Manchester City Council

Agenda item

Agenda item

Capital Budget

Report of the Deputy Chief Executive and City Treasurer attached

 

This report informs on the progress against the delivery of the 2020/21 capital programme to the end of August 2020.; the revised capital budget 2020/21 taking account of changes between the approved capital budget and any further changes occurring in year; the latest forecast of capital expenditure and the major variances since the Capital Budget Review and Programme Monitoring 2020/21 report submitted to the Executive in July 2020 and the impact any variations may have on the capital programme for the period 2020/21 to 2024/5.

Minutes:

The Committee considered a report of the Deputy Chief Executive and City Treasurer, that informed Members on the progress against the delivery of the 2020/21 capital programme to the end of August 2020.; the revised capital budget 2020/21 taking account of changes between the approved capital budget and any further changes occurring in year; the latest forecast of capital expenditure and the major variances since the Capital Budget Review and Programme Monitoring 2020/21 report submitted to the Executive in July 2020 and the impact any variations may have on the capital programme for the period 2020/21 to 2024/5.

 

The key points and themes in the report included:-

 

·                The latest forecast of expenditure for 2020/21 for the Council was £435.9m compared to the current revised budget of £485m;

·                Spend as at 31 August 2020 was £169.9m;

·                A summary of each part of the programme, providing details on the major projects, which included a summary of the financial position, and as a result any changes to the budget that were required, which included:-

·           The Highways Planned Maintenance Programme;

·           The Factory

·           Hammerstone Road project

·           Our Town Hall Project

·           Housing Schemes funded through the Disabled Facilities Grant; and

·           The Special Educational Needs (SEN) Education Basic Needs (EBN) programme;

·                The forecast was subject to continual review by the programme leads to establish whether the forecast remained achievable; and

·                Whilst the intention was for the Council to progress the programme as stated, some projects and their sources of funding may require re-profiling into future years, particularly in light of the uncertainty regarding activity during the COVID-19 pandemic.

 

The report was to be considered by the Executive at its meeting on 14 October 2020

 

Some of the key points that arose from the Committees discussion were:-

 

·                Even though multiple requests had been made, the report still lacked detail of the original budget allocation for the capital programmes and without this it was difficult to scrutinise how much it was actually costing to deliver a number of these programmes;

·                There was no mention within the report of inflationary pressures against the capital programmes

·                Concern was raised that there was a risk that inevitable, covid related cost pressures obscured cost increases on projects where the cost to deliver these programmes had been increasing prior to COVID;

·                Was there any opportunity to accelerate some of the planned works under the Highways Maintenance Programme to counter act the increase in costs to deliver the schemes;

·                Due to the Social Value requirements of seeking to employ local contractors to work on the capital programmes, there was concern that this might result in local contractors increasing their prices as they were not being required to compete as strongly with contractors who were not local to Manchester or Greater Manchester;

·                There was disbelief as to how the Council had ended up with such significant overspends on a  number of capital programmes and it was asked what steps were being taken to place the onus of responsibility on the contractor for the delivery of these programmes on time and within the agreed budget;

·                Did the Council ever plan for the impact of a pandemic when determining the budgets for capital programmes;

·                There was concern that there was no reference to Brexit in the report and it was felt that as this was foreseeable what steps were being taken to take account of the impact this will have on the capital a programmes, contractors and the supply chain;

·                Was there any targets set within the SEN provisions;

·                What was the overall spend to date, including purchase cost, for Central Retail Park;

·                Members were very concerned about the spiralling increase in cost to the Council in delivering The Factory project;

·                There was concern around the ability to deliver other capital programmes due to the significant increase in funding required to deliver the Factory, especially other programmes within the culture sector of the economy;

·                There was a real concern that there was no budget allocation for safety improvements  around schools past the current financial year;

·                It was suggested the that Ethical Procurement and Contract Management Sub Group should be re-established to monitor the progress of delivering capital programmes within the agreed budgets and deliver the required social value.

 

The Leader advised that it was only when inflation led to an overspend position on capital programmes that it was reported.  Each scheme had a level of contingency built in to take account of the potential impact of inflation.  He also acknowledged that the rate of inflation and delays in projects had an impact on each project being delivered on time and within budget.  The Chair suggested that it might be helpful in future reports to separate out the increase in cost due to the impact of COVID and the general impact of inflation.

 

The Leader acknowledged that whilst it might be cheaper to deliver programmes now rather than in the future, the problem of fast tracking highways maintenance programmes was due to the capacity within the industry to deliver these projects.  The Director of Capital Programmes added that bringing forward more schemes could cause disruption in the supply chain for contractors.  It was confirmed that for large budget capital programmes, the Council was bound to follow procurement rules and geography could not be used as a major determinant as to whether a tender was awarded.

 

The Deputy City Treasurer explained how the capital budget operated, in so much as that although the overall budget was agreed at Full Council in May, it moved in accordance with the checkpoint process of each capital programme.  She added that although risks such as a pandemic were foreseeable, it was the likelihood of such risks occurring that had to be taken into account when determining the budgets for each programme, so as not to over price a project.  The Director of Capital Programmes commented that risk analysis was undertaken on all construction projects to identify those foreseeable known risks and where and when these occurred lessons were learnt.  What was difficult to anticipate was unknown risks, such as those associated ground investigation works.

 

The Deputy Chief Executive and City Treasurer clarified that a large piece of work prior to the COVID pandemic had commenced around the risks related to Brexit and a potential hard Brexit and what that would mean for the construction industry and the capital programme.  The Director of Capital Programmes advised that standard Brexit clauses in construction projects were being developed in consultation with the Council’s Legal Services.

 

The Leader commented that in terms of SEN, the work being done by Capital Programmes in conjunction with education services to ensure places estimated to be required were in place in time.  So far this was being delivered on time.

 

The Deputy City Treasurer advised that for Central Retail Park the acquisition was £36.9m, alongside c£400,000 demolition cost and c£500,000 in fees.  There were also some in year costs for security and utilities with potentially further revenue being needed for the site compound.  This was within the overall budget allocation for the project.

 

The Leader acknowledged the comments made around the increase in cost to the Council in delivering the Factory project.  He reaffirmed that the overall benefit cost analysis of the project would remain significantly positive over the next 10 years and recounted the investment that the Council had made in previous years to regenerate the city, specifically within the culture sector of the city’s economy and the positive impact this had had local and the recognition it had gained nationally amongst other core cities.

 

The Chair raised concerns that there were significant overspends in the department, but that planned audits in Capital Programmes had been cancelled due to the department apparently constituting a ‘low risk’, despite there having been whistleblowing in the department. The Chair proposed that there should be an external independent review of the Council’s capital programme and projects, including how they were being commissioned, the input of the legal department, and the ongoing contract and project management.  The Chair emphasised that this was intended as a supportive process and not a witch-hunt. The Deputy Chief Executive and City Treasurer advised that there had been a full external peer review in 2018 by the Local Government Association on the capital programmes function, which resulted in the appointment of the Director of Capital Programmes to address the problems that existed.  A lot of progress had been made since then and prior to COVID19 discussions were taking place with the Executive Member for building on this review and reviewing procurement processes to ensure they delivered maximum value for money and that she always welcomed external scrutiny.  Committee Members were in support of this proposal and suggested that the Chair liaised with the Executive Member and Officers on an appropriate timing for a further external review.

 

The Executive Member for Skills, Culture and Leisure commented that there was a cultural recovery plan that had been put together for the city, which sought government funding of £72m of investment to address the impact COVID19 had had on the sector.  He also advised that there were a number of other initiatives taking place to help rebuild the sector across the city.

 

The Leader commented that the Executive had agreed not to place a limit on the capital budget for road safety improvements around schools, and the budget requirement for future years would be dependent on the proposals being brought forward.  He added that this was an area that was regularly scrutinised by the Neighbourhoods and Environment Scrutiny Committee.

 

In so far as Scrutiny Sub Groups, the Leader advised that the Council was still operating under emergency powers and Members needed to have recognition of the demands on senior officers in relation to the support they were able to afford in the current climate.

 

Decision

 

The Committee:-

 

(1)       Recommends that the Executive and Officers commission an external independent review of Capital Programmes and projects to determine that it is functioning effectively.

(2)       Requests that the Executive ensure that there is a budget available for the next financial year for road safety improvements around schools and at points of crossings, although that budget can be a ‘floor’ rather than a ‘ceiling’.

(3)       Notes the report, in particular the updates on:-

·                The decision making criteria used in the Checkpoint process and the benefits realisation work underway;

·                The Our Town Hall, Factory and Eastern Gateway projects; and

·                Capital expenditure on the Council’s leisure estate

 

Supporting documents: