Report of the Deputy Chief Executive and City Treasurer.

This report provides members with a further update on the progress of the refurbishment and partial restoration of the Town Hall and Albert Square under the Our Town Hall (OTH) project since the last report to Resources and Governance Scrutiny Committee in October 2022.

The committee considered a report of the Deputy Chief Executive and City Treasurer which provided an update on the progress of the refurbishment and partial restoration of the Town Hall and Albert Square under the Our Town Hall (OTH) project.

Key points and themes within the report included:

·         Providing an introduction and background to the OTH project;

·         Providing an update on the operating model and social value;

·         Progress against key performance indicators (KPIs);

·         Challenges experienced since the Notice to Proceed (NTP);

·         The current financial position, noting that the project team had extensively sought opportunities to reduce cost pressures;

·         The programme end date would not be confirmed until January 2024 when the position would be clearer; and

·         The project was seeking additional funding of £29m to fund works until the end of December.

Key points and queries that arose from the committee’s discussions included:

·         What mechanisms were in place to ensure that higher costs were not a profit-making opportunity for contractors and suppliers;

·         Whether any of the challenges and discoveries, such as out-of-true lifts, could have been foreseen earlier in the project;

·         What the budget position would look like in January 2024;

·         Whether officers would still recommend the same level of borrowing for the project, given the current position;

·         The time at which officers became aware of delays, and how this was communicated to members and residents;

·         Whether there were any financial implications affecting Lend Lease;

·         If any cost mitigation measures were in place to reduce the need for additional funding;

·         The impact of rising interest rates;

·         How the building will be operated and when more information could be provided on this;

·         Whether there was any certainty on the completion date for the project; and

·         Whether a definitive completion date and final revenue budget would be available at the next update.

In opening the item, the Chair explained that he and some committee members had recently visited the Town Hall, which they found useful and were impressed by the enthusiasm of officers working on the project.

The Statutory Deputy Leader stated that the Council had a duty to preserve the Town Hall for future generations as a symbol of democracy and civic pride and that the House of Commons Restoration Team recently visited the site.

The Project Director stated that this was the largest heritage project in the country and acknowledged that this posed unique challenges.

In response to a query regarding what mechanisms were in place to ensure that higher costs were not a profit-making opportunity for contractors and suppliers, the Project Director stated that this was traditionally undertaken through competitive tension, which ensured a supply chain that was motivated and had capacity to undertake work. He noted, however, that there was a reduced appetite within the supply chain since the Covid-19 pandemic due to perception of risk and staff shortages. Members were advised that a significant number of tenders had withdrawn toward the end of the tender process, which reduced the competitive tension and meant that some contracts had to be awarded to the most expensive tender.

The Project Director explained that problems with lifts were unknown prior to works beginning and required major engineering exercises. He explained that a contingency plan had been developed and broken down by individual packages to identify the appropriate levels of risk in design, procurement and buying, construction and discovery.

The Deputy Chief Executive and City Treasurer highlighted that the last report to the committee predicted a budget increase of £17m to address emerging pressures. She stated that there had been a concentrated period of work and officers were near to fully understanding the challenges posed by the building. She reiterated the commitment to keeping members and the public informed on progress.

In response to a query regarding whether officers would still recommend the same level of borrowing for the project, given the current position, the Deputy Chief Executive and City Treasurer stated that the Council created a significant reserve to address the capital financing costs of both Our Town Hall and Factory International. She also explained that prior to the project, two floors in the Town Hall were out of use and there were issues with stonework and heating, and that key considerations had been taken into account.

The Project Director explained that there was a significant contingency of £49m at Notice to Proceed stage and the risks of discovery were recognised. He stated, however, that the Council could not have foreseen the impacts of hyperinflation, market pressures, redesign and delay claims. He advised that the project team had been working hard since Notice to Proceed (NTP) to mitigate overrun costs and programme.

With regards to a query around the financial implications affecting Lend Lease, members were advised that the Council’s contract with Lend Lease governed how they would be rewarded and how they must perform. It was stated that the Council was currently in receipt of delay claims amounting to £25m and some of these claims had been submitted by Lend Lease. These would be assessed and would be awarded if found to meet the contractual terms.

The Deputy Chief Executive and City Treasurer also expressed the Council’s commitment for the Town Hall to be open and accessible to residents and the wider public, highlighting the Visitor Centre that would form part of the building. She stated that work was underway to develop a large Civic Quarter and further information would be provided as part of the budget process for 2024/25. Members were also advised that officers were examining the costs of running the estate to ensure sustainability in the future.

The Project Director explained that the biggest risk currently facing the project was further delay. He stated that there was still £10m-worth of works packages to procure, which would remove inflationary risk to procurement by the end of 2023. There remained risks around discovery and having to reorder materials at higher prices.

In response to a question on interest rates, it was explained that high interest rates had implications for the Council’s borrowing costs but it was stated that the Council did not borrow for individual projects but to meet the overall capital cash flow requirements. Significant work had been undertaken to examine the impact of this for future capital programmes but the financing reserve for the Our Town Hall project to meet financing charges was sufficient to cover interest rate increases and to not increase pressure on the revenue budget.

The Chair expressed his hope that there would be a definitive cost and completion date for the project at the next update to the committee in early 2024, to which the Project Director explained that the hiatus of risk would have passed by then which could provide a clearer position.

Decision:

That the committee

1.    notes the progress made, and

2.    endorses the recommendation to the Executive.