Letter-from Minister for Infrastructure to EHI-Response to Quarterly Hearing and Review Hearing Resi

BY EMAIL

24 November 2022

19-21 Broad Street St Helier

Jersey JE2 3RR

For the attention of Deputy Steve Luce , Chair of the Environment, Housing and Infrastructure Scrutiny Panel

Dear Deputy Luce ,

Government Plan 2023 -26 Review – Follow-up / additional questions

May I begin by thanking the panel for their time at last week's evidence gathering session, and the subsequent questions presented by the Panel last week.

Prior to responding to the questions raised by the Panel, I would like to address the matter of the Office Modernisation Project, and specifically some of the responses provided during the evidence in-public session.

The project and its contractual framework are – as you will appreciate – very complex and I am still learning more about them. I would therefore like to take the time, in writing, to present further context and background, as well as report to you on the present status of the project.

[Certain conditions contained in the development agreement prevent the Government and Ministers from publishing information which, if shared publicly, may compromise the commercial interests of the developer.

This is normal in agreements such as the development agreement, and especially when a developer operates in a competitive environment such as the development of commercial office buildings. My officers are, therefore, happy to meet with members of the Panel to take evidence in-private, if this would be helpful.]

Office Modernisation Project

Various iterations of the project have been discussed in the States Assembly for almost 20 years, since consolidation of the Government's office estate was first envisioned, when the Property Holdings Department was established by the States of Jersey in 2005.

Since this date, successive Assemblies have been urged by various bodies – most notably the Public Accounts Committee in 2007 (when endorsing the Property Holdings Department's first Property Strategy), and the Comptroller and Auditor General, when reviewing the Medium-Term Financial Plan in 2013 – to rationalise and modernise the Government's estate.

You may also recall from your time as a member of the Council of Ministers in 2015, the decision of the then Council of Ministers to progress a scheme to establish the first central administration building' which was proposed on the site of Philip Le Fevre House.

It wasn't until 2019, however, when the States Assembly approved the strategy for modernising the Government and delivering a streamlined civil service, did this specific project receive the full support of the Assembly. The strategic outline case for the project, which was accepted by the Council of Ministers in November 2019, proposed the establishment of a single facility, delivered in a new building on a third-party site by a developer, that would deliver the most economically advantageous outcome.

The proposal would vacate sites with a land value of £22.7 million and generate revenue savings more than £6.0 million per annum. The proposal would also deliver savings of £30.0 million against the costs of the do nothing' option.

This proposal was approved by the States Assembly as part of the 2020 Government plan, following discussions with colleagues in Scrutiny and the Public Accounts Committee.

In April 2021, following:

1. a competitive procurement exercise thatwas promoted to developers both locally and off- Island and involved three of the Island's leading commercial property developers;
2. the rejection by the States Assembly on24 March 2021 of Proposition P.18/2021[1]whichwas presented by the Scrutiny Liaison Committee and which asked the States Assembly to agree to the Minister for Infrastructure deferring the proposed Ministerial Decision and the entering into of the agreement with the developer (the Development Agreement), and instead commission a further Scrutiny report and then debating a further proposition to be lodged by the Minister in response to the Scrutiny report (note: the impact if Proposition P.18/2021 had been accepted by the Assembly would have been to annul the outcome of the competitive procurement exercise, wasting bidders and the Governments costs incurred, impacting on future bidder appetite, and effectively delaying progress – and the start of generating the revenue savings and other efficiencies – again, byatleast a further six months, and probably substantially); and
3. the approval by the Council of Ministers of the full business case for the present scheme;

the Government entered into the Development Agreement with the developer for them to design, plan, build, complete, commission and finance the delivery of the new office headquarters building on the site of the former Cyril Le Marquand House within three years of the date of the Development Agreement. To ensure the outcome would be realised in the timescales required and protect the revenue  savings  that  would  start  to  be realised as  soon  as  the  project  was  delivered,  the Development Agreement included within the necessary key requirements that the Government needed (in effect, the opportunities for delay to the delivery of the project by the developer were minimised).

Since being appointed in April 2021, the developer has obtained an implementable planning consent, obtained Building Bye-law permissions, demolished the former building, constructed the foundations and (last week) started the erection of the structural steel frame for the new building.

The Government and the developer have also concluded the detailed design of the floor layouts, in the  time  required  under  the  development  agreement  to  enable  the  developer  to  conclude purchasing of fit-out items (such as tables, desks, furniture, etc.). All permissions and third-party agreements required by the developer have been concluded and achieved. The developer is therefore on schedule to hand over the new office building to the Government in the summer 2024. As a part of the conditions of the development agreement, the developer will deliver over £3.1 million of social value impact and £39.6 million of net present social value.

Following the handover by the developer of the new building there will be a short period of activating' the building by the Government (i.e., getting the building ready for occupation and migrating colleagues from their existing buildings to the new building). The Government's new office building remains on schedule to open to colleagues and Islanders in Autumn 2024.

The building will accommodate up to 2,000 colleagues from all 11 Directorates and over 50 sub- departments, working in an energy-efficient, modern, fit-for-purpose, flexible office premises. The new building will consume 60% less energy than buildings in the existing estate and will thus provide a significant contribution towards both modernising the public service and reducing the carbon footprint of the Government. In total, the Government's estate will be consolidated from a present 385,000 ft2 to a forecast 215,000 ft2 (a 44% reduction).

On completion of the building, it is presently proposed that the Government will occupy the building on a license for up to three years, paying the equivalent of rent (the prices for which are agreed in the Development Agreement). During this license period, the Government may elect to purchase the building, for a fixed price (again, this is agreed in the Development Agreement). The fixing of the prices for these items in the Development Agreement has protected the Government from market price fluctuations in:

• construction costs (presently circa 5 – 6% per year, and more in certain sectors);

• energy costs (impacting wage inflation and materials prices);

• funding costs (the Bank of England's Base Rate' was 0.10% when the prices were fixed and is expected to rise to potentially 4.00%).

These risks are all managed by the developer, meaning the purchase price agreed by the Government in April 2021 will be capable of acceptance up until July 2027, with the only adjustment to the purchase price being for accepted variations to the Government's key requirements. Also, if the Government purchases the building during this period, at present market rates the purchase price would represent something of a circa £20.0 million discount on the forecast book' value of the built and tenanted building, representing an excellent return on the Government's investment.

If, however, the Government does not choose to buy the building within the three-year license period, the Government will automatically enter into, with the developer: a) a 99-year lease on the land on which the building is constructed, and: b) a 22-year lease of the building from the developer, at a fixed rate adjusted for inflation (with an upper and lower thresholds of 5% and 2% per year).

This commitment was shared with the States Assembly in early 2021, when presenting the Ministerial Decision that subsequently led to the Corporate Services Scrutiny Panel Proposition mentioned  earlier,  and  was  approved  by  the  Council  of  Ministers  within  the  Development Agreement. This commitment was also necessary to provide the surety that was required by the developer to raise the funding required to manage funding risks of delivering the project, as noted earlier.

The financial case of the FBC (Full Business Case), and specifically the financial benefits on which basis the Council of Ministers approved the project, are presently being reviewed, to reflect:

• the rise in energy costs since April 2021, and their impact on the costs of servicing and maintaining buildings;

• changes in the value of the land which it is proposed will be vacated; and

• events since the appointment of the developer in April 2021.

Overall, however, the project remains within the allowances of the funding strategy agreed in the FBC signed-off by the Council of Ministers; and the savings forecast in the Government's revenue costs, originally forecast at more than £6.0 million per year, remain.

Questions raised following the evidence presented in public

1. As discussed in the public quarterly hearing, please could you provide further details and breakdown  of the  proposed  £460,000  spend  for  2023  on  consultants  for  the  Office Modernisation Project?

As is stated at page 56 of the Proposed Government Plan 2023 - 2026[2], presented to the States Assembly by the Council of Ministers on 4 October 2022:

"The developer is funding the build and the Government will lease the building on completion with  an  option  to  purchase  in  future  years.  The  funding  [of  £460k]  including  in  this Government Plan is for the management of the project team".

The Government's project team comprises in-house and out-sourced staff, including the project lead, the information manager, the technical advisors, the quantity surveyor and team support. The  funding  of  £460k allocated  the 2023  Government  Plan has not  changed  from  that envisaged (and approved) in the Government Plan 2022 – 2025[3], despite rising costs and inflation presently running at over 10%. This is due to effective management of these team costs, and agreeing early on the fees for professional consultants employed to advise the Government in delivering the project.

Previous / Ongoing Additional Revenue Growth Programmes

2. For the following previous/ongoing additional revenue growth programmes please can you provide a) actual spend to date for 2022;b) a breakdown ofhow this spend to date has been allocated; and c) a summarised progress update for each programme:

1. 28-30 The Parade
2. Office Modernisation
3. Hazardous Waste 2023-2025
4. Increased liquid waste processing
5. Recycling 2023-2025
6. UK/EU TCA Biosecurity Border Controls See table included as Annex A to this letter.  

Please note that the Minister for the Environment has responsibility for the UK/EU TCA Biosecurity Border Controls fall under the  

3. Howhas increasing inflation impacted on the spend to date and delivery of each of these programmes in 2022 and how has inflation been factored into future cost and delivery in 2023?

1. 28-30 The Parade
2. Office Modernisation
3. Hazardous Waste 2023-2025
4. Increased liquid waste processing
5. Recycling 2023-2025
6. UK/EU TCA Biosecurity Border Controls

See table included as Annex B to this letter.

Mapping of departmental budgets to Ministers

4. Minister, do you consider that previous and new revenue growth, aswellas any capital projects, should be clearly mapped to each Minister in each proposed Government Plan so that there are clear lines of political accountability, aswellas to demonstrate how the key priorities laid out in the Ministerial Plans will be funded?

Ministers have set out their key priorities in their Ministerial Plans, which were developed alongside the Government Plan. Some items in these plans directly link to growth expenditure, whilst others will be funded from existing resources.

In line with the requirements of the Public Finances law, financial allocations are assigned to departments, and hence Accountable Officers. Ministerial responsibilities have now been more closely aligned to departments, and so the political accountability for growth is in almost all cases obvious. Whilst IHE as a department serves two Ministers, the Annex to the Government Plan includes a more detailed service analysis that allows the split of financial allocations between areas of Ministerial Responsibility to be easily seen. A mapping of departmental budgets to Ministers has now been shared with scrutiny.

In  response  to  the  questions  regarding  the  rationale  for  not  including  a  breakdown  of previous/ongoing revenue growth in the GP given that this has been provided in previous Government Plans, the following lines have been provided:

Council of Ministers considered previously agreed investments in Government Plan 2022 and agree that the baseline for expenditure should reflect those previous decisions.

In most cases these investments are being spent as part of departmental operating budgets and so removing these would in effect constitute a reduction in funding for services. The ongoing inclusion details of these investments were included in previous plans would be an unnecessary duplication that would make the plan more complicated and harder to understand.

Yours sincerely,

Deputy Tom Binet Minister for Infrastructure t.binet@gov.je

For and on behalf of

Government of Jersey Encs

Annex A. Table showing responses to Question 2.

Annex B. Table showing responses to Question 3.