Folkestone & Hythe District Council five development projects, are all subject to rising inflation, higher borrowing costs, and supply chain issues, which means costs associated with the projects will rise, and profits fall, more likely than not.
Cllr Lesley Whybrow, Cabinet Member for the Environment, recently revealed in a tweet, costs associated with the Princes Parade development have risen by £16.5 million, to £45.3 million, [original costs £29m].
The Council have said costs for Princes Parade have risen due to ‘a number of factors’ including the ‘near 18-month delay caused by legal action, improved knowledge of the site, and inflation and the supply chain issues which all major projects are currently subject to‘.
If costs have risen for Princes Parade, they they will more likely than not, rise for the four other projects they are currently working on.
Costs in 2016 (BNP Paribas) £15,379,924. Profit £2,747,450
£5.9 million residential redevelopment
Ship Street – Folkestone – which costs the Council £400,000 plus £80,000 in VAT. The costs associated to the project are currently unknown.
Otterpool Park – Costs at 2020, £2.7bn – conservative profit £193m
Starting with Biggins Wood – bought for £1.5m from a convicted criminal – costs were £15.4 million in 2016, according to BNP Paribas. What in real terms have they risen to now, given inflation and the supply chain issues?
On the 18/01/2022 the council placed a tender for a site investigation of the Biggins Wood site at a cost of £50,000.
An then on the 21/01/2022 at £20,000 tender was announced for a Bigginswood Highway Engineer Design.
Plus the £79, 280 contract awarded to Sawyers & Fisher LLP for Professional Services for Cost Consultant, Employers Agent and Principal Designer on the 04/11/21.
Given Princes Parade was a landfill site as well, costs no doubt will rise substantially for Biggins Wood once it’s known what is in the 7.9 metre layer of landfill to the south of the site, next to Harcourt Primary School (Cheriton) . Any potential profit may well be eroded.
The same goes for Highview – £5.9 million costs in 2021, to what now? Given that inflation has risen to its highest levels in 30 years, and there are supply chain issues, what does that mean for borrowing costs to build out the Highview project?
Well guess what? In Report C/21/64 to go before the Cabinet it states at Paragraph 1.5: “The intrusive ground investigation carried out as part of the detailed design works identified difficult ground conditions. This has necessitated more complex foundation designs and more robust road construction.”
The report goes onto say at Para 3.4: “It is important to recognise that the delivery of the project is likely to be subject to a number of key challenges over the coming months due to rising costs caused by labour and materials shortages as well as potential for disruption to the construction programme. The project team will, however, conduct a comprehensive procurement process to ensure value for money and where possible, engage the services of local contractors.“
And at Para 3.2 it states: “The estimated development costs of the scheme are reported in confidential Appendix 1.” These will be discussed behind closed doors.
Ship Street, where the council wish to build up to 100 homes, and recently advertised a tender for £17,000 for a Site Investigation and Ground Conditions Scope for the former gas works, which the previous owners would not release the contamination report for, made under an Environmental Request, should make interesting reading.
Then of course there is Otterpool Park. Back in 2020, cost to build out the project were estimated at £2.7 billion in June 2020. Conservative profits were estimated in the region of £193 million. But now in report Report C/21/70 at Part 8.0 Finances it states: “In the approved plan agreed in January 2021, profit was projected to be £193m over the lifetime of the project, with the project breaking even in the first 10 years. The pace and timing of these returns will be dependent upon a few decisions around infrastructure and funding to ensure that peak debt does not exceed the £75m working capital budget. Since approval of the Business Plan, time has been spent validating, aligning and refining the magnitude and the timing of cashflows. Key to this has been the move to have custom built financial appraisals developed by the team, to enable Management to forecast the impact of various scenarios. As a consequence, Management now have greater confidence in the forecasted cashflows. Having carried out this work the headline return has been reviewed and a profit of £240m – £270m is projected.
The FY22-23 budget of £7.5m will be spent upon design and planning fees
in order to conclude the outline planning application and secondly to plan
the construction phase that will start in FY24-25.”
This project then might start after more than ten years in the planning.
However the Council do not mention any associated rises of costs, supply chain issues, inflation, or potential legal challenges, in the report.
Will any Councillor have the courage to ask, at full council, on the 23 Feb 2022, how much costs have risen on all of these projects? And which magic money tree are the council going to borrow from, for these rising costs, to build out these projects?
Tune into the full council meeting on the 23rd Feb 2022.
The Shepway Vox Team
Dissent is NOT a Crime