Agenda item

[Report of the Interim Director for Housing, Regeneration and Planning. To be introduced by the Leader of the Council. ]

 

To make a decision on the future of the Haringey Development Vehicle.

The Assistant Director for Corporate Governance and Monitoring Officer reminded the Cabinet of their duty to approach the decision with an open mind. He advised Cabinet to take into account all relevant considerations before coming to a decision. This included giving sufficient attention to the points raised, both in the officer's report as well as in any representations made at the meeting at item 7 and any representations received from Lendlease including any correspondence.

 

The Leader confirmed that the Cabinet had received three letters from Lendlease with regards to the report and the Council had responded to the third letter received. The Cabinet had these representations and would consider them when considering the report and recommendations.

The Leader continued to introduce the report and set out that this administration was elected on a promise to build Council homes on Council owned land. There was also a commitment to house Haringey’s people, creating a diverse mixture of housing options for Haringey’s residents. There was a commitment from the administration for doing the best for Haringey and delivering the best for Haringey’s residents.

 

The Leader expressed that there can be little disagreement about the importance of tackling poverty and deprivation, providing access to housing and jobs, and securing a sustainable future for the public services we provide. However, the proposed HDV had shown how strongly opinions differ, both inside and outside the Council, about the best way to address these important issues.

 

Building on the commitments made during the recent elections, the new administration were taking decisive action to set a new direction for the Council, by taking this final decision on the HDV.

 

It was recognised that this decision should not be taken lightly. As set out in this report, this was an informed decision. Furthermore, the work completed to develop the HDV proposals by the bidders, including by Lendlease was recognised. The decision proposed was neither a reflection on the quality of that work nor of their desirability as a partner. Indeed, the Council remained grateful to Lendlease for the interest that they had shown in Haringey and its future, and for their commitment to the Council in its other partnerships.

 

The Leader expressed that a decision of this significance must be taken having weighed the risks and demerits against the benefits. He continued to advise that this administration had taken a different view on that balance from the previous one.

 

The Leader understood that the residents and businesses of Haringey would expect the Council to offer a clear alternative vision for how to tackle the challenges faced The work on the alternatives had already begun and was not only to described but being put it into action, as could be seen from the other reports being considered by Cabinet alongside this one.

 

In response to questions from Cllr Adje and Cllr Barnes:

 

• In relation to continuing engagement in the Northumberland Park estate renewal, paragraph 6.45.3 was referred to and outlined the engagement with residents in Northumberland Park .This encompassed community development related activities as well as engagement actions aimed at instigating discussion about the wishes and aspirations of residents for the estate.

 

• The Director for Housing and Growth clarified that section 4.1.3b advised specifically on the bidder’s responsibility for the cost of bidding in a procurement process .Distinctly, the agreed costs set out at section 6.2.6, were the costs that were incurred on behalf of the future HDV. These costs were accrued by Lendlease in relation to the work completed for the benefit of the HDV, after Lendlease was appointed as preferred bidder. These costs were due to be reimbursed to Lendlease if the HDV had been established, with an agreement they would be shared between the Council and Lendlease if the HDV were not established for any reason.

 

• In relation to the potential cost of contract mediation, the Chief Executive reiterated that no contract had been entered into.

 

Further to considering the exempt information, the Leader asked Cabinet to consider the information contained in the public report, representations received from Lendlease, including the presentation at the meeting. He referred to the recommendations of the public report set out at section 3.1 page 29 of the public report and also referred to the exempt recommendation and asked Cabinet to consider these with an open mind, referring to the Monitoring officer’s advice above.

 

 Cabinet unanimously RESOLVED

 

1.    To agree that the Council should withdraw from the Competitive Dialogue procedure with immediate effect for the reasons set out in section 4 of this report and therefore not award a contract in relation to the Haringey Development Vehicle (OJEU reference 2016/S 008-010032);

 

2.    To agree to delegate authority to the Director for Housing, Regeneration and Planning, to approve payment to Lendlease of the Council’s share of ‘Agreed Costs’ as described in para 6.34; and

 

3.    To agree to delegate authority to the Director for Housing, Regeneration and Planning, following consultation with the Leader, to address any other matters arising from the decision, including writing to all bidders and other matters referenced in the exempt report. (this paragraph includes information in the exempt report)

 

Reasons for decision

 

The selection of a preferred bidder for HDV was undertaken in accordance with the Public Contracts Regulations 2015 (“PCR 2015”) from three compliant and high quality bids in response to the Competitive Dialogue Procedure documents. In line with those regulations, the Council had issued various procurement documents to tenderers. Provisions contained in these documents, as listed below in relation to stages of the procurement process:

 

The PQQ makes clear that:

(a) The Council reserves the right not to make any appointment following the procurement process; and

(b) That all Bidders are responsible for their own costs and the Council will not fund the costs of any Bidder in applying for this opportunity;

 

In the ITPD and ISDS the Council reserves the right:-

(a) not to award a contract;

(b) to cancel or withdraw from the Competitive Dialogue Procedure at any stage;

 

In the ISFT the Council reserves the right:-

(a) not to make any appointment following the procurement process;

(b) all bidders are responsible for their own costs and the Council will not fund the costs of any bidder in applying for this opportunity not to award a contract;

(c) to cancel or withdraw from the Competitive Dialogue Procedure at any stage.

 

There are two distinct reasons for the recommendations set out in this report, each of which inform and explain the new administration’s manifesto statement that it did not believe the HDV provides the answer to the challenges faced by the Council. Each reason, being distinct, is of itself sufficient to found the recommendation.

 

The first reason is related to the approach taken to public assets within the HDV. The new administration does not agree with the proposed transfer of public assets out of 100% public ownership at the scale envisaged by the HDV proposals. The proposed project agreements would commit the Council to transferring the Commercial Portfolio and (subject to conditions being met) the Wood Green development sites to the HDV, which is in itself a large scale, multi-site transfer of assets out of sole Council control. In particular, the new administration believes on principle that the Council’s Commercial Portfolio should remain in Council ownership and subject to Council management, and should not transfer as a whole portfolio out of solely public ownership. Further, although it is correct that setting up the HDV would not – of itself - commit the Council to transfer any further sites into the HDV, the HDV proposals envisage that if it was ultimately to develop any further sites, these too would be on the basis of transfer of legal title to the HDV. A transfer on this scale is not an acceptable approach for the new Council administration.

 

The second reason relates to risk. In line with provisions in the Cabinet reports in November 2015 and July 2017, the Council has throughout the development of the HDV proposals, recognised that to proceed with the HDV came with a degree of risk, including those related to committing its commercial portfolio and, subject to satisfaction of conditions, land for development. These risks combined those to which the Council would have been directly exposed, and those to which it would have been indirectly exposed through its 50% stake in the HDV.

 

The Council’s acknowledgement of these risks, and plans for mitigating them, are illustrated both in the Business Plans approved by Cabinet in July 2017, and by the Cabinet responses to scrutiny reviews of the HDV proposals as they were emerging during 2017 (see para 6.14), as well as in its HDV risk register which has been published online, with regular updates.

 

The previous administration considered that these risks were acceptable when weighed against the potential benefits of proceeding with the HDV. The new administration does not object to outcomes anticipated by the HDV programme, nor does it object to the principle of partnerships with the private sector. But it takes a different view on the acceptability of the risks.

 

In particular, the new administration is not prepared to accept the scale and nature of risk implied by the aggregated volume of the proposed HDV programme. Even accepting that the Northumberland Park, Cranwood and Category 2 sites would not be formally committed to the HDV under the terms of the proposed HDV agreements, the Commercial Portfolio and Wood Green Business Plans alone present a degree of risk that the Council is not now prepared to accept. As with any development project, the proposed HDV development plans for the Wood Green sites would have significantly exposed the HDV (and by extension the Council) to fluctuations in the residential and commercial property markets and a range of other development risks; given the treatment of the Council’s Wood Green and Commercial Portfolio property interests as an equity stake in the HDV, the nature and extent of the exposure of those assets to those risks is not considered acceptable. While the Council (on its own, and in the development of the HDV proposals alongside Lendlease) had done a great deal of work to map and mitigate a range of risks associated with the HDV – as set out in section 6 below – these risks, about which the new Council administration is principally concerned, are fundamental to the nature of the HDV proposal and cannot be mitigated to an extent that would change the view expressed here.

 

In anticipation of the Cabinet decision on 17 July 2018, Lendlease wrote to the Council Chief Executive on 4 July 2018, urging the Council to consider taking forward the HDV, on the basis that the HDV’s flexibility could allow a reconfiguration to meet the new administration’s priorities. Lendlease also asked that its letter be put before Cabinet members as they considered their decision. The letter is attached as Appendix 1a to this report.

 

Lendlease wrote again on 9 July 2018 (Appendix 1b), which reiterated Lendlease’s continued commitment to working with the Council, but notes that if “ Cabinet decides to attempt to reverse our appointment as the successful bidder, we will have no choice but to seek to protect Lendlease’s interests given our very significant investment over the last two and a half years”. Lendlease propose that the Cabinet “considers all relevant factors, objectively and rationally”, or else, “assumes the Council will have no option but to defer any Cabinet decision.” The Council Chief Executive has replied to the letters from Lendlease, to acknowledge receipt and to confirm that their contents will be made available to Cabinet Members ahead of the decision recommended in this report.

 

The HDV represents a unique programme, the nature and potential scale of which makes the consequences of any risks being realised especially serious. Since coming into office in May 2018, the current administration has considered the options available to the Council, including the recommended option and alternative options as referred to in section 5. On balance, and building on the view set out in its manifesto at the May 2018 elections, the Council’s new administration does not believe that proceeding with the HDV, or alternative option(s) as described in section 5, is in the Council’s interests. It is not a judgement that is specific to the bid from Lendlease or the arrangements discussed and agreed between the Council and Lendlease during the Competitive Dialogue process, but rather one, which relates to the fundamental structure of the proposed deal as defined by the Council from the start of that process. It is a judgement, which also takes into account, and accepts, that the Council has already expended a considerable sum of money on setting-up of the HDV.

 

This report therefore seeks authority to withdraw from the Competitive Dialogue Procedure and therefore not proceed with the setting up of the HDV. It also recommends delegations to officers to resolve the outstanding issues that directly arise from a decision not to proceed.

 

As with all decisions, the recommendations in this report carry a number of risks and implications. Section 6 of this report highlights these risks and implications. These include (a) legal risks, (this information is partly included in the exempt report); (b) financial risks and implications, (this information is partly included in the exempt report), costs for due diligence work done to date (known as ‘Agreed Costs’) and costs which would be written off for work undertaken to date; (c) strategic risks, covering the capacity of the Council to meet its objectives and statutory requirements, including additional costs and loss of potential future investment; and (d) reputational and political risks.

 

Alternative options considered

 

The option of establishing the HDV is described by the decision made by Cabinet in July 2017. If progressed, this would commit the Council to pursuing the transfer of the Commercial Portfolio to the HDV, and the Wood Green sites subject to certain conditions being met. Further, it would mean that the Cabinet had the option, at its complete discretion, following section 105 consultation and the satisfaction of further necessary conditions, to transfer the Cranwood and the Northumberland Park sites to the HDV for redevelopment.

 

Alongside the option of establishing the HDV as currently configured, Cabinet has also considered reconfiguring the HDV, for example by investing the Commercial Portfolio but with a reduced scope of delivering only the Category 1A Properties (i.e. the Wood Green sites). However, this option, as with other variations, which exclude significant parts of the offer originally envisaged, would require a modification to the project agreements and could be regarded as a substantial modification to the procurement contemplated by the Procurement Documents. This option would therefore lead to a risk of the Council breaching the PCR 2015 with a real risk of challenge from any of the bidders. This is a risk the Council does not consider it would be prudent to take.

 

Even in the absence of the real risk of challenge for breach of the PCR 2015, none of these alternative options – in any of their respective variants – would address the concerns of the political leadership about the fundamental approach underpinning the HDV, as set out in section 4 above. These alternatives have therefore been rejected, in favour of the recommendations set out in section 3 of the report.

 

Lendlease contacted the Council on 4 July 2018 as referred to above in paragraph 4.8. The potential approach described in the Lendlease letter does not differ in its key characteristics from the range of reconfiguration options described in paragraph 5.2. Rather, like those options, it remains based on the fundamental deal structure as defined by the Council from the start of procurement (and could be subject to the same risk of challenge for breach of the PCR 2015, depending on the nature and scale of departure from the original procurement proposition). The approach proposed by Lendlease is therefore rejected for the same reasons as all other possible variants of the deal.

 

In relation to recommendation 1, in the private session ,the Assistant Director for Corporate Governance referred to a legal QC opinion which was received, dated 12^th of July 2018, which considered three potential options for restructuring the HDV relating to affordable housing which in the QC’s view fall within the scope of this procurement. He stated that options 2 and 3 involved some change but did not in his view involve such a change as is sufficiently substantial to require a fresh procurement.

 

This opinion was also considered by Cabinet. However, these variants were rejected by Cabinet in any event as they did not address the concerns of the political leadership about the fundamental approach underpinning the HDV as set out in section 4 of the report.