Report to the Humber LEP Board, 10 July 2015 Report from Richard Kendall, Executive Director Strategic Policy & Business Development

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1 Growth Deal Report to the Humber LEP Board, 10 July 2015 Report from Richard Kendall, Executive Director Strategic Policy & Business Development 1. Summary 1.1. This paper updates the Board on progress in implementing the Growth Deal. 2. Recommendations 2.1. That the LEP Board notes the latest implementation summary Subject to the outcome of the Humber Leadership Board on 9 July, that the LEP Board ratifies the Humber Leadership Board s decisions to: Commit 13.32m of LGF funding to the Lincolnshire Lakes Flood Defences project, subject to written confirmation that North Lincolnshire Council will be responsible for any additional costs or cost overruns, and the outcome of the Environment Agency s decisions on reserved matters as per the outline planning permission, and request that the accountable body enters into a funding agreement with the project sponsor Commit 1.73m of LGF funding to the Humberside International Airport Surface Access Improvements Scheme, subject to the questions raised by the independent appraiser about the status of the contractor, costs and tender prices being addressed and request that the accountable body enters into a funding agreement with the project sponsor That the LEP Board approves the amended outputs for the Lincolnshire Lakes Flood Defences project and the timescale for delivering them. 3. Implementation summary 3.1. The latest implementation summary is included at Appendix Nine projects have moved forward in the approvals process since the last meeting, and a total of eight are now in delivery. The Albert Dock flood defences project is expected to complete shortly, and is likely to be one of the first LGF projects to do so in the country No new significant issues have been raised since the last meeting. The rail electrification and A63 bridge projects remain at risk because of external factors, however work is ongoing to mitigate these The Government s recent announcement that the Transpennine electrification scheme will be paused may have some effect on the Hull-Selby project. Officers from the LEP and Hull City Council are exploring the implications with First Group. It appears possible that the Hull-Selby project can now be completed before the Transpennine project potentially several years in advance. This may have some impact on the business case, and may require the Hull-Selby project to pick up some additional aspects of work where the two projects were expected to interface. The wider issues with Network Rail s capacity may also have implications for the resignalling work required to enable electrification, although this as well could potentially be added into the project. Separately, new European regulations on 1

2 m LGF interoperability have implications such as on the height of bridges, which may lead to cost increases. These again are being looked at by First Group and Amey, and a revised price will be presented shortly The project group has agreed to target the end of the year for approval of the project s business case by the Department for Transport, which would enable the LGF funding to be released and provide commitment to the scheme. It will be important for the LEP and Hull City Council to work with MPs and other stakeholders to maintain pressure on the Government to make a final commitment to the project The A63 bridge project will now be delivered independently of the main A63 scheme. Design work is progressing well and the scheme cost estimate is currently being revised. The Secretary of State will need to release the non-lgf funding for the scheme in order for it to go ahead The LEP Board is recommended to note the latest implementation summary. 4. Profile of LGF funding 4.1. At the last meeting the Board tasked the LEP Executive to produce, in consultation with project sponsors, a revised LGF profile for approval. This is to take into account the expansion of the programme announced in January, confirmation of the LEP s indicative profile in March and any changes since the programme began Under the terms of the Growth Deal, the LEP has a higher degree of flexibility over the management of the programme than most because The Humber has demonstrated strong partnership arrangements which deliver collective decisions, has articulated a clear and deliverable vision for growth in the area, and has established strong financial monitoring procedures and cross local authority collaboration The Board instructed the LEP Executive to use as its starting point for the profile the prioritisation of projects previously agreed by the Board, taking into account issues of deliverability and external dependencies As noted in the previous report, the sponsors of all new projects originally wished to commence LGF expenditure in 2016/17, which would take expenditure over budget by approximately 7m, but were aware of the situation and that a re-profile would be required. The following chart illustrates the variance: Indicative profile confirmed 25 Mar Total proposed project spend 4.5. Whilst it is necessary to push back some of the LGF expenditure, this does not necessarily prevent projects from starting as scheduled if they are able to use their own resources up front. 2

3 4.6. Discussions have been had with project sponsors in order to find the best way forward. As ever, the willingness of project sponsors to be flexible in order to support the optimum delivery of the programme across the Humber is welcome and should be noted The following points have been noted in discussion with project sponsors: Re-purposing the Old Town most elements required before 2017 for City of Culture year. A18 Melton Ross Railway Bridge strengthening/replacement a temporary solution has been agreed which will enable the current weight restriction to be removed for 3-4 years. This will give time to develop the permanent strengthening/replacement proposal. A1105 Anlaby Road/Park Street Bridge required before 2017 for City of Culture year and timing cannot overlap with Hull Fair. All other Round 2 projects can be ready to go from 2016/17 and sponsors would like them to receive LGF that year, but delaying the LGF funding if necessary would not put the projects at risk. Bridlington ITP Phase 2 project can accommodate moving approx 900k from 2015/16 to 2016/17 in order to help wider programme delivery. Hull-Selby electrification likely to request pushing all expenditure back by a year, but first year funding would require permission from Government. Other Round 1 projects with approved business cases remain on track to spend as profiled. A degree of risk remains with projects that have not yet submitted their business cases, however the first year expenditure on most of these is relatively low On the basis of discussions to date, and in particular the flexibility in the Bridlington ITP Phase 2 project, it appears possible to bring forward the A1105 Anlaby Road/Park Street Bridge scheme into 2015/16 as well as a small part (approx 260k out of 3m) of the Re-purposing the Old Town Scheme, with the remainder spread over 2016/17 and 2017/18. Subject to the outcome of discussions with the Hull- Selby electrification project and the Department for Transport over the next few weeks, it may be possible to start funding some of the other Round 2 projects in 2016/17. If that project s profile of expenditure remains as now, however, it is likely that most other Round 2 projects will not be able to access LGF funding until 2018/ The final profile will be brought back to the Board for approval. In the meantime, project sponsors will be asked to prepare their business cases where relevant so that their readiness can be tested and funding can quickly be confirmed. 5. Pipeline development 5.1. The Board agreed at the last meeting to commence the pipeline development process, with calls for specific types of capital project in support of the SEP objectives. The pipeline will provide candidates for future funding opportunities, 3

4 such as the next tranche of the Local Growth Fund, and for filling any gaps that emerge in the LEP s existing programme The three sub-boards were requested to set the scope of the individual calls relating to their remits, noting that these will be linked to the objectives in the SEP and follow the process set out in the Accountability and Assurance Framework The first call will cover skills, and the Employment and Skills Board agreed the scope of this on 18 June. The call will commence shortly, with an appropriate end date taking account of the school/college/university summer holidays. Other calls will follow in due course. 6. Project approval: Lincolnshire Lakes Flood Defences 6.1. Background The business case for the Lincolnshire Lakes Flood Defences scheme has been through several iterations. As with other LGF projects, the business case has been reviewed in this case twice by external consultants. The consultants last set of comments, which date from March, are at Appendix The LEP Executive and accountable body have worked with the project sponsor to find an appropriate way forward which enables the project to progress with the maximum degree of certainty possible, whilst ensuring that the Assurance Framework is followed and the accountable body meets its responsibilities to Government The Investment & Regulation Board has been kept informed throughout the process Supporting information Further supporting information was provided following the last set of consultants comments and a meeting between officers from the LEP Executive, North Lincolnshire Council, the Environment Agency and BIS Local. The key points are summarised below: Costs of land raising scheme/uncertainty over total costs Evidence has been provided by the project sponsor that the costs were estimated by URS consultants. The project sponsor has confirmed verbally that it will underwrite any increase in costs. This will be reflected in the funding agreement Uncertainty over feasibility of the engineering solution All technical and engineering aspects of the scheme will be subject to approval and sign off by the EA in their statutory role through the current planning system. Outline planning permissions are already in place for the scheme which contain attached conditions. These provide that the EA must be content that the scheme is sound from both an engineering and technical perspective Outputs The table below shows how outputs have changed between the two business case submissions (December and February). The independent assessor had questioned how realistic some of the outputs were in the first business case; it stated in its comments on the second business case that the direct jobs outputs were now in line with its expectations based on similar projects elsewhere, but it queried the evidence of demand for the commercial floorspace. The housing unit and flood alleviation outputs are unchanged. 4

5 Direct jobs (lasting 3 years or more) Commercial floorspace completed (m 2 ) 15 / / / / / / / / / / / 26 Total Dec ,120 Feb ,588 Dec 100, ,000 Feb 20,000 20,000 40, Whilst the jobs and commercial floorspace outputs have reduced in the revised business case and the timescale for delivering them has been extended, they remain in line with the range of outputs agreed with Government during the Growth Deal negotiation Conclusion The nature of the scheme is that some uncertainty over the costs and engineering solution are to be expected at this stage. These will be made more precise as a result of the first year feasibility/design work, which will be partfunded by the LGF contribution The project sponsor has requested a commitment to the full funding amount, accepting that there would be conditions attached, in order to give certainty to the private sector developers The confirmation that the project sponsor will meet any cost increases, and the fact that the Environment Agency must approve the final design proposal before it can be constructed, reduce the risk of committing the full amount at this stage The outputs, although changed, remain in line with those agreed with Government Recommendations Subject to the outcome of the Humber Leadership Board on 9 July, the LEP Board is recommended to ratify the Humber Leadership Board s decision to: Commit 13.32m of LGF funding to the Lincolnshire Lakes Flood Defences project, subject to written confirmation that North Lincolnshire Council will be responsible for any additional costs or cost overruns, and the outcome of the Environment Agency s decisions on reserved matters as per the outline planning permission, and request that the accountable body enters into a funding agreement with the project sponsor The LEP Board is also recommended to approve the amended outputs for the Lincolnshire Lakes Flood Defences project and the timescale for delivering them Accountable body comments 5

6 The accountable body is satisfied that the LEP s approach as outlined above is sufficient to reduce the risk of committing the full amount at this stage. 7. Project approval: Humberside International Airport Surface Access Improvements 7.1. The business case for the Humberside International Airport Surface Access Improvements Scheme has now undergone peer review and external assessment, and been recommended for approval by the Investment & Regulation Board. A summary of the appraisal and comments from the accountable body are provided in Appendix The independent appraisal raised some questions around the status and appointment of a contractor, costs and tender prices of the scheme. The accountable body noted that these will need to be addressed before a funding agreement can be entered into with the project sponsor This project is one of three which formed part of the former Humber Local Transport Body programme. The Humber LTB was responsible for selecting and prioritising projects for its allocation, which now comes under the LEP s wider Local Growth Fund programme Subject to the outcome of the Humber Leadership Board on 9 July, the LEP Board is recommended to ratify the Humber Leadership Board s decision to: Commit 1.73m of LGF funding to the Humberside International Airport Surface Access Improvements Scheme, subject to the questions raised by the independent appraiser about the status of the contractor, costs and tender prices being addressed and request that the accountable body enters into a funding agreement with the project sponsor. 6

7 Appendix 1: Growth Deal implementation summary July 2015 Scheme Grimsby Town Centre Infrastructure & Enabling Works Rail Electrification Hull to East Coast Main Line Connecting the City - Bridge over A63 at Hull Marina Growing the Humber+ Delivering Housing Growth in Hull CATCH Energy Offshore Goole College Skills Workshop Modernisation Environmental Logistics Learning Hub Hull and Holderness Flood Alleviation Scheme Anlaby and East Ella Flood Alleviation Scheme Cottingham and Orchard Park Flood Alleviation Scheme m LGF Business case 2015/16 Total submitted Subboard Approvals Funding agreement Delivery Project status LEP Final HLB Completed Started 2015/16 Overall Board issued Imminent A G A G Expected late 2015 Revised version expected late summer R R R R R R R R G G G G A G A G In discussion A G A G A G A G A G A G Expected Sep (LPRG Aug) Expected Sep (LPRG Aug) Expected Oct (LPRG Sep) A G A A A G A A A G A A 7

8 Scheme River Hull Integrated Catchment Strategy: Delivery Albert Dock Flood Alleviation Works Lincolnshire Lakes Flood Risk Strategy Bridlington ITP Phase 2 South Humber Rail Gauge Enhancement Humberside Airport Access Improvements m LGF Business 2015/16 Total case submitted Expected strategy adoption July Subboard Approvals Funding agreement Delivery Project status LEP Final HLB Completed Started 2015/16 Overall Board issued A G A A G G G G (at risk) A G A A A A A G G G G G (at risk) A G A G Note: Changes are highlighted in darker colours. Figures are rounded. Projects added in January 2015 expansion of Growth Deals Scheme m LGF Status Re-purposing the Old Town 3.00 A18 Melton Ross Railway Bridge 1.75 A161 Bridge Street cycle scheme, Goole 0.16 Skills maintenance programme 1.06 Stallingborough Interchange 1.00 Westcliff Regeneration Enterprise Hub 0.55 A1105 Anlaby Road Corridor/Park Street Bridge Strengthening 0.75 ERGO 1.00 Central Cleethorpes Regeneration Programme 1.00 Confirmation of timetable and funding profile expected following July 2015 LEP Board. Projects will be added to main tracker in the next update. 8

9 Appendix 2: Local Growth Fund Project Appraisals Lincolnshire Lakes Flood Defences Summary of consultants comments on the updated business case (March 2015) The consultants consider that the Business Case is more comprehensive than previously and addresses a number of the concerns highlighted by the consultants in their first review. However, the consultants advise that there remain outstanding concerns regarding: 1. Delivery: Supporting evidence sent to the consultants on March 2 nd indicates that a planning application (supported by an Environmental Assessment) has yet to be submitted for the Flood Mitigation Scheme. This adds to uncertainty. A solution may be the submission of an application in two stages (the first stage for design works; the second stage for implementation) 2. Costs: The consultants retain their concern about the cost of the land-raising scheme. Discrepancies in the documentation still remain (Appendix Eb and Business Case document), where there are conflicting remarks about where the land raising materials are to come from. 3. Economic Case: Overall, the consultants consider the quantum of floor space now being proposed is much more realistic than the previous figure and find the revised jobs target much more credible. However, whilst the revised figures for job totals are more reasonable, the consultants consider that from the perspective of the likely level of demand, further clarification in terms of the potential occupier demand for the commercial elements of the scheme is required. The consultants also consider that additional details on the composition of the 40,000 sqm of commercial floor space would be helpful. 4. Additionality The consultants acknowledge that the business case document now includes a discussion of additionality but suggest that it is possible that the various component parts of the commercial aspect of the development would have different levels of additionality associated with it. 5. Gross Value Added The consultants acknowledge that the business case document now provides a commitment to assess in due course the potential impact of the scheme on GVA. Clearly this review is unavailable at this stage and consequently further clarity on the approach that is proposed would be welcomed. 6. Phasing of outputs The consultants note the significantly lower level of annual output delivery (especially jobs) than was stated in information provided previously, however they would still like to see a more detailed explanation as to the assumptions that are being used. 7. Construction phase benefits The consultants believe that this aspect of the construction phase benefits is being undersold and that the person-years of construction employment seem to be significantly under-estimated. Consequently, provision of additional information is likely to strengthen the case for the project. 9

10 8. Evidence of Market Need The consultants consider that a significant weakness in the case presented so far is the lack of evidence to allay concern about the occupier demand for the commercial floor space (at the 10 ha hi-tech business park). It may be helpful if the applicant extends/ alters the mandate of any consultants they may have working on the residential components of the scheme, to advise on the market case for the commercial components of the scheme also. 10

11 Humberside International Airport - Surface Access Improvement Scheme The project is to improve highway access to Humberside International Airport to facilitate future development and expansion at the airport. The scheme will unlock 20 hectares of allocated employment land at the airport. The project will address poor connectivity of the airport to the strategic highway network at the A180/A18/M180 Barnetby Interchange. Whilst this is a relatively short section of highway, it is in need of improvement. This project will deliver the preferred option which includes: Replacement of the priority junction at Humberside Airport main access with a roundabout; Replacement of the priority junction at Barnetby Top with a roundabout; Widen Caistor Road. North Lincolnshire Council are funding the roundabout element, whilst the funding from the LEP will be used to fund the improvements at Barnetby Top and Caistor Road. The project was allocated 1.73m from the Local Growth Fund, with 1.632m coming from North Lincolnshire Council. Business Case Checklist Strategic Case Issue Description RAG Notes Business Strategy Problem identified Impact of not changing Internal drivers of change External drivers of change Objectives Measures for success Provide the context for the business case by describing the strategic aims and responsibilities of the organisation responsible for the proposal e.g. the Department, Highways England, Local Authority, Network Rail, etc. Describe the problem identified. What is the evidence base underpinning this? Is there justification for Government intervention? What is the impact of not changing? What is driving the need to change e.g. improved technology, new business/service development as result of policy? What is driving the need to change e.g. legislation, pressure from public/other government departments? Establish specific, measurable, achievable, realistic and time-bound objectives that will solve the problem identified. Ensure that they align with the organisation s strategic aims. Set out what constitutes successful delivery of the objectives. Description presented of NLC and their key priorities as well as the strategic objectives of the local authority that relate to the scheme. Three problems identified that the scheme will address Impact of not changing identified in terms of continued accidents problems and potential delays Scheme contributes to NLC delivering sites within Local Plan Humberside Airport is keen for the improvements to help develop the Airport area. Three objectives identified of which the first two are appropriate and measurable. The third relates to passenger volumes at the Airport. It is felt that this is a difficult objective to measure meaningfully as the growth of demand will be influenced by many external factors See above 11

12 Scope Constraints Interdependencies Stakeholders Options The Economic Case Introduction Options appraised Explain what the project will deliver and also what is out of scope. High level internal/external constraints e.g. technological environment, is there capability to deliver in-house, major contracts with provider, etc. Internal/external factors upon which the successful delivery of project are dependent. Outline the main stakeholder groups and their contribution to the project. Note any potential conflicts between different stakeholder groups and their demands. Set out all the options identified (including do nothing) and evaluate their impact on the proposal s objectives and wider public policy objectives. Risks associated with each option should be identified as should any risks common to all options. Outline approach to assessing value for money. A list of the options (set out in the strategic case) that have been appraised. Scope clearly identified No constraints are identified the scheme is conventional and well understood, and there appears to be capacity to deliver No interdependencies are identified however it is known that the scheme has to be planned around the Airport s peak seasons. Consultation with a range of stakeholders including Airport, Highways England, parish councils. Range of alternative options and reasons as to why they were inappropriate presented. Not presented in economic case, Only dealt with in strategic case. Only the main options has been assessed Sensitivity and Risk Profile Set out how changes in different variables affect the Net Present Value/Net Present Cost. The risk profile should show how likely it is that these changes will happen. Lack of clarity over risk profile. Financial case states that there is 30% risk included in the costs, however the economic case present the results of risk workshop with a risk of only 100k Sensitivity Tests Have appropriate sensitivity tests been applied? A number of sensitivity tests have been included Appraisal Summary See WebTAG for detailed guidance on producing the Completed Table Appraisal Summary Table. Value for Money See Value for Money guidance on producing the VfM Statement statement. Assumptions Are the assumptions on which the economic case is based sound? Not completed as a standalone section, however the element of the VfM statement are presented through the economic case. The Caistor Road part of the scheme delivers no quantified benefit. Assumptions appear to be appropriate. Trips from new flights have been spread across the full day which is a conservative assumption Data Are there any issues with the quality of data used in the Data used is appropriate modelling? Modelling Are there any issues with modelling carried out as part of Modelling is satisfactory the economic case? BCR Is the Benefit Cost Ratio above 2? BCR above 2 in all cases Optimism Bias Is the level of Optimism Bias appropriate? 3% Optimism Bias used correct level. The Financial Case 12

13 Introduction Costs Budgets/ cover Funding Accounting implications The Commercial Case Introduction Output based specification Procurement strategy Sourcing options Payment mechanisms Pricing framework and charging mechanisms Risk allocation and transfer Contract length Outline the approach taken to assess affordability Provide details of: - the expected whole life costs; - when they will occur; - breakdown and profile of costs by those parties on whom they fall; and - any risk allowance that may be needed (in the event of things going wrong). Provide analysis of the budget/funding cover for project. Set out if relevant, details of other funding sources (e.g. third party contributions, fees). Describe expected impact on organisation s balance sheet. Outline the approach taken to assess commercial viability. Summarise the requirement in terms of outlines and outputs, supplemented by full specification as annex. Detailed procurement/purchasing options including how they will secure the economic, social and environmental factors outlined in the economic case. Explain the options for sources of provision of services to meet the business need e.g. partnerships, framework, existing supplier arrangements, with rationale for selecting preferred sourcing option. Set out the proposed payment mechanisms that will be negotiated with the providers e.g. linked to performance and availability, providing incentives for alternative revenue streams (see the Office for Government Commerce s Achieving Excellence briefing for advice on payment mechanisms for construction projects). To include incentives, deductions and performance targets. Present an assessment of how the types of risk might be apportioned or shared, with risks allocated to the party best placed to manage them subject to achieving value for money. Set out scenarios for contract length (with rationale) and proposed key contractual clauses. Human resource Personnel/people management/trade union N/A The status of the costs as presented is unclear. It is unclear if the scheme costs are final tender prices or earlier estimates. This is complicated further as the costs are presented for 2014 rather than 2015 and it is known that part of the scheme is already being delivered on site. Split of costs between local authority and LEP presented There is need to identify if the completed scheme will be treated as an asset of NLC for accounting purposes The output based specification does not address outputs and no specification is provided. Description of procurement strategy via existing framework presented. Given scale of scheme this is likely to be most appropriate approach. Details of sourcing options within framework presented. Defined through framework agreement The approach to pricing to the pricing framework is satisfactory; however section 4.6 suggests that the contractor has not been appointed yet. As this is FBC this requires urgent clarification. See above Detail of contract length presented 13

14 issues Contract management The Management Case Introduction Evidence of similar projects Programme/project dependencies Governance, organisational structure and roles Programme/project plan implications, where applicable including TUPE regulations. Provide a high level view of implementation timescales. Detail additional support for in service management during roll out closure. Set out arrangements for managing contract through project/service delivery. Outline the approach taken to assess if the proposal is deliverable. If possible, provide evidence of similar projects that have been successful, to support the recommended project approach. If no similar projects are available for comparison, outline the basis of assumptions for delivery of this project e.g. comparison with industry averages for this kind of work. Set out deliverables and decisions that are provided/received from other projects Describe key roles, lines of accountability and how they are resourced. Plan with key milestones and progress, including critical path. Section present (Para 4.9) but no dates inserted. Evidence on similar scale project presented No dependencies with other projects. Concern that procurement continues until July 15 this is linked to issues over tender prices set out in financial case Governance structure set out fro NLC Project plan presented, but content suggests that tenders have not been returned yet suggesting that prices are still indicative Assurance and approvals plan Communications and stakeholder management Programme/Project reporting Implementation of work streams Key issues for implementation Contract management Risk strategy management Plan with key assurance and approval milestones. Develop communications strategy for the project. Describe reporting arrangements. Summary of key work streams for executing the work. Issues likely to affect delivery and implementation. Summarise outline arrangements. Confirm arrangements for continuity between those involved in developing the contract and those who will subsequently manage it. Arrangements for risk management and its effectiveness so far. Key milestones presented Given scale of scheme approach to communications appears appropriate Reporting arrangements presented Milestones presented and detailed project plan provided No specific issues identified but it is known that the Airport peak season impacts on construction phases. Outline arrangements presented, but a range of dates are missing (Section 5.10) Risk Management Strategy is very brief and refers entirely to risk register which is out of date. 14

15 Risk Register Is the risk register complete, up to date and appropriate? Last updated November 2014 requires updating as part of FBC. Benefits realisation Set out approach to managing realisation of benefits. Objectives and monitoring described plan Monitoring and Summarise outline arrangements for monitoring and Objectives and monitoring described evaluation evaluating the intervention. Contingency plan Summarise outline arrangements for contingency management such as fallback plans if service implementation is delayed. Options Summarise overall approach for project management at this stage of project. Contingency plan highlights the flexibility of the scheme, although whilst is noted that the programme could be delivered more quickly, there is little on what happens if funding is delayed. There is also little on what happens if delays occur during construction Accountable Body Comments The project was initially approved as part of the Local Transport Body process and has three elements that have been brought together in one cohesive scheme. Some of the economic outcomes will be subject to external influences and therefore it will be difficult to attribute some benefits to the scheme. The independent appraisal has raised some questions around the status and appointment of a contractor, costs and tender prices of the scheme; this needs to be addressed before the accountable body can enter into an agreement with the project sponsor. North Lincolnshire Council are the other funders of the scheme. 15