9 BCa/22/4 BABERGH FORMER HQ DEVELOPMENT SITE PDF 337 KB
Cabinet Member for Assets and Investments
This item is exempt from call-in under Grounds of Urgency, as agreed with the Chair of the Council.
Grounds of Urgency are:
Significant inflationary pressures in the construction industry have resulted in a shortening of tender validity periods- to a period of a few weeks and sometimes only days, compared with several weeks, or months previously.
The contractor’s price for phase 1 of the HQ redevelopment is valid until 10th June 2022 and therefore a decision needs to be made before this date to enable Babergh Growth to determine whether they can award the contract or not. Babergh Growth cannot award the contract until increased funding has been secured. Further delay to the award of contract in the current market would result in price increases.
Decision:
This item is exempt from call-in under Grounds of Urgency, asagreed with the Chair of the Council.
It was RESOLVED: -
1.1 Approves the increase in peak funding threshold for Babergh Growth Ltd to £7m for use to deliver the redevelopment of the former HQ site in Hadleigh.
1.2 Authorises the Section 151 Officer, in consultation with the Monitoring Officer and the Leader, to negotiate and vary the necessary legal agreements between Babergh District Council and Babergh Growth Ltd to enable the delivery of housing on the former HQ site within Hadleigh.
REASON FOR DECISION
To enable and support the delivery of housing within the district and support the economic prosperity of Hadleigh as a key market town.
Alternative Options Considered and Rejected:
The options that have been considered are: -
2.1 Option 1 – Freehold Disposalof the site.
The Council could look to sell the HQ site on the open market with the benefit of planning consent, however the planning consent is due to lapse if not implemented by September 2022. Informal marketing advice has been received recently which identified a negative land value based on the current planning consent but suggests that a maximum gross capital receipt of circa £500,000 could potentially be achieved. It is likely that any third party would seek to increase the density of the scheme and to mitigate the costs of development, which could result in a less favourable scheme than currently consented.
Whilst this option would enable the Council to receive a capital receipt this would need to be offset against development costs incurred by Babergh Growth to date (circa £320k) and any future control over the delivery of the site could only be gained through the Council’s regulatory powers. This would not guarantee that development would be forthcoming in the near future, as seen with other former HQ sites across the County.
2.2 Option 2 – Increase Peak Debt Threshold to align with current market conditions
In December 2018, Cabinet and Council approved capital funding of £3.77m against the development capital expenditure costs of £12.8m. Current development capital expenditure following tendering the works is anticipated to be £11m for phase 1 and likely to exceed £12.8m for both phases due to significant price inflation in the construction market.
Due to market changes it is no longer possible to deliver the development within the authorised peak debt threshold. The authorised peak debt threshold would need to increase to £7m to progress the scheme. Increasing the peak debt threshold would enable the build contract to be awarded for phase 1 before the expiry of the tender period, thus reducing further potential for price increases and a start on site to occur before the expiry of the planning in September 2022.
Phase 1 is currently forecast to make a small loss (£250k) but potentially could break even if the construction contingency isn’t required. Phase 1 would provide 41 new homes. Phase 2 would be reviewed once phase 1 has progressed, ... view the full decision text for item 9
Minutes:
9.1 The Chair, Councillor Ward introduced the report on behalf of Councillor Busby.
9.2 Councillor Ward proposed the recommendations, as detailed in the report, which was seconded by Councillor Osborne.
9.3 In response to questions from other Members attending the meeting the Assistant Director – Assets and Investments, clarified that there had always been a Phase One and Phase Twoin the development of the sites. The refurbishment of the existing building continued to be Phase One and the new build formed part of Phase Two. There had been some change to the flood zones. Phase 2 had been sub divided into Phase 2a and Phase 2b. A viability study and further assessment would be undertaken before going forward with Phase Two. Appraisals had also taken into account the work intended for the site as this was a challenging site. With regards to the financial implications for Phase One, it had never been the aim to deliver this part of the scheme for profit and the projections were for the project to break even. However, the increase and availability of building materials should be taken into consideration. The existing development plans for Phase 2A was expected to deliver a profit to the Council. She reminded Members that the report being presented today was to bring Phase One of the development forward.
9.4 The Chair confirmed that the increase in the debt threshold was to enable the delivery of Phase One. The part of the development would either bring a modest profit or break even.
Note: The meeting was adjourned between 3:19 pm and 3:25 pm.
9.5 In response to questions from other Members attending the meeting Councillor Busby stated that the Council followed the lates and most up to date advice received for the Former HQ Site.
9.6 In response to further questions from other Members attending the meeting the Monitoring Officer informed Members that the decision was not ultra-vires, but an executive decision, and Cabinet was not limited to the amount of funding it could agree, as long as it was within the agreed budget which was set annually by Full Council. The Section 151 Officer had confirmed that the funding was within the agreed budget and therefore Cabinet could make this decision.
9.7 The Chair stated that the Grounds of Urgency for the decision had been approved to ensure that an agreement could be progressed to prevent an increase in cost for the development of the site. The deadline was Friday 17 June 2022.
9.8 Members debated the options in the report and agreed that Option 2 was consistent with the decision made by Full Council in 2018. The objectives remained the same for Babergh Growth Company, which was to minimise the losses to Babergh Council and if possible, gain a profit. However, the cost of material and work had increased in the past 3 years since the project began and there were challenges which had to be addressed on the site, including the listed buildings.
It was ... view the full minutes text for item 9