Soaring costs may impact some of £250m City Deal Derry & Strabane projects

Derry and Strabane representatives have expressed deep concern after learning that soaring inflation and costs may result in a minority of City Deal projects having to be be delivered on a scaled basis.
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Derry & Strabane Council Chief Executive, John Kelpie informed the committee that some of the project benefits ‘may be reduced’ due to increasing construction costs and increasing inflation.

However he added that early signs are ‘the vast majority of the projects will still be delivered to retain as many of the benefits as possible’.

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In February 2021, a £250M ‘Heads of Terms’ agreement was signed with the focus on advancing Outline Business Cases (OBCs) for all projects to the next stage of the process and achieving ‘Financial Deal’.

Derry.Derry.
Derry.

Mr Kelpie addressed the Governance and Strategic Planning Committee saying: “There are multiple community projects, there are multiple strategic projects and in particular we are talking about projects that will improve the economic outcome of the city and district.”

The Chief Executive explained that OBCs have been advancing in parallel broadly in line with targets of development of early/ first drafts by Spring and Summer 2022. However, they are now dealing with a number of complexities.

He said: “We are dealing with a range of issues – the complexity of the projects, the requirements of the projects to adhere to future net zero consideration and most importantly of all, our biggest impact: the emerging nature of the growing scale and impact of increasing construction, material costs, labour costs, energy costs and inflation.

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“At this stage the OBC costs are considerably in excess for most of the projects and they are expected to be considerably in excess of the costs that were envisaged at strategic outline stage for most of the projects, i.e. at Heads of Term stage.”

SDLP Colr. Rory Farrell.SDLP Colr. Rory Farrell.
SDLP Colr. Rory Farrell.

The elected members heard that council had approached government but have been informed that ‘there is simply at this stage no further money to fund significant cost overruns’ and that ‘all project partners are now in the process of reappraising the projects to try and reduce costs’ and that although projects will proceed they may ‘have to be developed on a scalable basis’.

Referring to the Central Riverfront/Walled City Regeneration projects, the Chief Executive described the reconstruction of the Queen’s Quay as ‘an extremely complex project’ with the daft costings for the Strabane Town Centre Regeneration project, which includes a new leisure centre and health hub, significantly exceeding the approved budget, meaning the scale and nature of the project is being re-analysed.

Speaking of his concerns that mounting financial pressures will impact other City Deal projects, SDLP Colr. Rory Farrell said: “It’s no secret inflation is rampant, there are spiralling construction costs and that’s going to impact the financial forecast for each and every City Deal project and we note the correspondence in July from the Northern Ireland Office and Department of Finance which said there was no planned additional UK government or Northern Ireland Executive funding available.

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“We want to see more money from this. We need to request additional City Deal funding because the cost of each project has gone through the roof and the £250M, £210M of which comes from Stormont and Westminster isn’t sufficient to deliver these projects as originally envisaged in the Heads of Terms that the British government signed up to and the Northern Ireland Executive signed up to in February 21.”

Council Chief Executive John Kelpie.Council Chief Executive John Kelpie.
Council Chief Executive John Kelpie.

He then queried if the redevelopment of Queen’s Quay would be taken on by the Department for Infrastructure (DfI) saying: “We were given Queen’s Quay, we didn’t want it, we didn’t want the responsibility of it and we didn’t want the liability and now it looks like it could eat up a massive percentage, more than 100% of the Central Riverfront budget.”

Proposing the recommendations were accepted, Mr Farrell made a proposal that council write to the UK Treasury and Department for Finance permanent secretary to request additional City deal funding to allow the suite of projects to be delivered as envisaged in the Heads of Terms agreement.

Describing the situation as ‘extremely disappointing’, Sinn Féin councillor Conor Heaney said: “This City Deal was to be transformative and still needs to be transformative for the city and region but we all know that costs are going up and the current financial situation and the rampant inflation mainly caused by the mini budget that the DUP supported.”

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Responding, DUP Alderman Maurice Devenney commented: “We all know the target was £250M in 2019. We could nearly guesstimate that it would probably be £350M in today’s money with the rising inflation and cost of everything.

“I know people blame the DUP but when you look across the world and the Republic of Ireland and speak to businesses there, they have the same issues as well.”

Stating that ‘it’s not ok for the British government to leave council to sort out these issues’, SDLP councillor Brian Tierney added: “In this letter and any discussions we are having with the UK Treasury we need to outline to them that this is a partnership City Deal and that council were never the sole carrier of this.”

"The City Deal report is coming largely from the UK Treasury and the Northern Ireland Executive, it’s not fair that because prices go up that this council and the citizens of this district have to carry the can for that.”

Responding to councillor Farrell’s query on whether the DfI are willing to take on the Queen’s Quay project, Mr Kelpie said: “They understand the complexity of the issue, they understand the direction of travel, they have indicated that it seems to be a sensible direction of travel but no, we are not at the point where that is fully worked through and it remains a discussion in progress.”

He added that all project partners are looking at revised OBCs target dates saying: “I can’t emphasise enough how much work there is going on to try and do that.

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“The original intent had been to try and achieve Financial Deal around spring of next year, that would have required the OBCs to be in the system now. We are looking at those dates right now and I’ll bring back a report as soon as I know the revised target dates.”

Asking if there a danger of any of the elements being cut, UUP Alderman Derek Hussey said: “If they simply do not do what they were intended to do at the beginning and therefore will simply fall by the wayside because if they have been cut to the bone and are no longer viable to carry them forward.”

Mr Kelpie replied: “Some of the benefits most certainly may be reduced but at this stage the early signs of working with the project partners are that the vast majority of the projects will still be delivered to retain as many of the benefits as possible.”

Gillian Anderson

Local Democracy Reporter

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