The report of the Strategic Director (Development) and the City Treasurer is enclosed

In July 2015 support was given to the creation of The Factory, the new arts centre in the city (Minute Exe/15/091). Since then a number of subsequent reports had provided updates on the progress of the project and recommended decisions on external grants, design changes, capital budget increases and related property transitions (Minutes Exe/17/102, Exe/18/043, Exe/18/046, Exe/18/059). Funding for the capital works had been agreed as part of the Council’s budget setting in February and March 2018 (Minutes Exe/18/020 and CC/17/22).

A joint report submitted by the Strategic Director (Development) and the City Treasurer explained the progress made with the project. It explained that the detailed design and costings work for the building had now been carried out and the construction costs were now much more certain than they had been when the first estimates were provided in 2015. The overall likely cost of the project had increased to £130.6M, including risk management contingencies. The main reasons for the increase in the projected cost of the construction were set out in the report. The report also described the steps that had been taken to lessen the costs. Options for a smaller or less ambitious building had been investigated and rejected as unfeasible or very poor value. Any significant change in the plans for the building was likely to result in the loss of the Government and Art Council funding, which would make the whole project fail and force the Council to meet the substantial cancellation costs alone.

The report therefore proposed an increase in the Council capital budget for the programme of £18.97M, to be funded by capital receipts from the sale of assets. At a recent meeting the Resources and Governance Scrutiny Committee had also considered this report. That committee had expressed a desire for the increase in the capital budget to be met from prudential borrowing rather than from capital receipts from the sale of assets (Minute RGSC/18/58). The Committee’s views on the source of the funds was considered and supported, subject to the City Treasurer managing the overall resourcing of the capital budget in a way that provides best value to the Council.

With the project constituting a significant investment of public funds, representatives of the government funders continued to maintain oversight in order to review the project’s progress. Part of that was annual in-depth ‘Gateway Reviews’ to provide further assurance over the project’s implementation and management.  The next Gateway review was to take place between 19 and 21 November 2018. The intention was for that review to provide the necessary assurance for the construction work to get underway.

The work done so far was set out in the report. Progress had been made with the land transitions to assemble the whole site. Site clearance and related pre-construction works were underway to allow the project to commence as soon as possible once the overall funding was in place. Further capital costs of £1.286M had been incurred to acquire both the 999-year lease from the Science and Industry Museum and the freehold interests from Manchester Quays Limited (an Allied London Company). The report recommended that a Capital Budget virement be authorised to provide for those additional costs, and that was supported.

In May 2018 approval was given to provide a loan of £5.1M to Manchester Quays Riverside Limited on market terms, in order to acquire the Riverside site from Castlefield Properties (an ITV subsidiary) (Minute Exe/18/059). Part of the loan was repayable in 2018/19. The balance of £4.3M was repayable on the first anniversary after completion of the Factory or on 10 August 2023, whichever was the sooner. The report therefore recommend a virement of £4.3M from the Sustaining Key Initiatives Capital Budget to cover the balance of the loan. When the balance of the loan was repaid that budget would have the funds returned to it. That proposal was supported.

The report explained that the negotiations in respect of Notice to Proceed were expected to conclude within the next few weeks. That was the formal contractual mechanism which would confirm the commitment to deliver the major construction works. At that point the Management Contractor could be authorised to enter into contracts for the Work Packages to begin construction.

In looking at the future use of the venue as the base for the Manchester International Festival (MIF), the report set out how a year-round engagement programme would be part of MIF19 and would then focus on The Factory, helping to build a community of interest leading up its opening. Once the venue was up and running that programme of significant interactions would continue. The social benefits of both the construction project and of The Factory as a major international arts venue were also detailed.

It was agreed that The Factory is going to accelerate economic growth in the region by playing an integral part in helping Manchester and the North of England enhance and diversify its cultural infrastructure. It will also make a direct contribution to the growth of creative industries, and improve talent retention in the North. The project was now at the point of committing to major construction in early 2019 subject to all the funding being supported by Government and the Council.

Decisions

1.         To note progress with the delivery of The Factory, including preparation for the issuing of the Notice to Proceed, which will commence the process to deliver the major construction works; and a significant programme of social value commitments.

2.         To recommend to the Council to approve a Capital Budget increase of £18.97M, funded by prudential borrowing subject the requirement for the City Treasurer to manage the overall resourcing of the capital budget in a way that provides best value to the Council. This will increase the total capital budget for the construction of The Factory from £111.65M to £130.62M.

3.         To recommend to the Council a Capital Budget virement from the Strategic Acquisitions Capital Budget of £1.286M, to cover additional land assembly costs, associated with the acquisition of and securing timely access to the Factory site.

4.         To recommend to the Council a Capital Budget virement of £4.3M from the Sustaining Key Initiatives Capital Budget for the loan facility to Manchester Quays Riverside Limited, on commercial terms.

5.         To note that the above recommendation on the loan facility will accommodate the changes to the structure of the loan that was agreed in May 2018 (Minute Exe/18/059) meaning that £4.3m will be repaid after the construction project has completed. The virement will be for the period until the loan is repaid in the form of a capital receipt which will be ringfenced to the Sustaining Key initiatives budget. As such this is a timing issue and not an increase in the cost of the project.

6.         To note the progress made by Manchester International Festival to prepare the organisation to operate The Factory, including recruitment, business planning, artistic programme development and social value benefits, in the lead up to MIF19.

7.         To note the intention to make the next formal submission of the updated business plan to Arts Council England in December 2019.

8.         To note progress in the development of employment, training and education opportunities and creative engagement programmes as part of The Factory’s skills development programme.