Report of the Deputy Chief Executive and City Treasurer attached

The Executive considered a report of the Deputy Chief Executive and City Treasurer and Strategic Director (Growth and Development), which provided an update on progress with the delivery of The Factory Arts Centre, progress with the redevelopment of St John’s and the preparations for the opening of the building.

The Deputy Leader (Statutory) reported on the delivery of Factory International to date, the wider economic, cultural and social benefits to Manchester that the project would bring to Manchester and the significant programme of social value commitments that had been delivered so far.

It was noted that the external environment had remained and continued to be extremely challenging, particularly with the conflict in Ukraine which had disrupted the supply chain and contributed to unprecedented levels of inflation. The shortages in the labour market have also had an impact as well and Covid-19 restrictions had also remained for the construction industry throughout the whole period, which had continued to impact on productivity.

Consequently, in order to ensure that the project could complete to programme and to mitigate any other unforeseen discovery issues, a programme of acceleration works would be required which necessitated an additional budget requirement to £25.2m, funded by £10m from the Council’s capital scheme inflation provision which was already included in the Capital Budget and £15.2m to be underwritten from borrowing.

In addition the Council was requested to underwrite the £7.8m increased costs of the fit out of Factory International from capital receipts to provide the vital equipment required for the venue to successfully open and operate. This revised of Furniture, Fixtures and Equipment (FFE) budget included an appropriate level of contingency and would be paid to Manchester International Festival (MIF) as a grant that would be drawn down at appropriate intervals, as costs were incurred. 

The Deputy Chief Executive and City Treasurer assured Members that the above could be contained within the existing revenue budget for capital financing and was within the planned and authorised borrowing limit for the Council.  It was also highlighted that the value engineering and strive targets had been exceeded, contributing £2.1m back to the Factory International budget.  The project team can also demonstrate a further £5m of cost mitigation or avoidance.

The Chief Executive assured the Executive that the project had been very tightly managed, and going forward from this point, there would be the most senior officer oversight from herself and partners to absolutely ensure the project remained within the financial envelope set out.

Councillor Leech, whilst acknowledging that the impact of COVID and the increase in inflation could not have been foreseen, expressed concern that the project had suffered from financial mismanagement, noting that the Council’s contribution to the project had increased from an original budget of £114m to over £200m and felt that the project had not been managed as tightly as it could have been.  He proposed that the Executive should not agree to recommendations relating to the underwriting of the fit out of Factory International until a clear breakdown was provided on what the money was to be spent on.

Decisions

The Executive:-

(1)          Note progress with the delivery of Factory International, the wider economic, cultural and social benefits to Manchester and the significant programme of social value commitments.

(2)          Recommend to Council to approve a Capital Budget increase for Factory International of £25.2m funded by:

·           £10m from the Council’s capital scheme inflation provision

·           £15.2m to be met from borrowing

This will increase the total capital budget for the construction of Factory International from £185.6m to £210.8m

(3)          Recommend to Council to underwrite the £7.8m increased costs of Furniture, Fixtures and Equipment (FFE) of Factory International from capital receipts and note that the venue will not be able to operate without this investment to enable the equipment to be in place.

(4)          Agree the funding for Furniture, Fixtures and Equipment (FFE) is to be paid to Manchester International Festival (MIF) as a grant that will be drawn down as costs are incurred.  £500k of which will be retained as a contingency to cover any further unforeseen costs.

(5)          Note the long-term relationship with Factory International and the ability to recover a significant proportion of the borrowing costs from naming rights income.

(6)          Note the progress made by MIF to prepare the organisation to operate Factory International, including recruitment, business planning, artistic programme development and social value benefits, in the lead up to MIF23.

(7)          Note progress in the development of employment, training and education opportunities and creative engagement programmes as part of Factory International’s skills development programme.