Agenda item

RESOLVED:

That the Cabinet Procurement and Insourcing Committee:

Agreed to delegate the approval of the Contract Award for the construction of a primary care surgery at land to rear of 2-28 Belfast Road, N16 and The Portico, 34 Linscott Road, E5 to the Group Director of Finance and Corporate Resources in consultation with the Mayor and Director of Strategic Property Services, and authorise the Director of Legal & Governance to agree and enter into all necessary legal documentation in connection with such contract award.

Agreed to require the Director of Strategic Property Services to submit the Cabinet Procurement and Insourcing Committee an updated Contract Award Report to the next available committee meeting after approval of the Contract Award by the Group Director of Finance and Corporate Resources.

The Committee noted the agreed appendix.

REASONS FOR DECISION:

This report outlines the progress made by the team in procuring a principal contractor to construct two new primary care surgeries on each site (please see section 4.5 for more details) including reporting on the Standard Selection Questionnaire (SQ) outcomes. It also sets out the reasons behind our recommendation that the committee delegates to The Group Director Finance and Resources in consultation with the Mayor and Director of Strategic Property the construction contract award. With a requirement that the Director of Strategic Property will provide an updated Award Report to the next available Cabinet Procurement and Insourcing Committee meeting.

The business case for the two primary care capital projects, construction phase was considered and approved at Cabinet Procurement Committee in December 2020. In the Primary Care Capital Projects; Project Board highlight reports the team have consistently flagged a risk around the 2 - 2.5 month reporting period of taking the contract award going back to CPIC (formally CPC) post tender assessment. This is seen as a risk to the project programme already significantly impacted by planning delays and cost as the Council’s professional team and the recommended contractor are unable to progress the projects whilst the CPIC Contract Award report is prepared and then goes through governance before review by the committee.

Furthermore, in the current construction market, we are seeing almost unprecedented cost inflation and uncertainty with contractors being in a position to ‘pick and choose’ projects. The bidders have been requested to hold their prices for 12 weeks in the tender however as we are expecting a negotiation period the tender prices will not hold before the CPIC contract award can be approved. As a consequence of the delay in the current construction cost environment our expectation is that  the price tendered may increase. Bidders to ensure that pricing is competitive are understandably unprepared to take on any price risk until they have a contract award. We therefore consider that the CPIC award approval timescales as a further risk to the projects costs and securing the preferred tenderer.

Our chosen procurement method gives the team the option to negotiate with the tenderers. This was seen as a sensible approach in the current market mainly with a view to negotiate on costs if the returns were problematically above the cost assessments by the project's Quantity Surveyors. However as identified the negotiation stage would further delay a CPIC Contract Award approval which in turn potentially could be further delayed by election protocol extending the project's timescales and cost risk even further.

The Council in accordance with the Cabinet decision has entered into the agreement for leases with the two surgeries. The negotiated longstop dates on delivery of the surgeries will not be affected by the programme delays identified. However there is a risk of reputational damage to the Council if the surgeries are not delivered in 2023 as expected by the doctors and their patients. The timescales of the CPIC process itself will push the programme into 2024 but combined with a negotiation stage will push the programme even further out.

The projects have been tendered following the completion of RIBA stage 4. The Quantity Surveyors construction cost plans have been updated and are attached in Appendix 1. They show a substantial increase in the estimated cost of both projects.

Both schemes are required to be self-financing over an indicative 30 year term, taking into account estimated build cost, annual rent and assuming that LB Hackney would borrow to finance construction. The eventual financing route will be a Treasury decision taken at the necessary point before proceeding with construction.

In accordance with the Cabinet decision the viability test for the development of the two surgeries has to be met. This is already delegated to the Group Director of Finance and Corporate Resources in consultation with the Director of Strategic Property Services. The finalised tender return is one of the two main inputs into that viability test; it therefore will aid the timely assessment of the viability test and progress of the projects if the Contract Award is similarly delegated. 

For all the reasons set out above it was therefore considered prudent to provide CPIC with this report, bringing the committee up to date on the procurement of the contractors, but recommending that the final contract award is delegated to the senior officers to help mitigate the identified risks to the projects.

9.1  The Senior Surveyor introduced the report highlighting the following points:

·  The report was unusual in that it was asking the Committee to agree to the delegation of the final contract to award the winning tenderer for reasons of timeliness and in the current construction market;

·  The construction market was currently experiencing a period of extensive cost inflation and the report requested that the decision to delegate so that the Council can be more flexible and capture the tender returns and the fixed costs set out in those returns;

·  The report also contained an update on the Selection Questionnaire (SQ) stage and the results of that work that had been undertaken;

·  The report contained two recommendations:

1.  Agree to delegate the approval of the Contract Award for the

construction of a primary care surgery at land to rear of 2-28 Belfast Road, N16 and The Portico, 34 Linscott Road, E5 to the Group Director of Finance and Corporate Resources in consultation with the Mayor and Director of Strategic Property Services, and authorise the Director of Legal & Governance to agree and enter into all necessary legal documentation in connection with such contract award;

2.  To require the Director of Strategic Property Services to submit to the Cabinet Procurement and Insourcing Committee an updated Contract Award Report to the next available committee meeting after approval of the Contract Award by the Group Director of Finance and Corporate Resources.

9.2  Councillor Kennedy commented that he had been involved with the process from the start and he raised concerns about the speed of the process and how it did not fit in with the timelines of the Council’s meeting papers approval processes.

9.3  The Senior Surveyor replied that the Council was operating in a climate currently  experiencing the effects of Brexit and the pandemic. He added that he was unable to comment on Council policy but in terms of the report it was a live issue and how long the current circumstances would last was difficult to determine.

9.4  The Head of Procurement concurred that it was a difficult situation. The governance processes set by the Council for reports stipulated that they had to be submitted two to three weeks ahead of CPIC meetings. In terms of the construction market, the Head of Procurement stated that in regards to the report it was a unique procurement. The processes being used and then aligning them with the timing with the reports for the CPIC was a challenge for this particular project.

9.5  Councillor Woodley commented that she understood that currently it was a sellers market but she was seeking reassurances about the KPIs, as one of the sites was in her ward.

9.6  The Senior Surveyor replied that his team was working closely with the Inclusive Economy Team and the Employment Skills template was part of the documentation. The Senior Surveyor stated there was a requirement for all bidders to complete that form and to comply with the policy.

9.7  The Chair sought clarification on one section in the report that stated that the schemes would be self-financing over an indicative 30 year term but in another part of the report  it stated that the leases were for 20 years.

9.8  The Senior Surveyor replied that leases for primary care surgeries were 20 years long which was within market norms and would attract the best rent. The decision was made at a Hackney Council Cabinet meeting, with the Finance Team’s input, that the Council would look at a return over a 30 year cash flow. The Senior Surveyor highlighted that by the time the work was delivered, 12 plus years, and primary care was brought forward in the borough, there would be a lease renewal at the expiry of the initial lease grant. It was seen as relatively low risk to those fundamentals.

9.9  The Chair queried if there was an expectation that at the end of the 20 year lease there would be renewal of a new lease.

9.10  The Senior Surveyor replied that it was the market norm for a lease on a new Doctors surgery.

9.11  The Chair queried a reference in the report to ‘Treasury decision’ and whether that was referring to approval from HM Treasury.

9.12   The Senior Surveyor clarified that this was a reference  to  Hackney Council’s Finance department.

RESOLVED:

That the Cabinet Procurement and Insourcing Committee:

Agreed to delegate the approval of the Contract Award for the construction of a primary care surgery at land to rear of 2-28 Belfast Road, N16 and The Portico, 34 Linscott Road, E5 to the Group Director of Finance and Corporate Resources in consultation with the Mayor and Director of Strategic Property Services, and authorise the Director of Legal & Governance to agree and enter into all necessary legal documentation in connection with such contract award.

Agreed to require the Director of Strategic Property Services to submit the Cabinet Procurement and Insourcing Committee an updated Contract Award Report to the next available committee meeting after approval of the Contract Award by the Group Director of Finance and Corporate Resources.

The Committee noted the agreed appendix.