Agenda Item No
The Vale of Glamorgan Council
Cabinet Meeting: 23 February, 2015
Report of the Cabinet Member for Regeneration, Innovation, Planning and Transportation
A4226 Five Mile Lane Road Improvements
Purpose of the Report
1. To advise Members of the work undertaken to date by the Welsh Government and its Consultants regarding the feasibility and delivery mechanisms needed to take forward the A4226 Five Mile Road Improvement scheme and to provide information regarding the details of the grant offer provided by the Welsh Government.
2. To provide information relating to the risks associated with the scheme and the risks to the Council in taking forward the scheme given the form of the grant offer from the Welsh Government.
1. That delegated authority be given to the Director of Development Services in consultation with the Leader and Cabinet Member for Regeneration, Innovation, Planning and Transportation to respond to the Welsh Government indicating why the terms of the offer letter in support of the delivery of the scheme are not acceptable to the Council.
2. That negotiations continue with Welsh Government regarding how the scheme might be delivered.
Reasons for the Recommendations
1. To enable response to the Grant Offer letter received.
2. To enable further discussions as to how the project might proceed.
3. The A4226 (Five Mile Lane) connects Barry at the Weycock Cross roundabout to the Sycamore Cross junction on the A48, and comprises an essential part of the highway network providing access to Barry as well as the St Athan and Cardiff Airport Enterprise Zone. The need to improve this stretch of road is referenced in the Vale of Glamorgan Deposit Local Development Plan.
4. The Council has previously received a Principal Road Grant from the Welsh Government to advance the Five Mile Lane Highway Improvement Scheme, and to date this work has involved the signalisation of Sycamore Cross junction, as well as initial design and feasibility work together with various environmental assessments relating to the development of a more comprehensive scheme. Significant additional funding is required to complete the development and implementation of this scheme. The Welsh Government announced their commitment to the scheme in July 2013.
5. Since December 2013 Parsons Brinckerhoff (PB) have been employed by the Welsh Government to develop the route design and a partnership approach with the Council is being utilised in taking the work forward. Technical teams have been set up to consider highway design, land acquisition, funding, procurement and environmental issues. Initial environmental survey work has commenced to support the production of an Environmental Impact Assessment report and title searches regarding land ownership have also been undertaken. Currently ground investigations surveys, paid for by the Welsh Government, are being undertaken.
6. Following the last report to Cabinet it had been the intention to provide a much fuller report relating to the scheme in September 2014 in order that the Cabinet and the Full Council could make decisions as to the principle of the scheme. Those reports would have set out the various matters relating to the planning application, compulsory purchase of land, programme and delivery of the scheme but that was on the assumption that an appropriate and acceptable Grant Offer was available to attach to such reports. A Grant Offer has been made to the Council but it contains a significant number of risk items as discussed below.
Relevant Issues and Options
7. Funding. The Welsh Government announced the funding for the A4226 Five Mile Lane road improvements in July 2013. The Welsh Government is offering a grant to the Council to cover the costs of the delivery of the road scheme. The Welsh Government grant offer is attached as Appendix A to the Part 2 Report to follow on this Cabinet Meeting Agenda as it contains details of the works costs estimates and possible land values which is sensitive information.
8. Cost estimating. The scheme is being designed by the Welsh Government's Consultants to a stage that will allow the submission of a planning application but the detailed design of the scheme will be completed much later under the proposed "Design and Build" contract arrangement which is indicated in the Welsh Government's Business Case as the preferred delivery route. As a consequence of this the funding offer currently proposed is based upon a set of cost estimates relating to the construction of the scheme, the costs associated with acquiring the land required and miscellaneous other costs relating to fees and scheme development.
9. Construction Costs. It is apparent that in the main the construction rates estimates used are based upon the current edition of the SPONS price estimating guide for civil engineering works. Where this rate is not utilised the figures are based upon the South Wales Trunk Road Agency framework rates. The quantum figures for materials are based upon design detail known to date and the survey information available. The percentage rates for preliminaries cost, overheads, profit, supervision and preparation cost are based upon broad industry standards rather than specific models.
10. In reviewing these figures it is apparent that a logical approach has been taken in putting together the cost estimates and in mathematical terms the cost estimates are correct. However, they remain estimates at this stage and given that a large proportion of the cost estimates are based upon so called industry standards the actual tender prices could vary significantly from the current estimates. Variations to outturn costs on such a significant scale of project will depend upon the form of contract and tight project management and at this stage the likely full outturn cost of the scheme is unknown. No independent review of the Welsh Government's Consultancy cost estimates has been undertaken and there is no contractual relationship between those consultants and the Council. A fuller breakdown of the costs and their analysis is attached as Appendix B to the Part 2 report.
11. The land acquisition cost estimates are based upon a desktop study undertaken by the District Valuer on behalf of the Welsh Government in order to provide a cost estimate for the funding offer and the costs indicated are not the result of any negotiation with the landowners or their agents. As a result a range of assumptions have been utilised. Officers have reviewed those assumptions and the methodology utilised by the District Valuer and, again, the mathematical analysis indicates that the figures are accurate. However, the range of assumptions utilised at this early stage cannot provide with a larger degree of certainty the likely final costs of land acquisition.
12. It is apparent that a significant number of risks result from the methodology undertaken to date. With regard to the Welsh Government Offer letter these are as follows:
13. Firstly the Grant Offer sets out what effectively is a lump sum grant offer. The requirement or purpose of the grant is to deliver the road scheme. Following negotiation the Grant Offer has been amended to allow for a review of the works costs following the proposed tendering process, to ensure sufficient budget is in place to commence the scheme. This is a useful change in that it allows review of the budget once the tendering process has been completed and reduces the risk associated with accepting the current offer which is based upon a range of cost estimating techniques.
14. A clause has been added which would mean that both the Welsh Government and the Council could terminate the agreement at the point in time at which the works tender price is known if any additional budget required at that stage is not agreed by the Minister (under the Notification event process). Under the same clause the Welsh Government would not claw back monies spent to that date on the project if the works tender price cannot be funded. Again this is a significant change and it reduces the risk associated with signing the offer letter at this point in time.
15. With regard to managing the works contract (after contract award) officers have requested that the Offer Letter contains a clause which would require the Welsh Government to bring additional budget to bear if the overall works contract price increases during the delivery process as a result of necessary or unavoidable cost increases. The Offer Letter as it currently stands allows the Council to ask for additional funds under the Notification Event process and upon such submission the Minister would decide whether additional funds should be forthcoming. At that point in the delivery process there is no option of terminating either the contract or the agreement and the risk is that additional funding may not be forthcoming. The burden of meeting any gap in the funding required to deliver the scheme would be a significant risk to the Council as it has no provision in its Capital Programme for this scheme. Given that the Welsh Government is seeking the support of the Council in the delivery of this road scheme, announced by the Minister in July 2013, the intention of officers was to seek an Offer Letter which covered the majority of risks associated with its delivery. It is accepted that all risk cannot be covered but additional funding for necessary or unavoidable costs would have to be met by the Council under the Works Contract and some guarantee of recompense was, therefore, sought. Welsh Government have declined to amend the Offer Letter further to deal with this concern and risk indicating that the responsibility for managing the contract would remain with the Council and processes for mitigating risk pre contract award are available.
16. Secondly the Grant Offer sets out annual allocations of grant based upon the Welsh Government's Consultants draft delivery programme. Whereas it is sensible to consider such annual allocations to aid financial planning by the Welsh Government the Grant Offer does not allow year on year slippage and so the risk of grant loss associated with any programme slippage is substantial. In many areas such slippage would be beyond the control of the Council. Following negotiations the Offer Letter has been amended to allow a pre- works contract review of the annual allocation of funding to try and alleviate the Council's concerns regarding lack of slippage provision in the Offer Letter. The additional wording helps in that it allows a re-profiling of the annual allocation in advance of any works contract award. However, it does not guarantee any revision of the annual allocations post contract award. Under the notification event procedure the Council could, post contract award, indicate programme slippage to the Welsh Government and ask for a change of the annual allocation but there is no guarantee that it would be agreed. Programme slippage on such a major scheme without associated grant drawdown slippage would remain a major risk.
17. Thirdly the Grant Offer requires the Council to meet performance criteria and these are set out as target dates for completion of elements. Failure to meet any of the targets will be considered as a "Notification Event" and could result in withdrawal, suspension or claw back of the grant. As these dates are based upon the draft delivery programme and there is little or no slack time in that programme the chances of failing to meet it are high and the penalties could be significant. In a number of areas approvals would not be under Council control yet the risks are set with the Council in the Grant Offer. The additional clause provided by the Welsh Government which prevents claw-back of spending in advance of the works contract award would not prevent claw-back or cessation of funding mid programme delivery should the Council fail to meet the required deadlines. This remains a major risk as programme delivery dates are currently based upon estimates and factors outside of the Council's control could affect the programme and spending. Good examples relate to the Compulsory Purchase Order Inquiry date and Inspectors decision date as these are currently best estimates and if delayed would impact upon the works programme.
18. Fourthly, the Grant Offer makes an allocation in respect of land acquisition costs. Officers had asked for an appropriate clause which would allow land acquisition and associated compensation costs, as set out in the District Valuer's report, to be reviewed after the Compulsory Purchase Order Inquiry and, if the additional costs associated with such acquisition and compensation increase there should be an associated increase in grant funding. The request was for such clause to allow termination of the agreement if additional funding for land was not forthcoming. Welsh Government have declined to accept any changes regarding the land costs review process and although a request for additional funding might be made via the Notification Event process there would be no guarantee of additional funding. As with the impact of increasing works costs any increasing land costs would not be covered by any capital programme allocation and, as such, this would be a major risk.
19. An analysis of the works cost estimating process and the risks associated with such estimating is contained within the Part 2 report.
20. In 2011 the Wales Audit Office produced a report on Major Transport Projects and as part of its audit it reported on an approach to tightening the terms and conditions which the Welsh Government use in offering Transport Grant to local authorities. The report indicated that the new terms and conditions that the Assembly Government offer will not normally provide funding to cover cost increases but that each application for additional funding will be judged on its own merits. However, the report indicated that it is not clear whether this means that the Assembly Government covering cost increases will be more the exception than the rule, or whether the Assembly Government is intending to discourage authorities from simply assuming that it will meet the cost, as per previous practice. Other than the question of whether the additional expenditure could have been foreseen or avoided, the Assembly Government has not established any specific criteria in terms of how it will decide whether or not to withhold funding. The report indicated that it remains to be seen how this arrangement will actually be applied in practice and in the case of this Grant Offer the methodology for determination of Notification events is similarly unknown. The provision of a detailed methodology as to how Notification Events might be processed would be relevant to the risk assessment process. At present the emphasis appears to be on the Council using contract form and management alone to restrict scheme cost increase. Had both the scheme design been complete and costed and land fully negotiated this position may have been acceptable but currently that position is some way off and greater certainty of funding is needed as a result.
Resource Implications (Financial and Employment)
21. The funding offered for this scheme is grant from the Welsh Government to the Council. Welsh Government's scheme cost estimates are set out in the Part 2 report with this figure taking into account their assumptions on optimism bias. This figure is made up of initial cost estimates for construction costs, land costs, preparation costs and supervision costs.
22. No specific provision has been made within the Council's Capital Programme for this scheme and, as such, the Welsh Government grant will need to fully cover the costs of delivering the scheme. At present this approach has not been agreed and this, therefore, places the Council at considerable financial risk if subsequently it is required to fund any significant increase in scheme costs.
23. No contribution or match funding arrangements have been agreed by the Council for this scheme other than staff time. Some discussion has taken place regarding the Planning Application fee for the scheme which would be circa £66,000 but the Welsh Government has not included this fee, to date, in its Grant Offer.
Sustainability and Climate Change Implications
24. Sustainability and climate change are to be considered during the design, procurement and delivery phases of the project. The EIA Scoping Report sets out the processes to review projects impacts in terms of air quality, cultural heritage, ecology and nature conservation, landscape and visual effects, noise and vibration, community and private assets, effects on all travellers, road drainage and water environment, geology and soils, materials and cumulative effects.
Legal Implications (to Include Human Rights Implications)
25. As the grant receiving body, the Council would be responsible for the procurement of services as described in this report. The Council will have a duty to ensure that any procurement is undertaken in line with Council's European legislation and the Council's own Standing Orders and Financial Regulations.
26. In relation to Contracts it will be necessary to comply with Public Contracts Regulations 2006. The scheme will need to follow the appropriate guidance and regulations with regard to procurement of the employer's agent role and contract works. Given the significant value of both these contracts the Council will need to procure via the OJEU process. The Procurement Technical Group is assessing how the OJEU processes tie in with the draft programme plan. When prepared the full Business Case will contain details of the Commercial Case for the scheme and the works contract costs. This will inform the Financial and Management Cases. These costs will not be known in detail until the works contract procurement process has been undertaken. At present the preferred contract form is a Design and Build option probably utilising the NEC Engineering and Construction Contract suite. Under this approach the preferred contractor would complete the detailed design as well as constructing the road.
27. In relation to land acquisition, it will be necessary to make relevant compulsory purchase orders and to seek confirmation of the same by the Welsh Ministers. It will also be necessary to prepare the Council's case for a public inquiry if objections to the orders are received.
Crime and Disorder Implications
28. There are no crime and disorder implications.
Equal Opportunities Implications (to include Welsh Language issues)
29. Equal opportunity issues will be considered in the design phase of the road scheme.
30. The proposal would support the Deposit Local Development Plan which seeks the construction of this road scheme.
Policy Framework and Budget
31. This report is a matter for Executive decision.
Consultation (including Ward Member Consultation)
32. Local Ward Members have been consulted. Councillor Jeffrey James has responded as follows:
"The importance of the project to improve the Five Mile Lane Road should not be underestimated as it will give improved road links to Barry, Cardiff Airport and former MoD St Athan and with Cardiff and the M4. Cardiff Airport and St Athan site being part of an Enterprise Zone which will benefit significantly from this scheme."
He further advises that the financial and practical risks are obvious and there needs to be a way forward. He suggests a joint project board be explored with the Welsh Government and the Vale. The benefits of such a project Board would be better communication and a shared understanding of the risks. Such a Board could help the Vale either share the risks or have a financial understanding of future funding to cover increased costs with the WG.
He goes on to say:
"If at some future occasion a link from Sycamore Cross to the Junction 34 of the M4 should happen this project would be vital for the reasons I have already stated."
Relevant Scrutiny Committee
33. Economy and Environment.
John Dent. Major Projects Manager - 01446 704617
Operational Manager, Legal
Finance Support Manager, Development Services
Group Estates Officer
Operational Manager, Planning and Transportation
Operational Manager, Highways and Engineering
Operational Manager, Countryside and Economic Projects
Director of Visible Services and Housing
Head of Finance
Business Improvement Manager
Rob Thomas - Director of Development Services