Content

Salford City Council - Record of Decision
Title: Bevan Intermediate Care
Unit, Stott Lane, Salford
 
I, Councillor Tracy Kelly,
Deputy City Mayor, in exercise of the powers contained within the
City Council’s constitution do hereby;
 

Approve the appointment of
Galliford Try Ltd to undertake the development of design and costs
to RIBA Stage 4(i) for the cooling remediation works detailed in
the report associated with the temperature issues at the Bevan
ICU.

 

Approve, subject to the costs for the implementation works being
within the funding available to the Council for such works, and
provided for by the Northern Care Alliance, the appointment of
Galliford Try Ltd to deliver such works.

 

Note that the NCA made a premium payment to the
City Council in March 2024 that covered the initial costs to
deliver the Bevan ICU, and a further sum to cover the proposed
remediation works.
Note that assuming the delivery of the works can
be achieved at a cost equivalent to the premium payment or below,
then the monies paid by NCA will be sufficient to cover the initial
scheme and the proposed remedial works to be procured by the
Council. As reported previously, the Council will need to repay
monies to NCA if the final combined costs are less than the premium
payment or, collect further monies from the NCA if the actual
combined cost of the initial and remediation works exceeds the
premium payment.
Delegate to the Strategic Director Place and the
section 151 officer the ability to vary the terms of the GT
appointment by the Council for the implementation works as required
and following any necessary engagement and agreement with
NCA.
Authorise the Shared Legal Service to progress and complete the
associated legal formalities and the taking of all steps required
to give effect to the above recommendation.

 
 
The Reasons:
                             
 
To authorise the Council to
appoint a contractor to design and thereafter complete remediation
works to resolve ongoing overheating issues at the Bevan
Unit.
 
Assessment of Risk:Low
 
The
source of funding: Capital payment from Northern Care Alliance, but
with available budget within the Adults capital programme under
which the expenditure can be allocated as underwriting if necessary
until capital payment received.
Legal
advice obtained/supplied by: Tony Hatton,
Shared Legal Service

The main contract for construction and
appointment of the preferred contractor (Galliford Try Construction
- GT) to deliver the IMCU at Stott Lane was approved by Procurement
Board and City Mayor in August 2020 and NCA have paid the agreed
sum to the Council to cover the construction costs.

For the reasons set out in the report, urgent remedial works have
become necessary, and it is suggested that the contract with
Galliford Try is varied to include the additional works into the
existing contract held with them, or directly awarded by way of
urgency and technical reasons.

Whilst the value of the remedial works is below threshold for
public procurement purposes for works contracts, such a variation
(modification) would be argued to be permissible under the Public
Contracts Regulations 2015 (PCR). Regulation 72 of the PCR provides exceptions
where a contract can be modified without having to re-procure that
service. This includes allowing a change of contractor in either of
the following circumstances:

 

“(a) Where there is an
unequivocal review clause or option to do so within the
agreement”; or
 

“(b) for additional works, services or supplies by the
original contractor that have become necessary and were not
included in the initial procurement, where a change of
contractor:

(i)           

Cannot be made for economic or technical reasons such as
requirements of interchangeability or interoperability with
existing equipment, services or installations procured under the
initial procurement, or

(ii)         

Would cause significant inconvenience or substantial duplication of
costs for the contracting authority, provided that any increase in
price does not exceed 50% of the value of the original
contract.”

 

In similar fashion, the PCR also
permit sole sourcing and/or direct
award of a contract to be made to a contractor in limited
circumstances, as provided for in Regulation 32 (negotiated
procedure without prior publication of notice). The relevant
grounds in Reg 32 are as follows:  

 

 “(b)…where
the works, supplies or services can be supplied only by a
particular economic operator for any of the following
reasons: 
(ii) competition is absent for technical
reasons, 
(iii) the protection of exclusive
rights…. 
but only….where no reasonable alternative or
substitute exists and the absence of competition is not the result
of an artificial narrowing down of the parameters of the
procurement; or

(c)
insofar as is strictly necessary where, for reasons of extreme
urgency brought about by events unforeseeable by the contracting
authority, the time limits for the open or restricted procedures or
competitive procedures with negotiation cannot be complied
with. 
 
The risk
of a challenge to the award of the contract/variation to GT could
be considered to be relatively low in the current circumstances and
the Council has genuine reasons for the award. 
 
Shared Legal
Services will be pleased to advise on the appointment of GT and
associated documents upon receipt of instructions.
Financial
advice obtained/supplied by: Paul
Hutchings, Deputy Cfo
 
The council opted to tax the
Bevan unit and car park on the 08/10/2019.
 
The council has received a
certificate for sale and long leases of zero-rated buildings
certificate dated 13/04/2023 for the lease of the Bevan unit with a
start date for the lease of the 28/10/2021 from the NCA.
 
The Council must take all reasonable
steps to check the validity of the declaration on the
certificate:-
 

The certificate is
supported by a letter from the NCA that the building is to be used
for a relevant residential purpose.

The building has been
inspected by a surveyor from the property team to check the usage
of the building.

Given that the Council contracted for
the works on its own land it is council’s vat advisors view
that the council holds “person constructing” status for
this purpose.
The NCA have had verbal confirmation from HMRC that the building
meets the relevant residential purpose.

The zero-rating only applies to the first payment
due under the lease. Any subsequent payments due under the lease
will fall to be exempt, as a property to be used solely as a RRP
for which a certificate has been issued is excluded from the
effects of an option to tax. Any VAT on expenditure relating to the building
after the first grant will need to be included in the Council's
partial exemption calculations. 
The councils VAT advisors have
been consulted on the start date of the lease and the zero-rating
certificate. As no invoice or cash has been issued or received no
tax point has been created previously.
If the zero-rating
certificate from the NCA were found to be invalid (because it was
not a qualifying relevant residential property) the lease would be
standard rated because of the option to tax made by the council.
The lease should be drafted so that any payments are treated as
exclusive of any VAT due.  However, were the property held to
be a qualifying RRP building, but the certificate invalid, its
supply would fall to be exempt as an option to tax is automatically
disapplied by the VAT legislation in respect of RRP
properties.  
It's unusual for the value of
the premium to be (potentially) varied, especially as it is
defined as being a fixed sum in the lease.
 
If the value of the premium is
reduced under the fixed sum, and the Council were to issue a refund
then the Council would issue a credit note reflecting the reduction
in value and amount refunded.  
 
Zero rating only applies to the
first payment received/payable under the lease be that the payment
of a premium or the first rental payment - therefore if the Council
were to receive the premium on 31 March (for example) this would
set the tax point (and VAT treatment) for this
payment.  
 
It's unusual for the value of
the premium to be (potentially) varied, especially as it is
defined as being a fixed sum in the lease. To be valid for VAT
purposes a credit note must reflect a genuine mistake, overcharge,
or agreed reduction in the value of the supply.  In this case,
it is difficult to see how crediting the whole invoice sum in order
to invoice an increased amount which is envisaged under the lease
falls into any of these categories.  Additionally, as the
premium is defined as being a fixed sum I would question what any
sums in excess of this are, but as they are due under the
lease they will likely revert to exempt along with the ground
rent etc.  
 
With regards to the remediation
works, the lease (or supporting documents) needs to be clear that
the tenant is only agreeing to take the property on the basis that
these works are carried out, this should be sufficient to provide
the direct attribution needed to the premium.  If there is no
direct attribution of the VAT on the remediation works to the
premium, there is a risk that the Council would need to include
this VAT in its partial exemption as relating either wholly (or
partially) to an exempt supply being either the additional
"premium", annual rent or ground rent etc due under the
lease. 
The lease should be
drafted so that the provision of the remedial air conditioning unit
is within the specification of the property which the Council is
responsible for supplying.  The premium payable should be
increased by the additional amount NCA are paying.  In this
way all the premium should fall to be zero rated, and the VAT on
the cost of the air conditioning unit should be recoverable as it
relates to our VATable supply, otherwise we would need to include
the VAT on the air conditioning unit in our partial exemption
calculation. 
Furthermore, the lease should require NCA to
monitor its use of the property (keeping in mind the requirement
that it is used “solely” for RRP purposes), keep the
Council as landlord informed of any changes to use, and require
them (NCA) to meet any liability, together with any interest or penalties arising as a result
of their failing to notify the Council that the building (or part
of) no longer qualified as RRP.
 
Because of the zero-rating certificate the
council will need to consider the Value
Added Tax (Input Tax) Order 1992 (often referred to as the Blocking
Order) which prevents input tax recovery on goods incorporated into
the building where these are not considered to be of a type
ordinarily incorporated. HMRC has published a list of items in
Public Notice 708 paragraph 13.8.1 and 13.8.2 which it accepts are
building materials and ordinarily incorporated into RRP buildings.
The Blocking Order applies equally to S.33 bodies as it does to
non-S.33 bodies, there is no de-minimis limit and VAT on items
covered by the Blocking Order is simply not recoverable. The
Council needs to review the Public Notice and consider if it has
recovered VAT on items which are covered by the Blocking Order. The
Council will need to repay to HMRC any VAT it has incorrectly
recovered.
 
The definition of the
remediation works contained within the lease needs to be clear that
the works are the Council's sole responsibility, and that the
tenant is only taking the lease on the basis that the Council
carries out the remedial works identified.  If it can be
argued that the works are on the request of, or on behalf of the
tenant, the Council may be seen to be providing construction
services to the tenant.  The text of the lease is being
amended following advice from PWC.
 
With regards to the funding of the works, there is
available budget within the Adults capital programme under which
this expenditure can be allocated as underwriting until such time
that the sum is repaid.  It must be
noted that this budget is included within the capital programme as
self-financing and therefore imperative that the works are within
the remaining budget available as highlighted in the
report.  Any variance from the overall
budget, whilst underwritten at this point by the Council, will be
covered by the NCA – any movement away from this position
would require a full report back for approval.  In addition, once the premium payment is received
from the NCA, this will be classed as a capital receipt and used to
paydown debt incurred on this project in previous
years.
 
Procurement advice obtained/supplied by Anthony
Hilton
 
HR
advice: N/A
 
Climate Change advice/implications: provided
previously.
 
The
following documents have been used to assist the decision
process:
Briefing report submitted to Property/Regen Briefing on 8 April
2024
 

Contact Officer: John Nugent,
Asst Principal Development Surveyor

 

*          
This decision is not subject to consideration by another Lead
Member/Director

*          
The appropriate scrutiny panel to call-in the decision is
the
           
Growth and Prosperity Scrutiny
Panel.

 
 

 

 

 

Signed: Councillor
Tracy Kelly
Deputy City Mayor
Date: 8th April 2024

 

 

 

*          
This decision was published on Monday 8th April
2024.

*          
This decision will come in force at 4.00 pm on Monday
15th April 2024
unless it is called-in in accordance with the Decision Making
Process Rules.