Eastleigh’s Conservative Councillors drew an interesting statement from the Leader of Eastleigh Borough Council, Cllr Keith House this evening [31st October], on the ongoing difficulties with the development of a new hotel at the Ageas Bowl.
Taking advantage of the ‘Members Questions’ item on the agenda at this evenings Special Meeting of the Borough Council, Cllr Godfrey Olson asked;
“What steps are being taken, and by whom, to resolve the problems on the building of the hotel at the Ageas Bowl, which is due to be funded by Eastleigh Borough Council following a) The building contractor going into administration and b) the issues currently surrounding the Co-Op Bank. What are the financial implications to the Council as a result of any delays or penalties and increased costs..?”
In his reply, the Leader of Eastleigh Borough Council was crystal clear, saying;
It is not Eastleigh Borough Council that is funding the build of the Hotel. The build is being externally funded by the Co-Op bank, Downings Finance and by the Ageas Bowl themselves.
The Council will purchase the hotel for a fixed price of £27.5 million which splits as £4million at the advanced shell stage and the balance of £23.4 million at practical completion.
To date our investment is just £100,000 a sum that had to be paid at the start of the contract to avoid future stamp duty liability. No other payment for the hotel has been made.
The Council did buy the land on which the hotel has been built, for £1.1 million. An amount equal to this is held in a joint account and if there were to be a complete failure by the Co-Op to build the hotel, this money comes back to the Council.
Circumstances why Denizens went into administration do need to be understood. One of the key elements of the build programme is the quite substantial Mechanical & Engineering (M&E) work.
The sub-contractors tender came in significantly over-budget. The liability for this wasn’t met by Downings, who asked for payment terms from Co-Operative to be changed to fortnightly.
The Co-Op did not withdraw funding, there has been some mis-reporting on that, but delayed it subject to determining the final cost to complete the build.
The delay was enough to result in a significant draw-down of the contract sum being delayed.
Denizens, who had over-stretched themselves with 17 other project ongoing, were forced into administration.
In terms of the legal position, its the Co-Op Bank , Downings and the Ageas Bowl who have to find an alternative builder.
However, the Council is doing all it can to help and has extended the terms of its client manager, who has been working with the funders to assist in the re-tender. He’s already sent out the pre-qualification questionnaires and has expressions of interest from at least eight companies.
The Co-op’s position is clear in terms of their obligation to complete the construction project. They and indeed the other funders are fully aware that they only get their money back from the Council, once they do.
Its not helped by the current position of the Co-op. Two years ago it was the bank in the world of development finance. Co-op has had a fairly difficult merger with the Britannia Building Society and a change in the way that Banks can count their debt has seen profits plumet and the latest rescue package was rejected in favour of a potential takeover from bond-holders and hedge-funds.
As a result, all of the mangers we were dealing with have now left the company. The new team are very anxious to sort things out, but are still playing catch-up and given the complexity of the project we’re helping them to try to understand their position.
We do need to be absolutely clear. They’ve got to indicate the rescue package and all we can do is try and help where we can.
In summary, the Councils position is exactly as we reported to Councillors back in July 2012. Its fully protected from construction risk and has no liability in respect of the re-tendering process or any cost increase of the build.
The Council will still be buying the completed hotel at the fixed price of £27.5 million.
We’re working closely with the funders to get the contract re-started and in doing so, are trying to ensure that existing sub-contractors are also protected.
We’ll regularly report back to the Council and if necessary the Cabinet, to make sure everybody is up to date..
Its still an exciting project.
Its still a vital part of the future growth for our economy in South Hampshire.
We’re determined to help it get back on track as quickly as possible.
In his follow-up question, Cllr Olson asked;
I’m still concerned about the effect on funding the building of the hotel. Its fairly obvious that its going to cost rather more than was originally planned. What I’m concerned about is who will meet that funding.
Its all very well for Cllr House to say “Oh we’ve got a fixed price contract and that’s what we shall pay”, but if the hotel costs that much more, who is going to fund that..?
Will the Co-op bank fund it. Who else will fund it if they won’t?
I am concerned that we should be faced, at the end of the day, with a hotel that has cost rather more than we are contracted to pay, and then they say well we’re not prepared to accept that.
Or, that if the Co-op Bank, along the way, says that we’re not prepared to carry on with this.
I know there are agreements in place, but not always do agreements come to conclusion, as we saw with Denizen.
Its all very well to have it on paper and to have that security of a written agreement, but it doesn’t always come-off.
I’m worried now, that this hotel is in limbo.
I do see it costing more than was originally planned and all I’m concerned about is who will fund it..?
If people say along the way that we’re not prepared to fund it, what will happen to the building that is there.
There are also penalties involved and some of those completion times have already overrun.
Cllr House, clearly irritated by the question, re-iterated;
The liability for completing the hotel rest with the Co-op, Downings and the Ageas Bowl. It does not rest with this Council.
The Council has a fixed price and it will adhere to that price. End of…
There is no question, at all, about the Council acquiring the hotel for the agreed price.
We’ve got to try to vest this in reality. We’ve been very, very clear throughout this entire process.
I repeat again, with absolute clarity. The Council has a commitment to purchase the hotel for a fixed price. It will not deviate from that price.