Futures Forum: Knowle relocation project: time for some number crunching >>> a £17 million cost ... or even £30 million?
A year and a half ago it made several assumptions (highlighted) which are now proving rather hollow:
Cabinet: 11 March 2015: Relocation Decisions
Finance:
The report explores the financial comparison between meeting the Council’s desire to move its offices and remaining at the Knowle. The Council is publishing the fullest information to inform the Council and public understanding of the financial merits of moving offices to Honiton and Exmouth. In agreement with the preferred developer, we can confirm that the offer price for the Knowle is between £7m and £8m. The exact figure, while commercially confidential for the moment, has been made known to all Members so that they are aware of the exact price to inform their consideration.
The exact price has also been used in the financial modelling agreed with our independent auditors and their cost consultants therefore the costs are derived from an offer price not a professional valuation or estimate. Furthermore, the entire calculation base of the financial model developed with our independent auditors, Grant Thornton has been made available for members to peruse on a computer in the members area. The Model is extensive and is necessarily confidential because its calculations include the sale price of the Knowle site. We will look at an appropriate future date to publish.
vi) We are also now able to confirm publicly that the preferred developer is Pegasus Life Ltd, a specialist provider of residential developments offering retirement and extra care living facilities.
vii) In relation to other financial matters, attachments to this report also include full detail of the running cost elements included in the whole life calculations (a 20 year period that reflects the timescale up to a first office refurbishment). Within the running cost calculations it is worth pointing out that we have taken on board external criticism of the previous energy cost assumptions and factored in DECC future projections of energy prices. In doing this we have consulted the South West Energy and Environment Group (SWEEG) - http://emps.exeter.ac.uk/research/energy-environment/cee/sweeg/.
viii) Headline financial issues tested through the Grant Thornton Model are:
The most cost effective option is to refurbish Exmouth Town Hall and a new build office at Honiton Heathpark. Options of Honiton alone and combined with Exmouth are all more cost effective than staying at the Knowle with ‘do minimum’ investment let alone any significant modernisation. Over the 20 year period the district will be £2.8m better off if the Council moves. This compares with being £3.9m worse off by staying and carrying out ‘do minimum’ investment works at Knowle.
The Knowle site is to be sold for £7-8m and that leaves 3.5196 hectares of publicly accessible parkland available to the ownership of Sidmouth Town Council.
Alongside the capital receipt, the Council will prudentially borrow £2.1m from the Public Works Loan Board over a 20 year period.
Every year from when the Council moves, the savings in operating costs are greater than the loan repayments. For the loan period the savings improve every year in comparison to the repayment sum.
After 20 years the loan ends and savings continue.
Recommendations:
Cabinet is asked to agree the following recommendation to be submitted to Full Council for final approval:
11. Note and agree a net project budget of £2,221,445, this being the estimated cost for a new build office accommodation in Honiton (Breeam very good option) and for the modernisation of Exmouth Town Hall as identified in the table in paragraph D5.6 less the Capital Receipt for the Knowle. In addition a budget of £900,630 is required to meet loan interest costs 43 relating to short term and long term funding. Short term cash flow funding will be required totalling £9.2m to meet design and build costs prior to receiving the sale proceeds of £7-8m from the Knowle (financial risks are mitigated by Gateway 7 process detailed in the report). Once the capital receipt is received the balance of funding required is £2.1m to be funded from a long term loan over a 20 year period.
Financial implications:
The report and appendices contain detailed financial information relating to the options considered in this report.
1.7 It is worth members further noting that the Grant Thornton Model shows that the construction costs projected for the refurbishment of Exmouth Town Hall and a new office building at Honiton including contingency would both have to increase by a further 42% before the Net Council Cashflow under the Knowle Do Minimum option becomes comparable. This being equivalent to a contingency of 60%. This is statement coming from the Grant Thornton report under Modelling Conclusion (2.10.3 of their report).
2.5 Any investment at the Knowle does not increase value of the built form. The value is in the land which the Council seeks to release to fund new and modernised offices. Members should be aware that the construction and fit out costs will be more than the estimated future market value of the new offices should the Council wish to sell them at a future date. The market value of the Honiton new build is estimated to be £3.25m in 2017 and Exmouth Town Hall had a site value estimated in 2013 as £0.9m. The sites are determined primarily on the basis that they make better financial sense than the Knowle and are located for operational rather than investment purposes.
Summary:
8.1 The Council has now been given the independent audits of its governance, modelling and assumptions across the office relocation project. Members have previously agreed that they want to leave the Knowle site in a manner that is cost effective and does not add to the Council Tax bill of East Devon’s residents. An operationally and financially viable solution exists in term of Honiton and Exmouth that makes the council fit and flexible for the future in a way that the Knowle is unable to do.
8.2 This is a significant and sensitive decision for the Council to take. EDDC is not a Council that shies away from major decisions. There will be big decisions as we meet the challenges of the future and deliver on our transformation plans. This is a key moment in the Council’s evolution and the point where EDDC takes responsibility for its future rather than waiting for change to happen to it.
Cabinet: 11 March 2015: Relocation Decisions
https://eastdevonwatch.files.wordpress.com/2015/03/110315-cabinet-combined-agenda.pdf
KNOWLE RELOCATION: MORE PUBLIC STATEMENTS COME BACK TO BITE COUNCILLORS ON THEIR …
13 DEC 2016
This passage didn’t get much noticed at the time, in a report to Cabinet March 2015:
‘The market value of the Honiton new build is estimated to be £3.25m in 2017 and Exmouth Town Hall had a site value estimated in 2013 as £0.9m. The sites are determined primarily on the basis that they make better financial sense than the Knowle and are located for operational rather than investment purposes.’
This appears to confirm that the value of the new build is much less than the cost of its construction. Way less. Only £3.25 million, forward dated to 2017. So about £8 million more than the cost of build. Plus, don’t forget that the Honiton site, with or without the Business Centre, is worth at least £0.75 million, so the added value arising from construction, costing £11 million, is £3.25 – 0.75 million. Just £2.5 million. What a terrible investment.
Moreover, the sentence, presumably composed by Richard Cohen, seems to suggest that the Town Hall will not receive any benefit from the refurbishment, as it is deemed to have only ‘site value’ at £0.9 million.
Councillors … wool … eyes … pulled over?
KNOWLE RELOCATION: OUR CONSTRUCTION EXPERT WRITES … ANOTHER £2 MILLION DOWN THE DRAIN?
13 DEC 2106
The East Devon Watch blog comments:
KNOWLE RELOCATION: MORE PUBLIC STATEMENTS COME BACK TO BITE COUNCILLORS ON THEIR …
13 DEC 2016
This passage didn’t get much noticed at the time, in a report to Cabinet March 2015:
‘The market value of the Honiton new build is estimated to be £3.25m in 2017 and Exmouth Town Hall had a site value estimated in 2013 as £0.9m. The sites are determined primarily on the basis that they make better financial sense than the Knowle and are located for operational rather than investment purposes.’
This appears to confirm that the value of the new build is much less than the cost of its construction. Way less. Only £3.25 million, forward dated to 2017. So about £8 million more than the cost of build. Plus, don’t forget that the Honiton site, with or without the Business Centre, is worth at least £0.75 million, so the added value arising from construction, costing £11 million, is £3.25 – 0.75 million. Just £2.5 million. What a terrible investment.
Moreover, the sentence, presumably composed by Richard Cohen, seems to suggest that the Town Hall will not receive any benefit from the refurbishment, as it is deemed to have only ‘site value’ at £0.9 million.
Councillors … wool … eyes … pulled over?
KNOWLE RELOCATION: OUR CONSTRUCTION EXPERT WRITES … ANOTHER £2 MILLION DOWN THE DRAIN?
13 DEC 2106
The tender price index for British construction has risen 15% since EDDC announced the cost of the Honiton new build in March 2015.
Yet EDDC claim that the £669,000 increase in the cost of Exmouth can be absorbed within the overall budget of £9.2 million. We know that Exmouth was budgeted to cost £1 million, so the budget for Honiton was £8.2 million. We know that Exmouth has been subject to a 67% increase.
What can we expect for Honiton? Assuming that the costs will rise in line with the tender price index, the new cost will be £8.2 million, plus 15%. Which means another £1.23 million, totalling £9.43 million. It will, of course, probably go a lot higher.
Costs have therefore risen by £2 million since March 2015, but anticipated receipts from the sale of Knowle are unchanged. We appear to have lost £2 million – and we haven’t even started!
Will any of this figure in the debate? Probably not – our Tory councillors don’t enjoy discussing numbers that they don’t like!
One thought on “Knowle relocation: our construction expert writes … another £2 million down the drain?”
Paul F says:13 Dec 2016 at 9:04pm
Tory leadership know that the numbers no longer stack up (assuming that they ever did stack up – this is after all a vanity project where numbers are kept secret because a bad business case doesn’t matter nearly as much as the kudos and power that this project bestows) – but they cannot possibly lose face by backing down now.
The lower-ranks of Tory councillors blindly trust their leadership, and will vote for them without either feeling the need, or putting in the time required, to really understanding the detail.
Which means that neither the leadership nor the rank-and-file will want to debate numbers. No doubt members of the public will loudly question the numbers during public speaking only to be fobbed off with a platitude by Richard Cohen without the right to criticise the answer, then opposition councillors will ask probing questions about the finances and will get a long-winded response which will not really answer the question though Richard Cohen and The Div will say it does.
Then maybe there will be a vote to continue with the project, and the Tory drones will either trust their leadership or fear becoming a social outcast at the local Conservative Association if they break ranks and vote against – either way the project will get the green light to keep frittering away OUR money.
.
.
.
.
.
No comments:
Post a Comment