen, Chesterfield BC) Lead Combined Authority Member for Housing (Mayor Jones, Doncaster MBC) Lead Local Enterprise Partnership Board Members for Housing (Martin McKervey and Owen Michaelson) A delegate of the Combined Authority s Chief Financial Officer (Mike Thomas, Senior Finance Manager, SCR Combined Authority) A representative from Homes England (Rob Pearson, General Manager for North East and Yorkshire and the Humber) Background Papers SCR Combined Authority Meeting 30 th October 2017: Item 14 - Programme Approvals Sheffield-City-Region-Combined-Authority.pdf 1 Any schemes requesting funds of more than 2m will require approval from the Combined Authority.

11 Appendix D LGF Overall Programme Position LGF Capital Programme (19/02/2018) m m m m m m m 2015/ / / / / / Corporate Skills BIF Transport Infrastructure and Housing Current Total CA Approved (Jan 2018) LGF Funding Available