Swarcliffe HRA PFI Round 1: Final Business Case
Appendix D(i)
AGENDA
ITEM NO.:
Originator:
Linda Raine
Tel: 247 6220
A p p e n d i x 1
N O T F O R P U B L I C A T I O N
Exempt/Confidential Under Access to Information Procedure Rules 10.4 (8 & 9 )
REPORT OF: DIRECTOR OF NEIGHBOURHOODS AND HOUSING
REPORT TO: EXECUTIVE BOARD
DATE: 21 July 2004
SUBJECT: SWARCLIFFE HOUSING REVENUE ACCOUNT PRIVATE FINANCE
INITIATIVE PROJECT
Whinmoor
Specific Implications for:
Halton
Ethnic Minorities
Women
Disabled People
Executive
Board
Decision
Eligible for call in √
Not Eligible for call in
(details contained in the report)
1.0 PURPOSE OF THE REPORT
1.1 To outline to Members the key features of the Swarcliffe Housing Revenue Account (HRA)
Private Finance Initiative (PFI) Project and to seek approval to the proposed resolutions
required to take the Project through to contract signature.
2.0 BACKGROUND
2.1 The Swarcliffe HRA PFI Project is the first of two Housing Revenue Account PFI Projects
within the City, and is one of eight Pathfinder projects nationally. Within that context the
investment in housing that will be achieved through PFI for the project approved by the Office
of the Deputy Prime Minister (ODPM) , in approximate capital values ( expressed in today’s
terms excluding inflation) is £107m. Significant additional private investment will be levered
into the estate under the associated Development Agreement.
2.2 On 15th October 2003 Executive Board approved appointment of the Preferred Bidder and
accepted an increase in the PFI credits being offered by ODPM and the associated
affordability implications, as well as approving changes to the Project Board membership to
reflect the Council’s new structures.
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2.3 Executive Board’s approval on October 15th 2003 was based on an offer of credits from
ODPM of £70m, which was based on the assumption that the project would reach
contractual close by March 31st 2004. Negotiations have proved to be more protracted than
anticipated and closure is not now anticipated until July 2004. As a consequence of national
changes to the subsidy rate effective from April 1st 2004 a later closure reduced the cash
value of the £70m credits to the Council.
2.4 A further submission was made to the ODPM for an increase in the credits so as to
effectively meet the cash shortfall referred to above. ODPM have approved an additional
£3.5m credits, so that the total credits offered are now £73.5m.
2.5 It is necessary for the Council to submit a Full Business Case (FBC) to the ODPM for
approval in order to secure the release of the Notional Credit Approvals prior to financial
close and contract signature.
2.6 The responsibility for the oversight and management and for decision making on the Project
was delegated to the Housing PFI Projects Board (formally, to the Chair of the Board, with
the concurrence of two other Board members) by the Council’s Executive Board. All stages
of the procurement, the methodology used at each stage of the procurement and all
decisions on the conduct and selections under the procurement have been made by the
Housing PFI Projects Board.
2.7 The outcome of the procurement process was that the Housing PFI Projects Board at its
meeting of 26th September 2003 approved the selection of the Yorkshire Transformations
(YT) Consortium as the Preferred Bidder on this project. Under delegated powers, the
Deputy Chief Executive, as Chair of the Project Board, signed a Preferred Bidder Letter, a
copy of which is available in the Supplementary Annexes to this report, which are under
separate cover.
2.8 The Yorkshire Transformations (YT) consortium comprises:
i)
The Governor and Company of the Bank of Scotland, senior lender
ii)
Mowlem Developments Limited, equity and junior debt provider
iii)
Yorkshire Community Housing Limited (part of the Yorkshire Housing Group), equity
and junior debt provider
iv)
Uberior Infrastructure Investments Limited, equity and junior debt provider
v)
Mowlem plc, construction contractor
vi)
Yorkshire Community Housing Limited, facilities management contractor
3.0 MAIN ISSUES
3.1 This section, Appendix 1 and the separate Supplementary Annexes to the report outline the
main issues covered within the PFI Project Agreement which is the contract for this project.
Appendix 1 refers to Financial issues. The Supplementary Annexes refer to Legal issues,
the Performance Mechanism and the Development Agreement and are confidential under
Access to Information Procedure Rules 10.4 (8 & 9)
3.2
Project Outline:
i)
The project is a major regeneration initiative which will deliver most of the physical
regeneration improvements required to make the Swarcliffe estate a sustainable,
attractive place to live by improving homes, addressing future housing needs and
upgrading the overall environment of the estate.
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ii)
Specifically, through the PFI contract, 367 surplus Council homes within the Housing
Revenue Account will be demolished and 1659 refurbished. This includes 29 homes
which the Council has disposed of under leasehold agreements. There will be an initial
five year improvement period to bring the homes up to an Availability Standard
specified by the Council which ensures that the requirements of the Decent Homes
Standard are met. Associated environmental and highways improvements will be
carried out over a seven year period. The Contractor will maintain the homes and the
environment to the improved standard over the remainder of the contract period ( years
6-30 and 8-30 respectively), after which they are handed back to the Council.
iii)
There will also be Development Agreements under the terms of which surplus land will
be disposed of for provision of 350 new homes for sale, 110 for social rent, and for
neighbourhood centre improvements (including shops and a neighbourhood housing
office). Further environmental and open space improvements, new play areas and
highways will be provided as part of the new development to meet highways and
planning requirements. The proceeds from the disposals will be used to reduce the
Unitary Charge paid by the Council under the PFI contract.
iv)
The housing refurbishments will be delivered through the Private Finance Initiative and
the private sector partner will be required to take on the associated risks and
responsibilities inherent in this process and will operate a range of ancillary services to
maintain the dwellings and the surrounding environment and communal areas.
v)
The associated new development will be delivered through Development Agreements
with the consortium, and will lever in over £30m private investment over and above the
investment through the PFI contract referred to at 2.1.
vi)
To date Social Housing Grant of £4.1m has already been approved by the Housing
Corporation to support 52 of the proposed new homes for rent. Further applications will
be made in future bidding rounds, in keeping with the programme and Housing
Corporation requirements.
vii)
Complementary regeneration initiatives.
The Woodview scheme, recently developed by Anchor Housing, provided
approximately 100 new homes for the elderly, with associated communal facilities which
are available for community use. New primary care facilities are proposed for the
neighbourhood centre area and will be delivered through the Local Improvement
Finance Trust initiative.
3.3 The PFI contract includes all the homes owned by the Council, within the Housing Revenue
Account, on the Swarcliffe estate including those which have been disposed of under long
leases where the Council retains responsibilities under the terms of the lease. The boundary
of the scheme is shown on a plan which is in the Supplementary Annexes to this report.
3.4 The sites which it is proposed will be disposed of (10.4 hectares in total) are shown on a plan
which is available in the Supplementary Annexes to this report. and are all within the HRA.
Best consideration has been obtained through the bid process.
3.5
Project Aims and Objectives: these are as set out within the outline business case and are
detailed in the Supplementary Annexes to this report.
3.6
The works period (construction period) runs from approximately 2 months after contract
signature (currently anticipated July 2004) to 2011, with phased Packages of works taking
place throughout the initial improvement period.
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3.7
The service period will run from approximately 2 months after contract signature for the
entire 30 year period of the Contract.
3.8
The Services included within the contract are:
i)
Property Repair and Maintenance
ii)
Grounds and estate Maintenance
iii)
Void Property Management
iv)
Caretaking and Cleaning
v)
Information and Information Technology
vi)
Tenant and Community Liaison and Involvement
These services are currently provided by Leeds South East Homes (LSEH). Appropriate
adjustments to their Management Fee have been agreed to reflect the fact that they will no
longer be providing the services which are included in the PFI contract.
Other housing management services ( rent and service charge collection, lettings and
tenancy management) will continue to be provided by Leeds South East Homes under the
terms of their Management Agreement with the Council.
S27 Consent -Secretary of State consent is required to allow the Council to delegate
specified housing management services under a PFI contract. That consent will be applied
for under S27 of the Housing Act 1985 as amended by the Regulatory Reform (Housing
Management Agreements) Order 2003 at the same time as the Full Business Case is
submitted.
3.9 Employment and TUPE - 2 staff are currently employed by Leeds South East Homes in
posts to which the Transfer of Undertakings (Protection of Employment) Regulations (TUPE)
are envisaged will apply and which will be subject to transfer to the facilities management
contractor. The staff transferring are caretakers. As procurement commenced prior to
January 2003 the ODPM’s Code of Practice on Workforce Matters in Local Authority Service
Contracts does not apply. Accordingly, the Contract has made provision ensuring that the
terms and conditions of employment of the two transferring employees are fully protected,
and that new staff are employed on broadly comparable terms.
3.10
Pensions: It is proposed that transferring employees of the facilities management service
provider engaged in this contract will have continued membership of, or access to the local
Government Pension Scheme. If for any reason the employer cannot achieve or retain
admitted body status for this purpose, then broadly comparable arrangements would have to
be provided.
3.11 Conduct on site - The contract will set out the City Council’s minimum requirements relating
to the conduct of the contractor’s staff and any sub- contractors in Schedule 10 to the Project
Agreement.
3.12
Communications and consultation- Provision has been made
prior to and
throughout the
procurement period to keep stakeholders informed as to progress and to consult tenants.
3.13 Stakeholders in this project were identified as:
i)
Project Board
ii)
Project Team
iii)
Executive Board
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iv)
Ward members (where homes are located)
v)
CIT chairs (where not ward members)
vi)
Tenants and residents living on the Swarcliffe estate
vii) Tenants and Residents Associations whose members live on the Swarcliffe estate
viii) ODPM
ix)
Leeds South East Homes
x)
Trade Unions
xi)
Press
xii) Auditors
3.14 Communication and consultation throughout the project to date has included:-
i)
regular newsletters to residents, this newsletter is routinely copied to ward members,
MP’s, and other stakeholders
ii)
members briefings
iii)
displays and open days for residents
iv)
regular updates to three Tenants and Residents Association meetings
v)
Swarcliffe Community Forum
vi)
Updates to Community Involvement Team meetings
vii) regular update reports to Project Board, updates and specific reports to Executive
Board
viii) provision of information to and regular meetings with trade unions including attendance
at Leeds South East Homes Joint Consultative Committee
ix)
Briefings and update reports to Leeds South East Homes officers and Board
x)
updates to and meetings with the ODPM
xi)
regular meetings with Development Department on disposals, planning, highways and
site issues
3.15 As outlined above there has been extensive consultation with tenants both prior to and
throughout the procurement period. To date tenants have been supportive of the scheme. To
obtain S27 consent the Council now has to carry out a final, formal consultation exercise
which gives tenants an opportunity to comment on the proposed changes to the
management arrangements for their homes. Those comments have to be taken into account
before the Council takes the decision to enter into the contract. The consultation period will
extend beyond the date of the Executive Board meeting. It is therefore proposed that the
consultation outcomes are considered under delegated authority of the Director of
Neighbourhoods and Housing.
3.16 As the project moves from contract close towards service commencement Leeds South East
Homes and Yorkshire Transformations will be undertaking staff consultation with all
transferring staff. The trade unions will be included throughout this process.
3.17 The following 4 areas (Financial, Legal and Performance & Payment and Development
Agreement) are subject to ongoing negotiations. Appendix 1 and the Supplementary
Annexes to the report outline the current negotiating positions. Changes to the positions
outlined in Appendix 1 and the supplementary information referred to above will be subject to
the delegations sought by this report to the Deputy Chief Executive.
3.18
Financial Issues: Attached at Appendix 1 is a detailed report covering the financial issues
relating to the project. In summary the main issues are:
i)
Value for Money
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ii)
Affordability
iii)
Capital Receipts
iv)
Compliance with the Local Authorities (Capital Finance and Accounting (England)
Regulations 2003 (SI 3146)
v)
Termination of the contract
vi)
Impact on Leeds South East Homes
3.19 Legal Implications and Powers: The Supplementary Annexes to this report contain a draft
report compiled by the Council’s External Legal Advisers, Addleshaw Goddard, which:-
i) Advises generally on terms reached in negotiation,
ii) Comments on how closely the terms of the PFI contract follow the requirements of HM
Treasury and ODPM standardisation guidance,
iii) Explains the steps that are to be taken on the Council’s behalf in relation to the PFI
contractor’s financing agreements and sub-contracts
iv) Advises on the Council’s statutory powers to certify the Project Agreement and the
lender’s direct agreement under the Local Government (Contracts) Act 1997, and
v) Advises on the enforceability of the performance mechanism
3.20 Attached to the above report are draft certificates under the Local Government (Contracts)
Act 1997, which, amongst other things, identify the statutory powers under which the Council
will enter into the project. The final version of the Addleshaw Goddard report will be provided
for the benefit of the deputy Chief Executive and the Director of Corporate Services, to
support their final approvals of contract documentation and certification of the contracts
respectively.
3.21 Performance & Payment Mechanism: The performance mechanism provides for specific
deductions to be made from the Unitary Charge (the annual payment) when specified
standards for the dwellings and services are not met.
The payment mechanism regulates the calculation and payment of the invoices for the works
and services in the contract , makes adjustments following Right to Buy property reductions
and addresses issues such as the impact of inflation. A summary of the provisions within the
performance and payment mechanism is contained in the Supplementary Annexes.
3.22 Development Agreement The Development Agreements will make provision for and set out
the terms of disposals of land on a freehold and of garages on a leasehold basis under the
Housing Act 1985, for which the Secretary of State’s consent will be required. A summary is
provided in the Supplementary Annexes. The Agreements will make provision for disposals
of land at best consideration. It is proposed that the Capital Receipts so generated are used
to reduce the Contractor’s borrowings and so reduce the Unitary Charge to the Authority.
Approval is sought to dispose of the sites for the price referred to in Appendix 1 on terms
outlined in the Supplementary Annex.
4.0 CONCLUSION
4.1 Finalised commercial terms and drafting amendments to the Project Agreement are being
agreed with Yorkshire Transformations in a series of meetings programmed to take place
during June. The Full Business Case will be submitted to the ODPM in June, to ensure that
the ODPM have sufficient time to consider and grant final approval for the Project by summer
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2004. Derogations from standard guidance and proposals regarding insurance have been
submitted in advance to facilitate approval. Once ODPM have completed their review of the
FBC, they will issue a Promissary Note to the City Council confirming that they have
approved the project. The Promissary Note provides the necessary credit cover and revenue
support the Council requires before it can sign the contract with Yorkshire Transformations.
4.2 Contract signature will in turn see the phased start of refurbishment work in line with the
agreed programme and commencement of the services following a period of mobilisation
which is expected to last approximately two months.
5.0 PROPOSALS FOR APPROVAL
Members of Executive Board are recommended to:
5.1 Confirm their acceptance of the offer of £73.5m PFI credits from the Office of the Deputy
Prime Minister and their understanding of the affordability implications for the Council as set
out in Appendix 1.
5.2 Note the information in this report, its appendix and the separate Supplementary Annexes
providing details of the process and negotiations undertaken and work carried out to date
5.3 Approve the financial implications and the affordability threshold for the Council of entering
into this contract as detailed in Appendix 1.
5.4 Approve disposal of the sites identified in the Supplementary Annexes to Yorkshire
Transformations for the price indicated in Appendix 1
PROPOSALS AUTHORISING DELEGATED APPROVALS
5.5 Subject to approval of the Full Business Case (FBC) by the Deputy Chief Executive and
ODPM, a positive accounting determination on the transaction, and receipt of S 27 consent
by the Secretary of State and subject to the Deputy Chief Executive (or in his absence the
Chief Executive) being satisfied that the project remains within the affordability constraints
set out in Appendix 1:
(1) Approve the Council's entry into the project with the special purpose company of the
Yorkshire Transformations consortium, subject to the final approvals referred to in
recommendation 5.5(2) below;
(2) Grant delegated powers to the Deputy Chief Executive , or in his absence the Chief
Executive, (in consultation with the Chief Legal Officer and the Development Director) to give
final approval to the completion of the Project, including (but not by way of limitation) the
following:
i)
The terms of the Project Agreement
ii)
With the exception of the disposal price, the terms of any necessary land transactions
including the Development Agreements which will involve the disposal of the surplus
land, and the proposed lease of garage sites
iii)
The Financiers Direct Agreements
iv)
Any pensions Admissions Agreement and associated bond
v)
Direct agreements with the FM Sub-contractor
vi)
Collateral warranties from the construction subcontractor, designers and other second
tier subcontractors
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vii) Form of acknowledgement by the Council of the financier’s charge
viii) Any other documents conducive to the completion or undertaking of the project
5.6 Subject to consideration of the outcome of the final tenant consultation exercise, authorise
the Director of Neighbourhoods and Housing to apply for Secretary of State consent under
S27 of the Housing Act 1985 as amended by the Regulatory Reform (Housing Management
Agreements) Order 2003 to delegate housing management functions as set out in the Project
Agreement on the terms of the project agreement (which will include the power to sub-
delegate and to act jointly with the funder’s appointed representative)
5.7 Approve that the Director of Corporate Services , as the statutory officer under section 151 of
the Local Government Act 1972, or in his absence the Chief Officer - Financial Management
be authorised :
i)
to sign any necessary certificates under the Local Government (Contracts) Act 1997 in
relation to this transaction.
ii)
Final determination under the Local Authorities (Capital Finance and Accounting )
(England) Regulations 2003 (SI 3146)
5.8 Approve that, in respect of certification under 5.7, and subject to the advice of the Director of
Legal Services, a contractual indemnity be provided to the Director of Corporate Services in
respect of potential liabilities arising from the certification.
5.9 Approve that the Director of Legal Services (or any other officer of the Council authorised by
her) be authorised to execute or sign all necessary agreements, by affixing the Council’s
common seal or otherwise, and take any necessary further action to complete the
transactions and give effect to Members’ resolutions and delegated decisions referred in
these recommendations.
5.10 Request and authorise the Director of Neighbourhoods and Housing to implement any post
completion arrangements necessary to monitor and administer the contract documentation
by agreement, where necessary with Leeds South East Homes, such agreement to be
reflected in an addendum to Leeds South East Homes’ Management Agreement with the
Council.
5.11 Authorise that the Director of Legal Services (or other officer of the Council authorised by
her) be authorised to sign a certificate evidencing the above resolutions under section 41 of
the Local Government (Miscellaneous Provisions) Act 1976 whether or not in advance of the
minutes of this meeting being signed at the next meeting of this Executive Board.
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Appendix D(i)
SWARCLIFFE HOUSING REVENUE ACCOUNT PRIVATE FINANCE INITIATIVE PROJECT
Appendix 1
This Appendix is Not for Publication - Exempt under Access to Information Procedure rule
10.4 (8 & 9)
FINANCIAL ISSUES
1. Introduction
The main financial issues to be highlighted in this appendix are -
• Value for Money
• Affordability
• Capital Receipts
• Regulation 40 Compliance
• Contract Termination
• Arms Length Management Organisation (ALMO) impact
Some significant issues are still to be resolved with the ODPM and the preferred bidder which will
impact on both affordability and price. The financial analysis within this appendix has taken those
issues into account.
2. Value for Money (VFM) for the Public Sector
In order for the ODPM to issue the PFI credit, the Authority must prove that the project represents
VFM for the public sector. The Council has prepared a Public Sector Comparator (PSC) which
takes into account the following Treasury Taskforce guidance:
• Policy Statement No 2 “Public Sector Comparators and Value for Money”
• “Appraisal and Evaluation in Central Government” (the “Green Book”)
The PSC represents the cost to the public sector of directly supplying the services required by the
Output Specification through conventional procurement. It therefore, represents the cost to the
public sector of refurbishing and maintaining the dwellings of the Swarcliffe estate for a 30 year
period.
The PSC analysis indicates that the procurement of the contract via a PFI option is £1.6m or 2%
more efficient than procurement via the traditional public sector route.
The Final Business Case will contain a full breakdown of the relevant elements of the PSC.
3. Affordability of the Project to the Authority
The affordability for the Authority is summarised in Table 1 below and can be seen in detail in
Table 4. The analysis indicates that the project requires a contribution from the Council of up to
£24m over the life of the project and this equates to up to £555k per annum in the first year, rising
to £1.135m in year 30 due to the impact of inflation at 2.5%.
In calculating the annual contribution, due account has been taken of the risks which still remain
with the Council to allow for a build up in the sinking to cover these risks.
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The project team have taken a prudent view as to the likely changes in the unitary charge between
now and financial close. Possible increases in building cost inflation and funding rates have been
taken into account. The latest assumption on indexation (the amount of unitary charge which is
impacted by RPI inflation) has been used which is 60%.
The Authority submitted a request to the ODPM for permission to use a method of payment which
optimises the bidder’s unitary charge. The mechanism works by paying some of the excess cash
held in the PFI sinking fund over to the bidder in order to reduce the borrowing costs of the bidder
and therefore the price of the bid. On 29th April 2004, ODPM agreed in principle to the proposal.
Conditions will be in place within the contract to protect the Council in making these payments.
Table 1 – Affordability
30 Year Total
£m
Unitary Charge
260
Financed By -
PFI Revenue Support Grant
171
ALMO Contribution
53
Council Contribution
24
Interest accrued on balances
12
Total Funding
260
The analysis above includes inflation at 2.5% to illustrate the cashflow impact of the project over
30 years
It is proposed that the contribution required from the Council will be sourced from the use of a
combination of Housing Revenue Account and General Fund resources. The General Fund
contribution will be used to fund elements of the scheme which benefit the wider community,
including changes to the environmental layout of the area and highway improvements. The precise
methodology by which these resources are utilised will require discussion with, and the support of,
ODPM.
The cost of the project (ie the £260m above), expressed in today’s terms (excluding inflation) is
£184m, illustrated in Table 2.
Table 2 – Project Cost
£m
Refurbishment capital
57
Lifecycle capital
42
Environmental capital
8
Management Services
42
Borrowing and Taxation
35
Total Cost
184
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This commitment from the Council will be offset by the benefits the Council will receive from a
capital investment which is in excess of £107m. In addition to the initial refurbishment cost of
£57m, the contract also contains lifecycle investment of £42m and environmental improvements of
£8m. Under a conventional procurement these costs would have to be met from the Council’s own
resources. Private investment of over £30m is also being levered into the estate under a separate
Development Agreement.
4. Capital Receipts
The Authority has included capital receipts of £2.676m within the project which is generated as a
result of the sale of vacant and clearance land on the estate. The Authority has received “best
consideration” for this land. The land will be developed to provide affordable social housing for rent
and private housing for sale on the Swarcliffe estate.
5. Compliance with The Local Authorities (Capital Finance and Accounting) (England)
Regulations 2003
In order to be regarded as a Private Finance Transaction, and to receive PFI credits, this project,
as with any other PFI project, must be seen to comply with the Accounting Code of Practice. With
regard to PFI transactions this is covered in the Financial Reporting Statement Number 5,
commonly referred to as FRS 5. In essence, the transaction must be “off balance sheet”. This
means that the City Council will transfer the property risks to the PFI Contractor.
The Director of Corporate Services, after undertaking a review of the relative property risks
associated with the Contract, and with advice from the Council’s Financial Adviser will have to
make a determination on the accounting treatment of the project. An opinion from the Council’s
external auditor will also be required.
6. Contract Termination
Contract termination can arise at the instigation of either the Authority or PFI Operator. Table 3
illustrates the likely level of termination payment required at different stages of the contract. The
Supplementary Annex covering legal issues provides a more detailed summary of the termination
provisions within the Project Agreement.
Termination of the Contract by either party or by a “no fault” event is likely to have significant
financial consequences for the City Council. The City Council’s Financial Advisers, Deloitte, have
provided a summary of the potential consequences to the City Council on termination (based on
the current Project Agreement) of the Contract. Members should have particular regard to this
summary, as some of the potential financial consequences could be considerable.
Funders will not finance PFI projects where there is a risk of their investment being lost due to the
termination of the contract earlier than set out in the Project Agreement, no matter whose fault (or
no fault). This is reasonable given the capital sums that are invested by funders at the start of such
a project, with repayments by the PFI contractor to the funder typically ending only a few years
before the end of the contract term. The largest element of the potential compensation is the level
of Senior Debt outstanding at the date of termination. This figure is at its highest at the start of the
contract period, after funds have been drawn down to finance the construction costs, but prior to
any repayments to the funder from the Unitary Charge income from the City Council after service
commencement. The paragraphs below briefly summarise the implications for the City Council in
the event of each cause of Contract Termination.
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•
Contractor default
In the event of contract termination in these instances, the City Council could elect to re-tender the
contract. In this circumstance the City Council would pay the Contractor either the amount
described as the “Adjusted Highest Compliant Tender Price”. This is likely to be the tender price,
less the re-tendering and any other attributable costs to the City Council arising from the
Contractor default. If a no re-tendering procedure applies, the Adjusted Estimated Fair Value
procedure will apply, which is likely to be the Net Present Value of the revenues less costs within
the Project Financial Model.
•
Council default
If the City Council defaults on the Contract, then the PFI Contractor would be entitled to receive
payment of all Senior Debt, any other Coupon Bearing investment and all expected future
distributions relating to any equity investment, discounted back to the date of contract termination.
An example of the payments that would be made at a sample of termination dates is illustrated
below.
•
Termination on corrupt gifts and fraud
In this event, the City Council would be obliged to pay the PFI Contractor an amount equal to the
Senior Debt outstanding. An example of the payments that would be made at a sample of
termination dates is illustrated in the table below.
•
Force Majeure
The Project Agreement states that neither party is entitled to bring a claim for breach of obligations
nor has any liability to the other part to the Contract for any losses or damages incurred if a Force
Majeure event prevents them from carrying out their obligations. The terms for the calculation of
compensation reflects that this is “no ones fault”. In the event of Contract Termination by reason of
Force Majeure, the PFI Contractor would receive sums to cover repayment of its outstanding debt
and any initial equity investment but would not receive any profit element. An example of the
payments that would be made at a sample of termination dates is illustrated below.
Table 3 - Termination Amounts
Council
Corrupt
Voluntary
Force
Gifts or
Termination
Majeure
Fraud
or Default
30th June 2008 (yr 5)
£37.8m
£37.7m
£33.3m
30th June 2013 (yr 10)
£33.5m
£32.9m
£28.9m
30th June 2018 (yr 15)
£27.5m
£26.2m
£22.5m
30th June 2023 (yr 20)
£22.9m
£20.0m
£16.6m
30th June 2028 (yr 25)
£17.0m
£11.8m
£9.1m
30th June 2033 (yr 30)
£8.0m
£1.5m
£0m
7. Leeds South East Home (LSEH) Impact
Leeds South East Leeds Homes will contribute £53m to the project over the 30 year concession
period. This contribution is sourced from the Management Fee which LSEH receives for managing
and maintaining the properties within the Swarcliffe area.
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Swarcliffe HRA PFI Round 1: Final Business Case
Appendix D(i)
The contribution from LSEH consists of the budgets which no longer have to be spent, as the PFI
operator will be undertaking the relevant services. These budgets include repairs and
maintenance. These funds have been diverted to pay for the PFI contract.
No indirect budgets have been used to contribute towards the unitary payment. These budgets
would include the central running costs of LSEH. This approach has been taken in order to protect
the operating viability of LSEH and to protect the quality of services delivered to the rest of the
South East area.
The implication for LSEH of using RTB receipts in the scheme is that the receipts from the
Swarcliffe area will be invested back into the Swarcliffe estate rather than the wider LSEH area.
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Swarcliffe HRA PFI Round 1: Final Business Case
Appendix D(i)
Table 4 - Movement in the Sinking Fund
Annual
Balance
Inflation
2.5%
Income \ Funding
Payments (£000's)
Sinking Fund Balance (£000's)
(£000's)
PFI Grant
ALMO
Council
Total Funding
Unitary
Unitary
Bullets
Total
Annual
Interest on
Closing
(£73.5m)
Contribution Contribution
Charge
Charge
Payments
Cashflow
Fund
Balance
Variable
Fixed
1
5,687 1,362 555
7,604
1,405 937 1,000
3,342
4,262
96
4,358
2
5,687 1,346 569
7,601
2,212 1,474 3,000
6,686
915
217
5,490
3
5,687 1,328 583
7,597
2,947 1,965 2,000
6,912
685
262
6,438
4
5,687 1,308 597
7,592
3,625 2,417 1,000
7,042
550
302
7,290
5
5,687 1,317 612
7,616
4,216 2,810 -
7,026
590
341
8,221
6
5,687 1,350 628
7,664
4,415 2,943 -
7,358
306
377
8,904
7
5,687 1,383 643
7,714
4,488 2,992 -
7,480
234
406
9,544
8
5,687 1,418 659
7,764
4,563 3,042 -
7,605
159
433
10,136
9
5,687 1,453 676
7,816
4,640 3,093 -
7,733
83
458
10,677
10
5,687 1,490 693
7,869
4,719 3,146 -
7,865
5
481
11,162
11
5,687 1,527 710
7,924
4,800 3,200 -
8,000
(76)
501
11,587
12
5,687 1,565 728
7,980
4,883 3,255 -
8,138
(158)
518
11,947
13
5,687 1,604 746
8,037
4,968 3,312 -
8,279
(242)
532
12,237
14
5,687 1,644 765
8,096
5,055 3,370 -
8,425
(329)
543
12,452
15
5,687 1,686 784
8,156
5,144 3,429 -
8,573
(417)
551
12,586
16
5,687 1,728 803
8,218
5,235 3,490 -
8,726
(508)
555
12,633
17
5,687 1,771 823
8,281
5,329 3,553 -
8,882
(601)
555
12,587
18
5,687 1,815 844
8,346
5,425 3,617 -
9,042
(696)
551
12,442
19
5,687 1,861 865
8,413
5,524 3,683 -
9,207
(794)
542
12,190
20
5,687 1,907 887
8,481
5,625 3,750 -
9,375
(894)
528
11,824
21
5,687 1,955 909
8,551
5,728 3,819 -
9,547
(997)
510
11,337
22
5,687 2,004 932
8,622
5,835 3,890 -
9,724
(1,102)
485
10,720
23
5,687 2,054 955
8,696
5,943 3,962 -
9,906
(1,210)
455
9,965
24
5,687 2,105 979
8,771
6,055 4,037 -
10,091
(1,321)
419
9,064
25
5,687 2,158 1,003
8,848
6,169 4,113 -
10,282
(1,434)
376
8,005
26
5,687 2,212 1,028
8,927
6,286 4,191 -
10,477
(1,550)
325
6,781
27
5,687 2,267 1,054
9,008
6,406 4,271 -
10,677
(1,669)
268
5,379
28
5,687 2,324 1,080
9,091
6,529 4,353 -
10,882
(1,791)
202
3,790
29
5,687 2,382 1,107
9,176
6,655 4,437 -
11,092
(1,916)
127
2,001
30
5,687 2,441 1,135
9,263
6,785 4,523 -
11,308
(2,045)
44
(0)
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Document Outline
- REPORT OF: DIRECTOR OF NEIGHBOURHOODS AND HOUSING
- REPORT TO: EXECUTIVE BOARD
- DATE: 21 July 2004
- 1.0 purpose of the report
- 2.0 background
- 3.0 main issues
- 3.1 This section, Appendix 1 and the separate Supplementary Annexes to the report outline the main issues covered within the PFI Project Agreement which is the contract for this project. Appendix 1 refers to Financial issues. The Supplementary Annexe...
- 3.2 Project Outline:
- i) The project is a major regeneration initiative which will deliver most of the physical regeneration improvements required to make the Swarcliffe estate a sustainable, attractive place to live by improving homes, addressing future housing needs and ...
- ii) Specifically, through the PFI contract, 367 surplus Council homes within the Housing Revenue Account will be demolished and 1659 refurbished. This includes 29 homes which the Council has disposed of under leasehold agreements. There will be an i...
- iii) There will also be Development Agreements under the terms of which surplus land will be disposed of for provision of 350 new homes for sale, 110 for social rent, and for neighbourhood centre improvements (including shops and a neighbourhood housi...
- iv) The housing refurbishments will be delivered through the Private Finance Initiative and the private sector partner will be required to take on the associated risks and responsibilities inherent in this process and will operate a range of ancillary...
- v) The associated new development will be delivered through Development Agreements with the consortium, and will lever in over £30m private investment over and above the investment through the PFI contract referred to at 2.1.
- vi) To date Social Housing Grant of £4.1m has already been approved by the Housing Corporation to support 52 of the proposed new homes for rent. Further applications will be made in future bidding rounds, in keeping with the programme and Housing Corp...
- vii) Complementary regeneration initiatives. The Woodview scheme, recently developed by Anchor Housing, provided approximately 100 new homes for the elderly, with associated communal facilities which are available for community use. New primary care f...
- 3.3 The PFI contract includes all the homes owned by the Council, within the Housing Revenue Account, on the Swarcliffe estate including those which have been disposed of under long leases where the Council retains responsibilities under the terms of ...
- 3.4 The sites which it is proposed will be disposed of (10.4 hectares in total) are shown on a plan which is available in the Supplementary Annexes to this report. and are all within the HRA. Best consideration has been obtained through the bid process.
- 3.5 Project Aims and Objectives: these are as set out within the outline business case and are detailed in the Supplementary Annexes to this report.
- 3.6 The works period (construction period) runs from approximately 2 months after contract signature (currently anticipated July 2004) to 2011, with phased Packages of works taking place throughout the initial improvement period.
- 3.7 The service period will run from approximately 2 months after contract signature for the entire 30 year period of the Contract.
- 3.8 The Services included within the contract are:
- These services are currently provided by Leeds South East Homes (LSEH). Appropriate adjustments to their Management Fee have been agreed to reflect the fact that they will no longer be providing the services which are included in the PFI contract.
- Other housing management services ( rent and service charge collection, lettings and tenancy management) will continue to be provided by Leeds South East Homes under the terms of their Management Agreement with the Council.
- S27 Consent -Secretary of State consent is required to allow the Council to delegate specified housing management services under a PFI contract. That consent will be applied for under S27 of the Housing Act 1985 as amended by the Regulatory Reform (Ho...
- 3.9 Employment and TUPE - 2 staff are currently employed by Leeds South East Homes in posts to which the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) are envisaged will apply and which will be subject to transfer to the faci...
- 3.10 Pensions: It is proposed that transferring employees of the facilities management service provider engaged in this contract will have continued membership of, or access to the local Government Pension Scheme. If for any reason the employer cannot...
- 3.11 Conduct on site - The contract will set out the City Council’s minimum requirements relating to the conduct of the contractor’s staff and any sub- contractors in Schedule 10 to the Project Agreement.
- 3.12 Communications and consultation- Provision has been made prior to and throughout the procurement period to keep stakeholders informed as to progress and to consult tenants.
- 3.13 Stakeholders in this project were identified as:
- 3.14 Communication and consultation throughout the project to date has included:-
- 3.15 As outlined above there has been extensive consultation with tenants both prior to and throughout the procurement period. To date tenants have been supportive of the scheme. To obtain S27 consent the Council now has to carry out a final, formal c...
- 3.16 As the project moves from contract close towards service commencement Leeds South East Homes and Yorkshire Transformations will be undertaking staff consultation with all transferring staff. The trade unions will be included throughout this process.
- 3.17 The following 4 areas (Financial, Legal and Performance & Payment and Development Agreement) are subject to ongoing negotiations. Appendix 1 and the Supplementary Annexes to the report outline the current negotiating positions. Changes to the p...
- 3.18 Financial Issues: Attached at Appendix 1 is a detailed report covering the financial issues relating to the project. In summary the main issues are:
- 3.19 Legal Implications and Powers: The Supplementary Annexes to this report contain a draft report compiled by the Council’s External Legal Advisers, Addleshaw Goddard, which:-
- i) Advises generally on terms reached in negotiation,
- ii) Comments on how closely the terms of the PFI contract follow the requirements of HM Treasury and ODPM standardisation guidance,
- iii) Explains the steps that are to be taken on the Council’s behalf in relation to the PFI contractor’s financing agreements and sub-contracts
- iv) Advises on the Council’s statutory powers to certify the Project Agreement and the lender’s direct agreement under the Local Government (Contracts) Act 1997, and
- v) Advises on the enforceability of the performance mechanism
- 3.20 Attached to the above report are draft certificates under the Local Government (Contracts) Act 1997, which, amongst other things, identify the statutory powers under which the Council will enter into the project. The final version of the Addlesh...
- 3.21 Performance & Payment Mechanism: The performance mechanism provides for specific deductions to be made from the Unitary Charge (the annual payment) when specified standards for the dwellings and services are not met. The payment mechanism regulat...
- 3.22 Development Agreement The Development Agreements will make provision for and set out the terms of disposals of land on a freehold and of garages on a leasehold basis under the Housing Act 1985, for which the Secretary of State’s consent will be r...
- 4.0 conclusion
- 5.0 PROPOSALS FOR APPROVAL
- Members of Executive Board are recommended to:
- 5.1 Confirm their acceptance of the offer of £73.5m PFI credits from the Office of the Deputy Prime Minister and their understanding of the affordability implications for the Council as set out in Appendix 1.
- 5.2 Note the information in this report, its appendix and the separate Supplementary Annexes providing details of the process and negotiations undertaken and work carried out to date
- 5.3 Approve the financial implications and the affordability threshold for the Council of entering into this contract as detailed in Appendix 1.
- 5.4 Approve disposal of the sites identified in the Supplementary Annexes to Yorkshire Transformations for the price indicated in Appendix 1
- PROPOSALS AUTHORISING DELEGATED APPROVALS
- 5.5 Subject to approval of the Full Business Case (FBC) by the Deputy Chief Executive and ODPM, a positive accounting determination on the transaction, and receipt of S 27 consent by the Secretary of State and subject to the Deputy Chief Executive (or...
- (1) Approve the Council's entry into the project with the special purpose company of the Yorkshire Transformations consortium, subject to the final approvals referred to in recommendation 5.5(2) below;
- (2) Grant delegated powers to the Deputy Chief Executive , or in his absence the Chief Executive, (in consultation with the Chief Legal Officer and the Development Director) to give final approval to the completion of the Project, including (but not ...
- 5.6 Subject to consideration of the outcome of the final tenant consultation exercise, authorise the Director of Neighbourhoods and Housing to apply for Secretary of State consent under S27 of the Housing Act 1985 as amended by the Regulatory Reform (...
- 5.7 Approve that the Director of Corporate Services , as the statutory officer under section 151 of the Local Government Act 1972, or in his absence the Chief Officer - Financial Management be authorised :
- 5.8 Approve that, in respect of certification under 5.7, and subject to the advice of the Director of Legal Services, a contractual indemnity be provided to the Director of Corporate Services in respect of potential liabilities arising from the certif...
- 5.9 Approve that the Director of Legal Services (or any other officer of the Council authorised by her) be authorised to execute or sign all necessary agreements, by affixing the Council’s common seal or otherwise, and take any necessary further actio...
- 5.10 Request and authorise the Director of Neighbourhoods and Housing to implement any post completion arrangements necessary to monitor and administer the contract documentation by agreement, where necessary with Leeds South East Homes, such agreemen...
- 5.11 Authorise that the Director of Legal Services (or other officer of the Council authorised by her) be authorised to sign a certificate evidencing the above resolutions under section 41 of the Local Government (Miscellaneous Provisions) Act 1976 wh...
- Appendix 1
- FINANCIAL ISSUES