Purpose

This item is seeking approval for the council to appoint a contractor under a PCSA and Main Contractor for the Arnold Road development. Approval is also being sought for a revised budget increase to ensure completion of the works.

Decision

DECISION:

1. Note the current status of the Arnold Road development and the impact arising from the insolvency of Jerram Falkus Construction Ltd.
2. Approve the award of a Pre-Construction Services Agreement (PCSA) to Lovell Partnerships Ltd through a compliant public sector framework.
3. Approve the budget allocation set out in Exempt Appendix 2 to undertake the PCSA, including surveys, investigations, consultant reviews, statutory approvals and other activities required to support the completion strategy.
4. Approve the budget uplift set out in Exempt Appendix 2 to facilitate completion of the development following the PCSA period, subject to confirmation through the PCSA process and approval of the main works contract in accordance with the delegated authority set out below. Please refer to exempt appendix 2 for the details.
5. Delegate authority to the Corporate Director of Housing and Regeneration, in consultation with the Mayor and the Director of Legal Services, to enter into the PCSA and associated contractual documentation.
6. Note Lovell's current preferred approach for delivery of the completion works is through a Management Contracting contract rather than a traditional Design and Build contract, and that the PCSA will provide a detailed assessment of the cost, programme, risk and value-for-money implications of this approach prior to any award of the main works contract.
7. Delegate authority to the Corporate Director of Housing and Regeneration, in consultation with the Mayor and the Director of Legal Services, to enter into the main works contract and associated contractual documentation following the successful conclusion of the PCSA.

REASONS FOR DECISION:

1. Arnold Road is a strategically important Council-led affordable housing development delivering 62 affordable homes and commercial space.
2. The insolvency of Jerram Falkus Construction Ltd has left the development partially completed and created significant technical, regulatory and commercial uncertainty.
3. Further specialist investigations are required before the Council can determine the final scope, programme and cost of the completion works.
4. Appointment of Lovell Partnerships Ltd under a Pre-Construction Services Agreement will enable the Council to undertake the necessary due diligence, validate construction risks, secure regulatory approvals and establish a robust completion strategy.
5. Approval of the PCSA and associated budget will protect the Council's investment, limit further deterioration of the asset and support the earliest possible delivery of affordable homes to residents.
6. Once the PCSA is completed it allows the Council the opportunity to appoint Lovell for the main works under a management contracting approach. Further details on this will be provided to the Council as part of the decision-making process at the end of the PCSA period. This will set out:

•         the validated cost-to-complete position;

•         the recommended delivery model;

•         the detailed construction programme;

•         any implications for the approved main works budget; and the proposed form of construction contract

1. Once the PCSA report is reviewed the Council will have the opportunity to either proceed with Lovell Partnerships and enter a main works contract or seek an alternative main works contractor.

ALTERNATIVE OPTIONS:

1. Option 1 – Compliant call off award from a Framework for Lovell to deliver PCSA services (Recommended) This option provides the most efficient route to progressing the development following the insolvency of Jerram Falkus Construction Ltd. Lovell has already undertaken an extensive review of the scheme, including site inspections, technical due diligence, engagement with the warranty provider, review of available project information, and assessment of the principal construction and completion risks.
2. Appointment under a PCSA will allow investigations and validation work to commence immediately, minimising further delay to the project and reducing the Page 620 risk of further deterioration of partially completed works. It also enables the Council to benefit from the knowledge already acquired by Lovell during the pre PCSA stage and provides the best opportunity to establish a robust completion strategy, validated programme and cost-to-complete position.
3. This option supports the earliest possible delivery of the 62 affordable homes and commercial units whilst protecting the Council's existing investment in the development.
4. Option 2 – Commence a new Contractor Procurement (not recommended) The Council could undertake a further procurement exercise to appoint an alternative contractor to commence PCSA services.
5. However, this would result in significant programme delay whilst a procurement strategy is developed, tender documentation prepared, tenders evaluated and a replacement contractor appointed. Any newly appointed contractor would then need to undertake its own technical due diligence, site investigations and review of project information before being able to commit to a completion strategy and pricing proposal.
6. Lovell was selected through a competitive procurement exercise and achieved one of the highest evaluation scores. The company has substantial experience in completing distressed residential developments, including schemes requiring structural remediation, defect rectification and extensive engagement with warranty providers and regulatory bodies. This experience is particularly relevant given the technical issues associated with the Arnold Road concrete frame and the requirement for further investigations and remediation planning.
7. Since completing the pre-PCSA stage, Lovell has developed a detailed understanding of the project and has recommended a Management Contracting approach as the most appropriate procurement route. Given the current level of uncertainty regarding remediation requirements, completed works and compliance matters, officers consider that a traditional Design and Build contract would be likely to include significant risk allowances and provisional sums, increasing costs without materially reducing the Council's exposure to risk.
8. There is no certainty that re-procurement would result in a more favourable programme, lower cost or more appropriate procurement solution. Furthermore, market interest may be limited due to the complexity and risk associated with inheriting works from an insolvent contractor.
9. For these reasons, re-procurement is not recommended.
10. Option 3 - Do Nothing (not recommended) The Council could elect not to proceed with the PCSA and maintain the site in its current condition.
11. This option is not recommended as it would expose the Council to ongoing security, maintenance and holding costs while generating no benefit from the substantial investment already made in the scheme. The risk of deterioration of Page 621 partially completed works would increase over time, potentially leading to further remedial works and increased completion costs.
12. Delaying progression of the project would also postpone the delivery of 62 affordable homes and commercial accommodation, impacting the Council's housing objectives and delaying the receipt of future rental income. In addition, prolonged inactivity may adversely affect warranty, insurance and regulatory positions, further increasing project risk and uncertainty.
13. Failure to progress the scheme would ultimately undermine the Council's investment in the development and could result in significantly higher costs being incurred in the future to bring the project to completion.

Action by: Corporate Director of Housing and Regeneration