Archived decisions

Contact: Steven Nicholson, tel 02392 841795

email: [email protected]

1. Summary

1.1 South Hampshire Rapid Transit (Phase I) (SHRT-1) is the first phase of the South Hampshire Rapid Transit strategy, designed to provide a light rail service connecting Fareham, Gosport and Portsmouth. The project has the highest priority within the County Council's Local Transport Plan. It has regional and national significance, being part of the Government's ten year plan for transport and a key initiative in the draft transport strategy published by the South East England Regional Assembly. This report covers the current position towards reaching a revised funding agreement between the County Council, Portsmouth City Council and the Government necessary to deliver the commercial bids received in March 2003.

2. Corporate Strategy

2.1 The project supports all the Aims in the Corporate Strategy. In particular it would aid economic prosperity and stewardship of the environment in South Hampshire by delivering a sustainable public transport system carrying in the order of 10 million passengers per annum, pollution free at the point of delivery, and is expected to remove some 3 million car trips per annum from a congested road network.

3. Background

3.1 In March 2001 the project received major scheme funding approval from the Government. The funding agreement set a maximum limit on funding and stipulated that, should bids be received that exceeded this cap, the Department for Transport (DfT) and Treasury would need to consider the available options, including whether the project should proceed as planned.

3.2 Procurement procedures commenced in January 2002 and commercial bids were received from two consortia competing for the contract in March 2003. The bids revealed that the costs of the project would exceed those allowed for in the current funding agreement with Government. This outcome prompted a review of the project which has been undertaken in consultation with DfT officials and Ministers. Based on this review revised funding proposals were forwarded to Government in July 2003. These were rejected as too high and Ministers asked that options be investigated for reducing the funding by changing the project scope and by reducing the level of risk transferred to the private sector.

3.3 Amended proposals for a possible reduction in the scope of the project and for moderating the risks transferred to the private sector have been developed, again in consultation with DfT officials, and in early September these suggestions were reported in a second submission to Ministers.

4. Current Position

4.1 The revised funding projections are based on the bids received in March 2003 (the Clarification Bids), adjusted to reflect saving from modifying the project scope, and include a reduced allowance for risk as a consequence of moderating the promoters' position in key risk areas. The adjustments indicate that although funding may be reduced significantly it is not possible to deliver a light rail scheme in the current market within the funding limit set back in March 2001.

4.2 In December 2003 the results of the annual local transport capital settlement for 2004/05 were received. The letter referred to SHRT-1 as an existing major scheme, and requested that the amended proposals be tested in procurement by inviting bids on this revised basis, to see if a material difference in the commercial offers would be received. It was also advised that Ministers would come to a view on the future of the project as quickly as possible once this information was to hand.

4.3 The SHRT-1 project team has now consulted the two consortia bidding for the contract (the bidders) on the matters raised by Ministers. Overall the response received from bidders confirms that the modified procurement approach can be expected to benefit the delivery of the project, at an affordable cost. Their constructive contribution has been a major factor in the promoters' final submission on the funding required to deliver the modified project which was forwarded to the Department in early March. When putting the funding recommendation to Ministers, the promoters have stressed the benefits of an early decision to enable the current procurement to be concluded using the competition between the bidders to produce a best value outcome for the public sector.

4.4 At the end of March notification was received from Department officials that transport ministers had now received a briefing which explains the revised funding proposals. The Department is currently engaged in the Spending Review which will set the Department's budget for the next three years in July. A decision on SHRT may depend on actual progress made in reaching an overall budget settlement for the Department, as well as the priority of the project. It is not possible to add anything further at this stage but any developments will be reported orally at the meeting.

5. Conclusions

5.1 The request from Ministers that the promoters investigate with the bidders whether the revised procurement proposals will actually deliver a material improvement in their offers is a relatively encouraging development. Elsewhere, light rail projects have been put on hold pending a value for money review. The SHRT project still benefits from strong support from the Government Office for the South East and the regional planning and development agencies, and in economic appraisal terms the estimated project benefits outweigh project cost by nearly 2 to 1. There is reason, therefore, to be optimistic over the prospect of settling a revised funding agreement with Government in the forthcoming weeks, whereupon procurement would be progressed to select the best offer from the two bidding consortia later in the year.

5.2 It is likely that to be acceptable a successful bid will be required to meet the limit on funding set by the current funding review. Once the preferred bid has been selected, which satisfies this condition, then the Government, the County Council and Portsmouth City Council would formally confirm funding decisions. Subject to agreeing this approach with the DfT, it would be possible to have a contract in place early next year (2005), whereupon construction work could commence immediately.

Recommendation

That this report be noted.

8488/SN