Land Transaction under Standing Order 168 (3) Office Accommodation Project, Union Street, St Helier - Deferral of approval - comments

STATES OF JERSEY

LAND TRANSACTION UNDER STANDING ORDER 168 (3) – OFFICE ACCOMODATION PROJECT, UNION STREET, ST HELIER: DEFERRAL OF APPROVAL (P.18/2021) – COMMENTS

Presented to the States on 22 March 2021 by the Council of Ministers

STATES GREFFE

2021  P.18 Com.(re-issue)

COMMENTS

Summary

The principle of the office accommodation project has been discussed since 2005. This most recent attempt to achieve the implementation of such a project commenced in 2019.

The benefits of the project are to deliver approximately £6.8m cashable savings per year by significantly reducing the amount of office space occupied and thereby reducing the running costs. These figures do not take account of any productivity savings, which would accrue in addition to the cashable savings. The impact of Covid-19 on the project has been considered, the project will release brownfield sites, and also achieves a number of other benefits, as well as a better working environment for our staff. Doing nothing will cost significantly more than the cost of implementing this project.

The modernisation of the public service was approved as part of the Common Strategic Policy. The Office Accommodation Project was specifically identified, and relevant funding approved, in both the Government Plan 2020-2023 and the Government Plan 2021-2024.

As laid out below Scrutiny have been kept informed and briefed over much of the past 15 months, with the Strategic Outline Business Case (SOC') being provided to them in December 2019, and the Full Business Case (FBC') provided to them in December 2020. Much other documentation has been provided during the period.

The Government have fully engaged with Scrutiny during the last 15 months in respect of this project, and indeed would have welcomed a review by Scrutiny at any point earlier in the process.

However, the calling in of the project (through P.18/2021) approximately one week before contracts were due to be finalised, will have significant consequences if this proposition  is  approved.  If  P.18/2021  is  approved  by  the  Assembly,  given  the requirement for a further debate, it is unlikely that this issue would return to the Assembly until July at best and more likely in September (i.e. a delay of 4-6 months).

As outlined below, the financial consequences identified in P.18/2021 estimate the cost of any delay at approximately £1 million per month.

Any protracted delay could mean that the procurement process would fail. If this were to be the case, then further delay would be caused as the procurement process would need to be restarted. This would have associated abortive and repeat costs and it is likely that there would also be other additional financial and reputational impacts for the Government.

Accordingly, the Council of Ministers do not support the Proposition as set out in P18/2021.

Background

The principle of reducing the number of office properties the Government occupies has been discussed since at least 2005[1] with a view to significantly reducing operating costs, releasing some sites for other purposes (including housing) and realising staff productivity benefits.

The principle of office modernisation has been supported by various Councils of Ministers. Indeed, it was included in the States of Jersey Annual Business Plan for 2007 (and endorsed by PAC[2]) and the MTFP1 in 2013[3]. A strategy for office modernisation was approved by COM in 2015[4] as part of the Public Sector Reform programme and at that time Cyril Le Marquand House was one of two Government sites that were identified as potential options for a new central office development for Government. However, the project has not progressed to completion under previous administrations and it has fallen to this Council of Ministers to resolve the situation.

Common Strategic Policy

The Common Strategic Policy approved by this Assembly includes the ongoing initiative to deliver a modern, innovative public sector that meets the needs of Islanders effectively and efficiently. This project is a key enabler to deliver on this objective.

Process

The current process began in 2018, with the development of a SOC, which outlined the benefits of the project. P.18/2021 does not identify the benefits articulated in the SOC and later FBC that include:

1. Consolidation of the GOJ's operations from 21 buildings to eight.
2. Operational savings of £6.8 million per annum.
3. A gross value add (GVA') during construction of £74 million, resulting in significant economic stimulus during the recovery from the COVID- 19 pandemic.
4. Significant employment created during construction.
5. Project saves £30 million on the do nothing' option.
6. A Nett Present Social Value of £39.6 million.
7. The replacement of ageing, environmentally-unfriendly facilities with an energy-efficient, BREEAM excellent' building.
8. Vacating other sites, which could be used for social housing, new-buyer housing or other development.
9. Improved service-delivery within GOJ from a purpose-built building where departments can co-exist adjacent to each other.
10. Implementation of other GOJ strategies, including Carbon Neutral Strategy, Sustainable Transport Policy, and One Gov / Team Jersey.
11. Regeneration of the Parade Gardens / Union Street area, incentivising business and growth in the area.

The SOC was approved by the Council of Ministers on 30 October 2019. A briefing was provided to CSSP and PAC on 14 November 2019 and the SOC was shared in hard copy with CSSP on 17 December 2019, some 15 months ago.

Specific reference was made in the approved Government Plan 2020-2023 to bring forward and invest in a new office facility that can accommodate the Government's long-term needs5'. The Government Plan 2020-2023 included funding to progress the project, based on the preferred SOC option to procure a third-party Development Partner and to identify an office scheme brought forward by that Development Partner.

A procurement process followed, which was open to all. Later in the process, two final shortlisted bidders submitted final tenders that met our requirements and were assessed as  having  significant  economic  benefit.  The  approved  process  permitted  the Government to identify a preferred and a reserve partner.

In the event that final commercial terms could not be agreed with the initially identified preferred partner, the process enabled the Government to switch to the reserve partner and to enter into negotiations with that partner, and this is exactly what happened in this situation.

A preferred partner was identified by COM on 09 December 2020, supported by an evaluation of final tenders and a Full Business Case, which presented an updated project timetable that would allow the delivery of the project within the same timeline. The evaluation of final tenders, the Full Business Case and an assessment of the impact int terms of regeneration of St Helier of final tenders were shared with Scrutiny on 15 December and again on 10 February 2021.

A significant volume of decision-making information has been shared with Scrutiny since the approval of the SOC in October 2019 – over 800 pages. At no point did the Chair of the Scrutiny Liaison Committee inform the Government of the intention of Scrutiny to lodge a proposition to defer the project. As noted in the opening words, the Government would have welcomed and fully engaged with a review by Scrutiny at an earlier point in the process. In addition, the Government has been aware throughout this process of the implications of a potential delay and has therefore engaged Scrutiny on a regular basis and has provided all decision-making evidence.

Consequences of delay

A now inevitable delay in these timelines due to P.18/2021 will have a range of implications for the Government of Jersey, including:

• The need to renew/extend leases due to expiry of current agreements

• Not realising full revenue savings until surplus buildings are vacated or sold

• Impact  of  inflation  on  developer's  costs  and  corresponding  increase  in rent/option prices

• Risk of the developer withdrawing

• Reputational risk and future market appetite for developers, contractors and funders

• Financial implications of delay in the region of an extra £1m per month whilst the project is on hold and prior to it being contractually binding.

5https://www.gov.je/SiteCollectionDocuments/Government%20and%20administration/P%20Government%20Plan%20 2020%20to%2023%2020200909%20CB.pdf , p90

In addition, if it were to be approved by the Assembly, the timing of this Proposition means that there is a significant risk of project failure. If a review by Scrutiny were undertaken for 01 June 2021, as outlined in the P.18/2021, it requires a Proposition to then be lodged with a lodging time that would be unlikely to be debated before September 2021, unless taken early, which could potentially irreparably compromise the procurement process. This procurement process would need to be repeated, with significant associated abortive costs of the current procurement and additional costs for a new procurement. It would also mean a delay or the inability to realise the cost savings benefits outlined above.

Timeline of events

11 https://www.gov.je/news/2019/pages/newgovernmentoffice.aspx

Proposition - P.18/2021

The Proposition omits any consideration of how the global Covid-19 pandemic has impacted on delivery of project timelines and incorrectly assumes that the Strategic Outline Case timeline is set in stone. In fact, the Covid-19 situation meant that the project undertook additional due diligence around the procurement process and through dialogue with potential developers was able to better understand likely build programmes. The Covid-19 situation meant that the procurement took additional time to complete compared to early forecasts, but through the dialogue, cost certainty and the ability to finalise a Full Business Case were achieved earlier. It is these developments that have enable the project to maintain the overall timetable, with a view to moving colleagues into a new office in Q1 2024.

The Proposition refers to a high-level project plan which was outlined in the SOC – which was developed in Q3 2019 – that specified key stages and target dates. The Proposition refers specifically to completion of a FBC in around May 2021 and an agreement with a developer in May 2021. It is, essentially, alluding that timetables have been accelerated and suggesting that a delay due to P.18/2021 would not affect the anticipated project timetable. This is not at all the case.

In addition, P.18/2021 notes that the Corporate Services Scrutiny Panel or One Gov Review Panel [did not] receive a copy of any relevant minutes from the Council of Ministers or other panels in relation to this project to ascertain decision making.[10]' Due to the commercially sensitive nature of the discussions, theses Part B minutes of COM are qualified exempt from publication under the Freedom of Information (Jersey) Law 2011 under Articles 33 – Commercial Interests and 35 - Formulation and development of policies. In addition, paragraph 35 of P.56/2018: Code Of Practice for Engagement Between Scrutiny Panels and The Public Accounts Committee' and The Executive' states that the Council of Ministers will consider providing Panel/PAC Chairmen with relevant items of Part B minutes of Council of Ministers meetings upon request'. However, it is important to note that no request was received from either Panel for the minutes of any meetings where the Office Accommodation Project was discussed.

P.18/2021 states that the Corporate Services Scrutiny Panel and One Gov Review Panel were advised that an additional briefing would occur with the Chief Minister and Officers prior to the end of 2020 but this was cancelled by Government on several occasions due to diary constraints.' Whilst this is accurate, it does not fully reflect the context and all the reasons for the rescheduling of these briefings, which is outlined in the timeline table above.

P.18/2021 notes that the Corporate Services Scrutiny Panel and States Members received no briefing prior to the presentation of R.4/2021 to the States, neither did it receive any open communication on the Full Business Case and terms and conditions.' Members are reminded that the Full Business Case was shared confidentially with Scrutiny on 15 December 2020 following the Council of Ministers meeting on 09 December 2020 and shared again on 10 February 2021, following a briefing with the Corporate Services Scrutiny Panel, OneGov Board and Public Accounts Committee on 03 February 2021.

The FBC detailed both options (including Cyril Le Marquand), which is therefore why a switch to the reserve bidder could be taken so quickly when it became necessary.

The FBC was shared confidentially due to the commercial nature of its contents and publishing commercially-sensitive information that is part of a live procurement process would prejudice the commercial interests of the Government and its suppliers. This is in accordance with the Public Finances (Jersey) Law 2019, the Public Finances Manual, the Freedom of Information (Jersey) Law 2011 and the Code Of Practice for Engagement Between Scrutiny Panels and The Public Accounts Committee' and The Executive'.

P.18/2021 outlines a sequence of events that led to a proposed change of scheme, from a scheme in Broad St described in R.4/2021, to the scheme put forward in R.19/2021 Land Transactions under Standing Order 168(3) – Office Accommodation Project, Union Street, St. Helier – Agreements'. P.18/2021 correctly notes that due to some last minute and unexpected commercial issues that need to be resolved in advance of entering into a contract and that these issues were not the Government's making.' States Members have been briefed in detail about these events, including modifications to the developer's final tender that could not be accepted.

P.18/2021 notes a concern that the Minister for Infrastructure has presented two recommendation reports to the States within 6 weeks referring to two completely different conclusions on a significant project. The decision making which constituted this change therefore requires independent review as the detail has not been assessed and the government has therefore not been held to account.'

The process set out in the approved procurement strategy that was shared with Scrutiny as noted in the timeline table above. This approved document outlines the approach that would, on the basis of the evaluation of final tenders received, see a preferred Development Partner identified, and a reserve partner who would be promoted to preferred partner should final negotiations with the initially identified preferred partner fall through. Unfortunately, in this case, negotiations with the preferred partner identified by Council of Ministers on 09 December 2020 fell through after the Ministerial Decision to enter into contracts with them had been published.

Consequently, the Government of Jersey entered into negotiations with the reserve partner on the basis of the final sub tenders submitted, the evaluation of these tenders and the Full Business Case. These documents – shared with Scrutiny in December 2020 and again in February 2021 – outlined the anticipated positive economic benefits of proceeding with either scheme, and therefore both SO168 ministerial decisions have been based on the same evidence whilst following the approved process.

The decision-making evidence which the OneGov Political Oversight Group, the Council of Ministers and the Minister for Infrastructure have considered - including the Full Business Case - is comprehensive and robust, developed in accordance with best practice and compliant with relevant legislation and organisational policies.

The Council of Ministers would also like to address the series of bullet points outlined at the end of P.18/2021:

• principles of the Strategic Outline Case and the assessment of the implications of the pandemic on the project and considerations that the case to build a new office remains valid.'

A review of the implications on the project was undertaken in Summer 2020 which concluded that the principles of the SOC remain valid. This review was shared with Scrutiny on 22 September 2020. Appropriate due diligence was also undertaken on potential developers.

• contractual arrangements of the development of the new office arrangements.'

The contractual arrangements have been developed to transfer financial risk from the Government to the Developer, without any freehold transfer of land from the Government to the Developer. Scrutiny and all States Members have been fully briefed on the contractual arrangements during the February briefings outlined in the table above.

• alignment to other key strategies and projects'.

States  Members  have been briefed about how the Office Accommodation Project aligns with other key projects and strategies, including the Estates Strategy. Foremost, it will enable the Government to exit leases, raise capital receipts through the disposal of surplus buildings and release a number of sites for other uses, including housing.

• impact  and  outcomes  in  terms  of  sustainable  economic,  social,  and environmental benefits.'

These are subject to the Planning process. A detailed impact assessment will be undertaken as part of a detailed planning application.

• interventions necessary to optimise the achievement of the intended outcomes.'

These are set out in the Full Business Case that has been shared with Scrutiny. Primarily, this involves the development of a new office building, that will provide an economic stimulus and unlock other benefits, including operational savings and the release of other sites.

• capability of its leadership and the individuals within.'

The project is led by experienced individuals, including a Project Director, property specialists, commercial legal advisors and procurement experts.

• risk and performance and ensuring robust controls and strong public finance management.'

The Full Business Case, which has been shared with Scrutiny, includes a consideration  of  risk  and  outlines  a  number  of  key  benefits  which  are anticipated to be realised – i.e. the performance of the project. The contractual arrangements  for this  project allow financial risk  to be transferred to the developer.

• implementation of good practices in transparency, reporting, and audit, to deliver effective accountability in decision making.'

Scrutiny has been Provided with all decision-making documents that have been considered by the One Gov Political Oversight Group and the Council of Ministers.  

Glossary of terms

BREEAM - Building Research Establishment Environmental Assessment Method COM – Council of Ministers

CSSP – Corporate Services Scrutiny Panel

FBC – Full Business Case

GOJ – Government of Jersey

JEP – Jersey Evening Post

JOD – Jersey Office Development Ltd – the Development Partner OJEU – Official Journal of the European Union

MTFP – Medium Term Financial Plan

PAC – Public Accounts Committee

POG - Political Oversight Group SOC – Strategic Outline Business Case

Statement under Standing Order 37A [Presentation of comment relating to a proposition]

"These comments are submitted after the deadline set out in Standing Orders because it had been anticipated that this proposition would be debated at the 23rd March 2021 sitting."