Minutes of the Community Councils Together on Trams/Trams Team meeting, Leith Community Education Centre on Thursday 21 February 2019 at 5:30pm
|BAFO = best and final offer||LLCC = Leith Links Community Council|
|CCTT = Community Councils Together on Trams||LW = Leith Walk|
|CEC = City of Edinburgh Council||NTBCC = New Town & Broughton Community Council|
|CPZ = controlled parking zone||OBC = outline business case|
|CS = Constitution St||POLHA = Port of Leith Housing Association|
|ECI = early contractor involvement||SPC = swept-path contract|
|EIA = environmental impact assessment||TAPOG = CEC’s tram all-party oversight group|
|FBC = full business case||TfE = Transport for Edinburgh|
|ISC = infrastructure and systems contract||TN = Trams to Newhaven project|
|LCCC = Leith Central Community Council||TRO = traffic regulation order|
|LHNCC = Leith Harbour & Newhaven Community Council||TT = trams team|
TAPOG is CEC’s leader and vice-leader, CEC’s transport convenor and vice-convenor, and transport spokespersons from each party
1 Welcome, introductions
|Charlotte Encombe||CCTT/LCCC||Rob Levick||CCTT/LHNCC||Harald Tobermann||CCTT/LCCC|
|Angus Hardie||CCTT/LL CC||Jennifer Marlborough||CCTT/LHNCC||Bruce Ryan||CCTT minutes secretary|
|Allan Jack||CCTTNTBCC||Andrew Mackenzie||CCTT/LLCC||Darren Wraight||TT/CEC|
|Rob Leech||TT/TN project||Carol Nimmo||CCTT/NTBCC|
2 Update from TT
Rob Leech outlined the next steps for the final business case (FBC), and the main points of its contents.
2.a Next steps
The FBC is on (post-BAFO) schedule. It goes to
- CEC’s transport and environment committee on 29 February
- CEC’s finance and resources TEC committee on 7 March, to consider procurement and contracts
- Full council on 14 March.
Minuter’s note: subjunctive (‘would’, ‘should’) is used where relevant because many things will only happen if CEC approves the FBC.
- This project is about completion of phase 1a of the original tram scheme.
- This should have been completed years ago, i.e. along with the existing line from the airport to York Place.
- The existing line is performing ‘extremely well’, e.g. 7m passengers in 2018.
- The FBC has been updated (from the outline business case [OBC]) to take account of tendered prices, inflation, design-changes (resulting from consultations) and the ‘support for business’ package.
- The FBC has a section on lessons learned from building the existing line. This includes information on retaining knowledge from that project .
- It has been prepared in accordance with Scottish Government and UK Government guidelines.
- It contains much on the strategic case, i.e. reasons for building this extension.
- Edinburgh’s population is set to grow by 20% by 2039.
- Employment will also grow by 7% by 2022.
- There is low car-ownership in the Leith area and the Leith Walk corridor.
- CEC wishes less car-ownership/more sustainable transport, i.e. shift from private motor vehicles to public transport.
- There is very high population on the corridor where this extension would run.
- There is content on connectivity between employment centres, and employment during and after construction.
- There is content on sustainable development at the waterfront.
- Good public transport enables reduced car-dependency in such areas, hence enabling different life-choices.
- That is, it allows people to live near their work; it reduces need for commuting and urban sprawl.
- This would lead to improved air-quality in the tram corridor.
- The extension would enhance Leith and Newhaven as destinations.
- Hence chapter 3 (the strategic case) covers how this project would
- follow UK treasury guidance (the ‘green book’), and CEC policies and strategies, e.g. local development plan
- link 3 out of four economic centres in Edinburgh: airport/international business gateway/Edinburgh park; city centre; Leith waterfront. (Tram would not serve the SE quarter economic centre.)
- Overall, the FBC presents tram as an enabler for growth that would not occur without it.
- Concerning the economic case:
- The capital cost is set to be £196m. (It was £165m in the OBC.)
- This allows for risk, using a quantitative analysis using ‘green book’ methods.
- It includes an amount for contractor-pricing. This was initiated by the collapse of Carillion, leading to contractors undertaking much more due diligence when tendering.
- It also includes inflation and design-changes.
- It also includes the ‘support for business’ package.
- There will also be two contracts, hence increased contract-management overheads. (Management will be by a blended team, including a delivery unit containing experienced light-rail consultants, and senior CEC officials such as D Wraight. At peak, there will be around 30 CEC managers in this project.)
- Early contractor involvement (ECI) adds some management overheads, and adds 6 months to the programme.
- In addition to the £196m, £10m has been added for optimism bias (OB), following government guidance.
- This takes the total cost to £207·3m, giving a benefit to cost ratio of 1·4:1. (In public transport schemes, this ration is expected to be between 1·2: 1 and 2:1, because public transport has quite high construction and operational/maintenance costs. The OBC had 1·64, but the majority of the change here is due to changed government guidance on costing time.)
- At the start of a process (before design starts), the ‘green book’ mandates a large OB (66%). However, there is then a sliding scale based on Network Rail’s GRIP design process. This scale moves from optimism bias to quantitative risk analysis (QRA). SO FBCs should be base costs + an amount from QRA. (Economic cases should include OB, but the guidelines are ambiguous about inclusion of OB in financial cases. TT has assumed 6% OB. The OBC had 20% OB in its economic case, but not in its financial case.)
- Also, professor Bent Flyvbjerg and colleagues have an alternative method for calculating risk, based on an ‘outsider’ view using information from similar projects about projected and actual costs. (The UK and Scottish Governments do not currently accept this method.) Flyvbjerg and colleagues calculated this project’s capital cost as £257m, not £207m. However, they recognise that the project is very advanced from the initial design stage, that some utilities have already been moved, and that this project is an extension of an existing line, not de novo. These could reduce the overall cost but such reductions are not part of their model.
- Hence £50m (£257m – £207m) has been earmarked as a contingency to be managed by CEC’s head of finance and a finance and risk subcommittee (reporting to the project board).
- The impact of such drawdown would increase the 2024-27 borrowing from £1·9m to £14·8m. This level of borrowing would be repaid by 2037.
- The FBC hence considers mitigation, e.g. borrowing at less than 4·1%, moving away from parity of fares between bus and tram, and optimising tram maintenance and infrastructure costs.
- The economic case is also based on patronage forecasts of 15·7m in 2023 (first year of operation).
- This comes from high population densities and increased development on the corridor, e.g. Cala development.
- Increased patronage would come from bus and car, i.e. people would use trams rather than buses.
- Suitable wording in the FBC has been agreed with Lothian Buses (LB), recognising that this project is part of an integrated public transport framework. This section also covers what LB needs to remain robust during and after construction. These include clear radial routes into the city, e.g. double-red lines at the Roseburn shops. Hence LB wants CEC to enforce route-clarity more strongly than is done today.
- (C Encombe suggested that implementation of a CPZ in LCCC’s area would help enhance route-clarity.)
- (H Tobermann suggested that historically CEC has not enforced well in the past, and questioned why LB has not asked for route-clarity enforcement previously.)
- This extension was always the part that would make Edinburgh trams financially positive.
- There are also anticipated wider benefits, which may add between 15 and 40% to the economic case. (There is no agreed method for assessing their financial value, so they have not been monetised in the FBC.)
- These benefits include employment opportunities, connectivity (agglomeration of businesses), linking brownfield sites with other economic centres to provide more opportunities, higher population densities.
- The capital cost is set to be £196m. (It was £165m in the OBC.)
- The financial case centres on future tram revenues, but also relies on £20m dividend over 11 years from Lothian buses.
- LB already pays a dividend to CEC.
- In early years during construction, there is drawdown of money, but no revenue [from ticket sales].
- There would be a cashflow-issue (2024 to 2027) of £1·9m. This would come from CEC’s reserves. Later, revenues should grow, enabling replenishment of CEC’s reserves.
- This use of reserves would cause an opportunity cost. (Examination of this was inspired by the Hardie enquiry.)
- The extension would give Edinburgh £395m economic benefit (net present value) over 60 years.
- The FBC includes downward sensitivity-testing, around patronage and cost of borrowing. This assumes 4·1% interest, but CEC can borrow more cheaply than that. It also assumes no loss of revenue from stoppage.
- The FBC also includes a commercial case.
- This covers ECI and contract-conclusion.
- The FBC also includes a management case.
- This covers how the project will be implemented, e.g. heritage and archaeology work, large work-sites, no double-digging, support for businesses, governance.
- There is also a section on supplementary projects. It has been agreed that CEC would fund these (e.g. from its active travel and capital roads budgets) in parallel with the tram-work. However, these are outwith the tram-project’s limit of deviation and are hence not part of the FBC. It is very likely that TT will deliver these supplementary projects.
- The supplementary projects do not include integrated ticketing.
Minuter’s note: the information in some answers has been included at relevant points in the above, so is not repeated here.
- The cost of the completion phase is ¼ of the cost of the initial phase because the initial phase is ‘extraordinarily expensive’. Building from lessons learnt from the original tram project, firstly the contracts for this project use NEC industry standards. (The contracts for the original project were bespoke.) This form of contract mandates that contractors cannot stop work if there are (contractual) issues, and that contractors will continue to be paid.
- Secondly there are large work sites, so contractors can (and are contractually required to) continue work in other, non-problematic areas while problems are being resolved.
- Thirdly, excavations for utility-diversions would not be covered over, and then re-dug to enable construction. Instead, a swept-path process would be used: excavations would be dug, utilities diverted, then construction would occur. Because there would be several stretches of work using this method, if a problem occurs in any area, work can continue in other (parts of) stretches while problems are being resolved.
- The contracts now use the NEC4 standard, rather than NEC3. The main difference is that NEC4 mandates a project bank account from which main subcontractors are paid directly. Hence, should the main contractor become insolvent, the main subcontractors would continue to be paid. This would also enable ECI.
- There are two incentive mechanisms in the contracts:
- During ECI, there is an incentive mechanism to reduce costs: this would benefit both the contractors and CEC.
- Once construction starts, a ‘pain-gain’ mechanism would start on the Infrastructure & Systems Contract. That is, should costs exceed the target price, CEC would share the costs 50/50 with the contractor up to a threshold of 120% of the target price, thereafter the risk is with the contractor for all the main civil engineering works. Should costs be less than the target price, CEC and the contractor would receive equal shares of such savings. Hence th contractor would have a ‘massive’ incentive to deliver for less than the target price.
- However, there is no incentive to cut corners. While the contractors are self-certifying. CEC’s technical services (provided by Atkins) will check contractors’ designs as they arrive. Similarly, TT will employ 3 quality-control inspectors (1 during ECI). Their sole responsibility is to be on site all through the work, checking that everything is as per the designs. TT will also inspect the inspections.
- Price-increases were partly cause by market price-testing. (R Leech is not privy to the actual contractors’ costs for each part of the design.) However, it is very likely that risk has been priced into the costs. There were risk-costs in the OBC’s £165m costs.
- H Tobermann stated that the construction cost has increased more from the OBC cost than he would expect.
- R Leech responded that probably as a result of Carillion’s collapse, contractors took a more diligent approach to tendering. RL believes this is a positive step because it means prices are realistic, and contractors really understand what they are taking on. (Too often, they haven’t known, so ‘disasters’ happen during work.) ECI also adds to this positive effect.
- TT has closely followed the evidence presented to the Hardie enquiry. It has also undertaken its own ‘lessons learnt’ process, based on knowledge from people who were involved in the original work.
- It was suggested that the people available to this process were only involved in ‘rescuing’ the original project, so they know what went wrong but not what caused this. However, RL stated that people with knowledge of the original project, pre-mediation, are available to advise the project. Physical work would start before the end of 2019. However, ECI work will start before this, leading to some minor road-works and accompanying traffic-management. An outline of the main works is on the TT website.
- The principles for landscaping designs have been created but detailed designs for areas such as Elm Row have yet to be finalised. This will specify details of trees etc.
- It needs to be decided whether and how these CCTT/TT meetings will continue. However, RL believes that they have been beneficial. D Wraight stated that other groups have asked how they can be involved in these meetings.
- H Tobermann suggested that further meetings should cover the timetable and [CCTT’s list of] supplementary projects.
- Much documentation is being published along with the FBC. Stakeholders will be emailed when the FBC and accompanying documents are published, giving links to them.