Agenda item

To receive a presentation from the Director – Development Services.

The Director of Development introduced a presentation on the structure and organisation of Bournemouth Development Company (BDC), one of a number of topics of interest which Members had requested be brought to the Committee.

The Town Centre Vision Programme Leader explained that BDC was formed in 2011 as a Limited Liability Partnership (LLP) following a lengthy public procurement process. The LLP had its own bespoke governance arrangements which enabled it to align as far as it was able to with the Council’s own internal processes at key stages in the development process. He explained why BDC had been formed – to respond to market failure and previous lack of delivery, to have more control and input in the development process, and to capture the fruits of development. He outlined the role of the three tiers of decision making within which BDC operated, as follows:

• Development Manager: with delegated responsibility for day to day decisions on the development process, but required to seek guidance/approval from the BDC Partnership Board on certain matters. The role required a level of industry expertise not available within the Council and was fulfilled by Morgan Sindall Investments Limited, part of Morgan Sindall Group, a large construction services business well known in the market place.

• BDC Partnership Board: which ensured that LLP Member Approval decisions were implemented in accordance with specified requirements. At the present time the Board was made up of three councillors and two representatives of Morgan Sindall. It acted in the best interests of BDC and its four business objectives: regeneration of the area; bringing forward buildings of good quality and design; ensuring delivery on the ground; and delivering returns in line with the business plan and site development plan approved by Cabinet.

• LLP Member Approval – made up of two members, the Council and Morgan Sindall, with the Council acting in its own interests at this level. Designed as a deadlock vehicle requiring consensus to proceed. Council decisions were made openly and transparently by Cabinet or full Council. Morgan Sindall had its own internal governance arrangements to obtain its member Approval. LLP Member Approval was required for all major/strategic decisions.

The Town Centre Vision Programme Leader provided an illustrative example of the financial case for BDC, which demonstrated that the joint development approach gave a higher return and guarantee of delivery than through a straight forward land disposal. In conclusion, BDC had delivered on the ground using a model which was being replicated elsewhere. Although progress was not as far advanced as anticipated, BDC had long term regeneration objectives and was only nine years into its twenty year programme.

Councillors acknowledged the beneficial aspects of the LLP model but raised a number of issues around value for money, risk, and transparency. Councillors felt that it was important to provide assurance on these issues, particularly if this model was to be used for future regeneration programmes.

Councillors asked whether the Council was getting value for money in its partnership with Morgan Sindall and whether this was equitable in financial terms.  It was difficult for a lay person to understand how the financial returns worked and it was noted that this information was not easily accessible. There were particular concerns about the land valuation process, and two examples of development sites were given where the residual land value was set either very low (Durley Road Car Park) or at nil (Winter Gardens). Councillors asked whether the returns for Morgan Sindall were fixed and if so, what happened if the profit margins were not achieved.

Officers confirmed that the BDC model provided greater financial return than the land disposal option. It also brought with it the added benefits of regeneration. Morgan Sindall held an equal stake in BDC, and shared profits 50/50 with the Council. Profit margins were not fixed. The Partnership Board was responsible for agreeing the level of profit for each specific project. This varied according to each project and the level of risk involved.

The Committee was provided with further information about the valuation procedure, which was undertaken by an independent external valuer using the industry wide accepted RICS ‘red book’. The valuation was not done until uncertainties such as planning, construction cost, finance cost and planning/highways legal agreements were accounted for. This was checked against the development appraisal by BDC and more often than not when market level of profit was applied the residual land value under red book analysis was less than through the BDC mechanism. It was a complex, technical process, built into the LLP agreement. It was noted that the Council had a legal requirement to show ‘best consideration’ when disposing of an asset. The Section 151 Officer was asked how best consideration was achieved. He explained that this was done by making a balanced judgement on value for money. This involved a subjective assessment of all relevant factors, including land value, profit and the delivery of development where it would otherwise not be achieved.

Councillors sought further information about the LLP agreement and asked whether it was publicly available. There were questions about whether the agreement entailed all risks falling on the Council, and how any imbalance in levels of knowledge and expertise within Morgan Sindall and the Council was addressed. The Interim Monitoring Officer gave assurance that while the LLP agreement was a very complicated document the Council had a good working knowledge and understanding of its provisions. One of these provisions required Secretary of State consent for any undervalue exceeding a certain threshold. The Town Centre Vision Programme Leader confirmed that although the LLP agreement was a private document it had been disclosed many times under Freedom of Information to other councils and interested parties wishing to use a similar template.

With regard to risk the Town Centre Vision Programme Leader reported that in the early stages a large part of the risk profile was passed on to Morgan Sindall, requiring it to fund schemes through the planning process with any remuneration for this risk not due until ‘practical completion’. He assured the Committee that he had 40 years experience of the development process in various roles, having in that time worked on the delivery of £15 billion of transactions. He therefore felt he had a good understanding of the role Morgan Sindall played. He was able to support councillors and officers in understanding their roles and ensuring due process was followed.

Officers were asked about the strategic direction of BDC and any plans to add sites from the wider conurbation. Officers confirmed that this was under consideration in accordance with specific procedures contained in the agreement. A report to Cabinet in October would identify one site in Poole for further investigation.

Councillors requested that a value for money audit on BDC be carried out, to enable the Committee to consider in more detail how the joint venture approach worked in real terms financially. It would be useful to look at specific developments, particularly in the context of the independent valuation process and the other issues raised during the discussion.

The Chairman thanked the Director of Development and the Town Centre Vision Programme Manager for their presentation and agreed to arrange in consultation with the Director of Development for a value for money audit on BDC to be reported to a future meeting of the Committee, as soon as practicable.