Purpose

This decision record sets out the key information for
publication on the decision by the Executive Director for Customer
and Communities and the Deputy Chief Executive & Executive
Director of Resources, in consultation with the Cabinet
Member for Communities &
Community Safety and the Cabinet Member for Finance &
Resources, to approve an additional 10% contingency payment due to
inflation hardship for a Your Fund Surrey (YFS) project located in
Woking. The agreed recommendations are set out below on the face of
this decision record.

Content

Decision made:
 
It
was AGREED:
 

To
fund up to an additional 10% of the original grant award
(£98,239) for increased costs relating to current inflation
levels towards YFS project CF211 Old Woking Community
Centre.

 

The original grant
award for £982,389 was granted 06/10/21. An additional 10%
inflation hardship claim of up to £98,239 is allowable, and
fully in line with, the Cabinet decision from November
2022.[1] The amount requested for
inflation related cost increases is £88,415 at this time,
however this paper seeks approval to award up to the full 10% of
£98,239.

a. 
The project is underway and due to open the Woking
College element of works in September 2023. The completion of
elements of the community works (funded by YFS) is intrinsic to
meeting this deadline.
 

b. 
The contingency funding amount included within the
original grant award (£80,000) is also being claimed, however
the additional 10% is required to meet inflation related increased
costs.
 
The original YFS funding
application of £982,389 was prepared by Old Woking Community
Centre Association, in June 2022. It was based on preliminary
designs and estimated costs that were available at that
time.
 
Tender prices have exceeded the
grant award. This has in part been due to the sudden and
significant inflation rises, which have been widely reported in the
press, with inflation running above 11%. Construction costs are no
exception to this sudden inflation spike, and this can be seen
reflected in the various published indices.

The All-in Tender
Price Index published by the Building Cost Information Service.
This shows that over the year of 2022, tender prices are forecast
to have risen 9.0%.
The current General
Building Cost Index published by the Building Cost Information
Service. This shows that over the year of 2022, general building
costs are forecast to have risen 9.2%.
The current Consumer
Price Index which shows that over the last 8 months from June 2022
(when the bid was submitted), inflation has averaged 8.9% per
annum.

 
All 3 indices broadly show an
annual inflation rate of 9%. The midpoint of the construction
period for the YFS funded works, is June 2023, which is 12 months
from the date on which the funding application was submitted. An
inflationary price rise of £982,389 x 9% = £88,415, has
been included in the tenders received.
 
One example that demonstrates
inflation is the air source heat pump, which was originally costed
at £60,000 based on 2 nr 40 kW units, i.e. a total of 80 kW
(£750/kW).  It is now proposed to
install a single 66.6 kW unit, at a cost of £55,870
(£839/kW). This is an inflation increase of just under
12%.
 
This report seeks to support
the applicant request for additional funding to cover this
unexpected and significant rise.
 
Officers consider that the
applicant has been proactive in managing the cost increases by
reviewing costs and removing some scope.
 

[1] Cabinet approved the creation of an inflation hardship
contingency, to manage the risk of construction and other inflation
levels in YFS projects and delegate to the Executive Director of
Customer & Communities and the Deputy Chief Executive &
Executive Director of Resources, in consultation with the Cabinet
Member for Communities & Community Safety and the Cabinet
Member for Finance & Resources the ability to, in exceptional
circumstances, award up to 10% of the bid value when presented with
robust evidence that the variance is caused by the movement in the
construction market, or inflation increases, since the original
bids were submitted. The contingency will be met from the existing
overall YFS programme allocation

Reasons for the decision

This decision is to enable expenditure from YFS to be awarded to
an already funded project to ensure delivery of the anticipated
community benefits and has been the subject of a rigorous
assessment process by officers.
 
Officers consider the
additional funding request to satisfy the requirements to award an
additional contingency payment due to inflation
hardship.

Alternative options considered

If additional funding cannot be
provided, significant scope would have to be removed from the
project, which would significantly affect the proposed community
benefits. This option was rejected.