Agenda item

[Report of the Director for Housing, Regeneration and Planning.  To be introduced by the Cabinet Member for Housing and Estate Renewal]

This report seeks Cabinet approval to vary the existing contract for the Broadwater Farm District Heating system. The variation is required to cover delays caused by Covid.

The Cabinet Member for Housing and Estate Renewal introduced the report which sought approval for additional works and variations to the contract with Engie Ltd to provide a new district heating system and home improvements on the Broadwater Farm estate.

The Cabinet Member and David Sherrington, Director of Broadwater Farm, (Homes for Haringey) responded to questions from Councillor Cawley-Harrison:

-           A written response would be provided in relation to the carbon reduction that would be achieved as a result of the works.

-           There were no recent instances of residents left without heating or hot water.  However, if this were to occur at any stage of the works then residents would be provided with emergency heating.

Further to considering exempt information at item 30, 

RESOLVED to

1.      Approve the variation of the District Heating contract with Engie LTD of an additional £466,805, noting that the final amount to be paid in respect of £363,786 prolongation and, loss and expense, will be subject to approval by the Director of Finance. More details of the variations required are set out in sections 6.8 to 6.11 of the report.

2.      Delegate the approval of a maximum additional consultancy fees of £125,196.75to the Director of HRP and Director of Finance, as this is subject to further justification and legal review. These are as set out in paragraph 6.12 of the report.

3.      Approve the contingency sum as disclosed in the exempt report and related consultancy fees.

4.      Agree not to seek to recharge leaseholders their proportion of the cost of these works.

Reasons for decision

The works have progressed well and phase one of the original contract, the disconnection of gas boilers and construction of a temporary district heating system, was delivered on time avoiding a potential decant of nine blocks, despite a very challenging deadline.

The second phase has delivered a new district heating network and incorporated additional works, such as safety improvements and the installation of new kitchens and bathrooms, resulting in enhanced outcomes and reduced disruption for residents. The inclusion of these works resulted in significant savings by making use of the existing contractor relationship and achieving rapid mobilisation, less duplication and economies of scale. A full explanation and breakdown can be found in the previous cabinet report dated 8 October 2019 and further explanation is provided in Section 6 of the report.

The impact of COVID-19 on the project has been significant. Work was initially halted during the first national lockdown in March 2020 and following the lockdown, works could only proceed with significant changes to working practices, slowing progress and incurring additional costs. It was essential to establish safe systems of work to protect residents, site operatives and Council staff from the risks posed by the ongoing pandemic.

The additional measures implemented meant that less operatives could be accommodated in working spaces, thereby reducing productivity, and increasing the period required for the works. For example, only one person could work in a flat at any given time, whereas before several people would be working alongside each other. ‘No-access’ instances (to flats) also significantly increased, restricting the ability to carry out essential works in flats and leading to ‘out of sequence’ working. Additional PPE requirements also incurred additional costs. A detailed breakdown of the impact on costs can be found in Appendix A.

The current public health situation is still impacting the delivery of these works – challenges remain regarding the inability to access homes and the potential risks of further cessation of works if tighter restrictions are introduced. A contingency sum of £EXEMPT has therefore been included in the contract variation amount to mitigate against the risk of further delays.

The additional contingency reflects an allowance considered to be appropriate for ongoing risk, including further ‘no access’ issues. The figure is based on analysis of the project costs to date the contractor is not party to this sum and it will only be expended if a contractual case can be made by the contractor. The figure provided in the exempt section should be considered a ‘worst case’. Further explanation is provided in section 6 below.

Additional costs have also been instructed on the contract to undertake essential safety works, including fire stopping, which would have delayed the main works if not addressed in a timely manner. Undertaking these works as part of the contract also resulted in time and cost savings as the works could be completed in sequence with the main contract.

For example fire stopping in some areas was undertaken where new connections to the district heating system identified areas where fire stopping was required.

As well as works costs, management and consultancy fees have increased. This includes a percentage increase in line with the contract costs and further additional fees associated with works to de-mobilise the site during the first lockdown, fees to re-mobilise works, fees to ensure Covid safe working practices consistent across all HfH capital works were adopted, and fees associated with significant levels of no-access and additional survey work.

Alternative Options Considered

Officers considered the option of re-procuring the works under a new contract. This was discounted as it would lead to delays in the conclusion of the current works. This delay to the main contract would have increased costs by more than the additional amount in the variation of the contract. There would be an increased risk of quality being compromised and potential liability issues should any defects become apparent in the future.

The option of refusing the claims for an extension without terminating the contract has been considered. This is not likely to be contractually feasible, given the circumstances in which the additional costs have been incurred.

The option of a variation to the existing contract is therefore the preferred method of completing the works in the most expedient manner, at the lowest cost and whilst guaranteeing quality.