At its meeting on 26 March 2024, the Panel recommended: ‘That the Council undertakes a comparative analysis of the current overall slippage of the Capital Programme and how that aligns with the 40% optimism bias assumptions included in the MTFP 2024/25 to 2027/28, to understand the extent to which the 40% optimism bias assumptions from 2024/25 are realistic’. At its meeting on 12 June 2024, Cabinet agreed the recommendation and confirmed that a briefing note would be prepared for the Panel once year-end figures for 2023/24 were known. The briefing note is attached.

Cllr Ed Turner, Deputy Leader (Statutory) and Cabinet Member for Finance and Asset Management, Nigel Kennedy, Head of Financial Services, Tom Bridgman, Executive Director (Development) and Helen Horne, Managing Director (OX Place) have been invited to present the briefing note and answer questions. The Panel is asked to note and comment on the briefing note and agree any recommendations.

Nigel Kennedy, Head of Financial Services introduced the report, which had been submitted in response to a previous recommendation of the Panel made in March 2024: ‘That the Council undertakes a comparative analysis of the current overall slippage of the Capital Programme and how that aligns with the 40% optimism bias assumptions included in the MTFP 2024/25 to 2027/28, to understand the extent to which the 40% optimism bias assumptions from 2024/25 are realistic.’ The report demonstrated the spend profile of the Capital Programme over the last four years; it showed a spend of £59m in 2023/24, which amounted to 25% of the original budget and 45% of the latest budget as at Q3 2023/24. There were various reasons for slippage in the Capital Programme and most of these reasons could not be anticipated, nor were they within the Council’s control.

Tom Bridgman, Executive Director (Development) explained that the construction market was very turbulent at present, with significant cost increases, and as a result the Council had paused or slowed progress of some projects in order to achieve the same outcomes at a lower cost – which showed evidence of effective project management. He advised that projects which were wholly or partly funded by grants often had defined and tight timescales set by the body providing the grant funding; even where the Council knew that the project timescales were not achievable, the Council had no discretion to slip that project until the funding body agreed an extension to the timescales. He added that he felt the Council could improve in terms of judging the delivery timescales of certain projects which were more challenging to ensure timescales were more realistic.

Helen Horne, Managing Director (OX Place) advised that OX Place had reviewed its overall programme a few years ago and removed a lot of optimism bias. OX Place had a funding envelope and a set number of schemes; the company was now coming to the end of that programme and so was working on the schemes which were more difficult to deliver. OX Place had reviewed its overall programme again and was updating its appraisals and building them into its Business Plan on a quarterly basis to provide improved reporting. The volatile construction market had significantly impacted OX Place’s ability to take forward developments as planned; and there were various capacity issues related to statutory authorities and consultees (e.g. energy providers and the Environment Agency). OX Place had established an Audit, Risk and Governance Committee to provide an extra level of oversight of some of the risks and optimism bias associated with the company’s schemes.

In response to questions, the Panel was advised that:

·       It was straightforward to apply high-level optimism bias assumptions at the overall programme level; it was more difficult to apply optimism bias and understand the corresponding revenue consequences at the project level.

·       Estimates of the revenue consequences of the 40% optimism bias assumptions had been included in the current Medium Term Financial Plan (MTFP), but it was difficult to give accurate estimates as there was no ‘scientific’ method for obtaining those estimations.

·       Any risks to Council income as a result of Capital slippage could not be projected; but where projects were income generating there remained a focus on delivering those projects quickly.

·       OX Place’s additional layers of governance via the Audit, Risk and Governance Committee provided an opportunity for more challenge of scheme delivery estimates.

·       Slippage of OX Place schemes was not expected to impact the dividend in terms of value, as the schemes were still being delivered, but to different timescales; the dividend had recently been re-profiled and a report containing this information was due to be considered by the Scrutiny Committee in August 2024.

·       Capital Programme monitoring and reporting for 2024/25 would be done on the basis of the 40% optimism bias assumptions included in the budget.

·       Work was planned with project managers in order to consider over-optimism at the project level, which would feed into the Q1 2024/25 monitoring.

·       The Council was likely to spend all of the money within the Capital Programme, but over a longer time period; there was scope to improve project manager profiles, but it was highly unlikely that slippage could be completely removed as the Council was heavily involved in development works and had a lot of grant funding.

The Panel requested:

·       That the Executive Director (Development) and Head of Financial Services simulate what the capital and revenue impacts would have been if the optimism bias assumption applied to the MTFP had been 50%, instead of 40%, to see if a higher optimism bias assumption at the programme level was more realistic and could be assumed within future budgets – and report back to the Panel on findings.

·       That the Executive Director (Development), Head of Financial Services and Managing Director (OX Place) prepare a briefing note comparing initial expectations of Council and OX Place schemes over the last three years to their actual delivery timescales; attributing any slippage to a specific reason(s); and highlighting what the capital and revenue impact of that slippage was.

The Panel noted the report; there were no recommendations.

Tom Bridgman, Executive Director (Development) and Helen Horne, Managing Director (OX Place) left the meeting and did not return.