Urgent Decision: Y Implementation Date: 27 November If not on Forward Plan Procedure 15 or 16 used?

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1 Report to: Cabinet Date: 27 November 2013 Title: Portfolio Holder(s) Divisions Affected St Mary s and Penzance Harbours Improvements Bert Biscoe CC - Transport and Waste Penzance Central Relevant Scrutiny Committee: Scrutiny Management Key Decision: Y Approval and clearance obtained: Y Urgent Decision: Y Implementation Date: 27 November 2013 If Key Decision - on Forward Plan? Y If not on Forward Plan Procedure 15 or 16 used? N/A Author: Tim Wood Role: Assistant Head of Service Contact: (Internal ) twood@cornwall.gov.uk Recommendations: 1. That Cornwall Council accepts the role of accountable body for the St Mary s and Penzance Harbours Improvements project. 2. To recommend to Full Council the addition of the St Mary s and Penzance Harbours Improvements project to the Capital Programme. 3. Subject to acceptance by the Procurement Assurance Panel, and costs being within budget, authority is delegated to: i) Director of Resources, to accept the Department for Transport and European Convergence funding offers; and ii) The Interim Director of Environment, in consultation with Director of Resources, to award the contracts to the preferred tenderers.

2 4. That, in order to manage the Council s exposure to risk, no construction work is to commence until the State Aid notification has been approved by the European Commission.

3 1. Executive Summary: St Mary s Harbour, Isles of Scilly, is owned by the Duchy of Cornwall and Penzance Harbour is owned by Cornwall Council. The privately operated sea link is an essential transport mode for passengers and freight. The existing passenger and freight vessels are coming to the end of their economic lives but there is a lack of suitable alternative replacement vessels due to the shallow draft requirements of the harbours. The proposed works will increase the available water depth through a quay extension at St Mary s and dredging at Penzance, providing flexibility in future vessel choice. The works also included widening and surface improvements at St.Mary s to reduce pedestrian / vehicle conflict and some limited highway works at Penzance, to improve the management of passenger traffic. Freight and passenger facilities at St.Mary s will also be updated to improve the customer experience. These harbour works are vital to the long term future of the Isles of Scilly sea link and the economies of both West Cornwall and the Isles of Scilly. A funding bid was submitted to the Department for Transport (DfT) in March 2013 seeking 10m funding and in September 2013 the Minister for Transport was minded to approve a minimum of 8m funding for the project. A bid seeking 6-8m European Convergence funding has also been submitted. The development costs for the revised solutions have been funded by the DfT and by 10k from Penzance Town Council. Cornwall Council has no financial contribution to the proposed works but it is expected to be the accountable body for the delivery of the harbours projects and, therefore, is required to accept the risks inherent in such a project. There are construction risks inherent in the project and these sums have been included within project estimates to address certain eventualities. One remaining risk is the need to secure State Aid approval which it is agreed with both the DfT and the Department for Communities and Local Government is a low risk, however, as recommendation 4 sets out, construction will not commence until this has been received. Project delivery requires that Cornwall Council accepts the role of accountable body and to secure State Aid approval from the European Commission.

4 2. Background and Corporate Objectives: The air and sea links between the mainland and the Isles of Scilly are the lifeline for the communities and businesses of the Isles. The sea link provides transport for the majority of freight and over 80,000 passengers to and from the Isles, and an alternative for air passengers when flights are cancelled. The existing passenger vessel, Scillonian III, was a bespoke build with a shallow (2.9m) draft and was designed to sit on the seabed when there is insufficient depth of water to remain afloat. In order to safeguard the future of the sea link, harbour improvements are required at both harbours. In May 2010, a major scheme business case was submitted to DfT by Cornwall Council for harbour improvements at St Mary s and Penzance together with a new combined passenger and freight vessel. The scheme failed to achieve funding approval but the Secretary of State stated that he would consider a simpler solution to safeguard the sea link. The current project of harbour improvements is being promoted by Cornwall Council as the Local Transport Authority and has been developed in consultation with the Council of the Isles of Scilly, Penzance Town Council,, Duchy of Cornwall and the Isles of Scilly Steamship Company. The scope of works includes: St Mary s Harbour Extension to the main pier Reclamation to widen the freight yard access New/improved freight and passenger facilities. Penzance Harbour Dredging to the harbour approach and Lighthouse Pier (main berth) and Albert Pier (storm berth) Highway improvements Partial rock armour (subject to Department for Transport approval based on operational need). The outcomes that will be achieved are: Increased water depth at both harbours able to accommodate vessels of a greater draft Improved protection to vessels at both harbours Conflict between harbour users reduced Passenger experience improved at St Mary s

5 and if rock armour is included at Penzance then a further outcome is: Overtopping reduced and less sailings cancelled or delayed Penzance Harbour has not had any significant maintenance dredging for 13 years and the sea bed levels within the harbour have increased as a consequence which has resulted in a reduction in available water depth for vessels to use the harbour. The deeper water resulting from the dredging will increase the range of vessels that can use the harbour and will increase the choices for a replacement vessel when the current passenger ship reaches the end of its life (the hull of the current vessel is currently certified until 2018, subject to annual MCA certificate for carrying passenger). The works will improve the harbour facility and protect the income stream from harbour dues and charges., These harbour improvements combined with commercial initiatives by the operator will help improve the reputation and attractiveness of the ferry service with consequential benefits to the local economy. Provision of a suitable replacement vessel for the Isles of Scilly service is a matter for the private sector. However, without the harbour improvements, it is unlikely that an affordable vessel would be identified and this could result in the loss of the service. Permissions and Consents: Harbour Revision Orders are in place for both harbours; Listed Building Consent has been granted for the works at both harbours Marine Licence applications have been submitted to the Marine Management Organisation for both harbours. A licence has been granted for the dredging at Penzance. The Licence for works at St Mary s is currently under consideration. Highway works at Penzance will be carried out using the Council s permitted development rights. In addition to the above, Cornwall Council is currently working with both the DfT and DCLG to secure State Aid approval for the project as soon as possible in order not to delay work on the harbours commencing. 3. Decision and Supporting Information (Including Options): The Council has sought to continue to support the project without placing itself at further financial risk. Development funding was secured from the Department for Transport. The options are:

6 1. To decline to be accountable body for the project and waive the investment opportunity at St.Mary s Harbour and Penzance Harbour. 2. To accept the role of accountable body and limit the financial risk by instructing only contractor design work before State Aid approval is confirmed (as recommended). 3. Defer any support until the next round of ERDF Convergence. The business case developed for the DfT and ERDF Convergence shows that the loss of the sea link would have significant adverse impacts on the long term socio-economic prospects for the communities of West Cornwall and the Isles of Scilly. Proceeding with the contract award before State Aid approval is confirmed is not offered as an option because the ERDF offer conditions will stipulate that such action will render all costs as ineligible. In effect, the ERDF offer would be withdrawn. The DfT has clearly stated that its financial contribution is dependent upon the project also receiving ERDF Convergence funding. The funding offer presumes funding in the Convergence period (works to be completed by early 2015) as the Government cannot commit to funding the scheme beyond the current comprehensive spending review period (2011/ /15). This discounts option 3 if the works are to be delivered to extend the opportunities for future vessel replacement plans by the private sector. The option to include localised rock armour at Penzance, to protect South Pier and Lighthouse Pier, within the project scope has not yet been dismissed but is subject to justification to the DfT based upon evidence of cancelled or disrupted sailings. The 2013 season has been good with few weather/tide events causing overtopping of the piers. It is therefore unlikely that there will be sufficient evidence to demonstrate that the rock armour is operationally essential. The project has benefits to Cornwall Council in protecting and enhancing the Penzance Harbour asset. 4. Contributions to Corporate Priorities: The project supports many of the objectives in the Local Transport Plan, Connecting Cornwall 2030 including those relating to: i) Tackling Climate Change ii) Supporting Economic Prosperity

7 iii) Respecting and Enhancing the Environment iv) Supporting Community Safety and Individual Wellbeing v) Supporting Equality of Opportunity. The project also supports The Cornwall Maritime Strategy , in particular the following objectives: A A sustainable approach B A joined-up approach D Healthy and resilient coastal communities E A working peninsula F Connecting land and sea G Pride, recognition and responsibility for cultural, natural and historic assets. 5. Financial Implications and Budget: The DfT has committed to provide 440,000 to Cornwall Council to fund the development of the project in 2013/14 and the case has been set out for a further 230,000 in 2014/15, but this is yet to be confirmed. The funding is being used to develop the DfT and ERDF business cases, prepare submissions for essential licences, undertake surveys, develop the tender documents and assess the returned tenders. The Council is not contributing to the development costs. The value of the capital project lies between 13.2m and 16.5m depending on which proposed options the DfT wishes to take forward. Funding for the scheme is anticipated from two sources: a direct grant from the DfT and complementary funding from the ERDF Convergence Programme. The Council is not contributing to the capital costs. The anticipated expenditure profile at each harbour (assuming the fullest construction option) is shown below. This may vary depending on the programme for design and build at St Mary s. 2013/ /15 Totals St Mary's Penzance In developing the business case the Council has assessed the risk costs as 0.799m (St Mary s) and 0.115m (Penzance). These costs are included in the budget estimates. The Capital Gateway Panel approved the project at its meeting on 13 November 2013, and recommend to Council that it should be added to the capital programme. The Panel noted the urgency of delivery to meet the ERDF programme deadlines.

8 6. Other Resourcing Implications: Property - Cornwall Council operates Penzance Harbour, which is the mainland terminal for passenger and freight ships linking to the Isles of Scilly, and provides berthing for many other commercial and leisure craft. The South Pier provides berthing for the Scillonian III passenger ferry; the Albert Pier provides safe berthing during stormy weather. Clearance for all vessels using the harbour is reducing because there has been no maintenance dredging for 13 years. Without this project, the Council would need to fund a similarly scaled capital dredge project. Highway works will improve access to the harbour for all passengers (and other users), with particular improvements for groups arriving by coach and those with disabilities. The inclusion of limited rock armour protection to the Lighthouse and South Piers would reduce the incidence of waves over-topping the seawall, thus protecting passengers during inclement weather, and so reducing the number of sailings that need to be cancelled. It would also help preserve the integrity of the Lighthouse and South Piers, which recently required stainless steel staples to ensure granite block components were stabilised. However, it is unlikely that there will be sufficient evidence to demonstrate that the rock armour is operationally essential. HR/Staffing None. Information Services None. Procurement and Contracts The procurement methodology passed the Procurement Assurance (PAS) Scheme Review 1 on 26 June The works are being procured using the Council s Construction Framework (Lot 4 > 1m) as two separate contracts due to the different nature, requirements and geographical locations. At Penzance Harbour a construction only contract is appropriate. The St Mary s Harbour design is less developed, so it requires a design and build contract. Tenders were issued in August and September 2013 for the St Mary s and Penzance contracts, respectively, and both were returned in early November The tenders are now being evaluated and the outcome will be reported to the PAS panel on the 27 November Legal Implications:

9 Contracts There are legal implications arising from the Council acting as accountable body for the funding from both the Department for Transport ( DfT ) and the Department for Communities ( DCLG ) European Regional Development Fund ( ERDF ). In signing up to the grant agreements the Council is agreeing to become accountable for ensuring that the project is delivered lawfully (including but not limited to complying with the relevant state aid and procurement rules) and that the project outcomes are monitored and reported on. Failure to comply with the grant conditions will expose the Council to a risk of claw-back. The Council has carried out procurement processes using its capital framework which was procured via the Official Journal of the European Union. If the recommendations are agreed then the Council will enter into contracts with the selected contractors and will also conclude an agreement allowing access to create and subsequently hand over the completed infrastructure to the Duchy of Cornwall which is the owner and statutory harbour authority for St Mary s. The project involves aid for the creation of infrastructure to support the ports of Penzance and St Mary s. The public funding for the construction of port infrastructure which may be put to commercial use is now regarded as an economic activity and, therefore, is considered to be potentially a state aid. The Council has obtained independent legal and valuation advice and has been working with both the DfT and DCLG to ensure that the project is compliant with the state aid rules. 8. Equality Impact Assessment: The scheme includes infrastructure improvements in terms of access at St Mary s and at Penzance. Physical enhancements represent a positive impact for all users, with specific benefits to people with disabilities, people with mobility impairments, older people and people with buggies or pushchairs. No major change is required to the scheme. 9. Significant risks: There are no significant risks associated with this project. The project risks have been assessed and a sum included within the cost estimates to cater for construction-related risks arising. There will be residual risks for the Council being responsible for project overspends,

10 possible clawback of funding if project outputs are not delivered and risk of losing the funding and the project not proceeding if State Aid notification is not accepted. 10. Consultation including Scrutiny Committee and Local Member Representation: The Penzance Town Council undertook to develop a preferred scheme for Penzance which it co-funded with the DfT. Dredging was one of the key elements of that scheme and the scheme being proposed by Cornwall Council. Other aspects of the Town Council scheme are not deliverable at this time but may be delivered in subsequent phases of development of the harbour infrastructure. Councillor Biscoe has met and explained the rationale to the Town Council who voted to support Cornwall Council s scheme on 17 June 2013 including limited rock armour, if it could be shown to the DfT to be operationally essential. No comments had been received from the division Member at the time of finalising the report. Supporting Information Appendices: 1. Appendix Illustrative Plans Background Papers: [under provisions of the Local Government Act 1972] None. Approval and Clearance of Report All Reports: Final Report Sign Offs Finance Required for all reports Legal This report has been Date cleared by OR not significant/ not required Andy Brown, Assistant 19 Nov 2013 Head of Finance Simon Mansell

11 Equality Impact Assessment Human Resources Property Procurement Information Services Cabinet/Individual Decision Reports: Final Report Sign Offs This report has been Date cleared by Head of service Nigel Blackler Corporate Director Peter Marsh