Monitoring officer at district council issues section 5 report after project goes £850k over budget

The monitoring officer at Tendring District Council has issued a section 5 report after council officers varied a contract beyond the scope of the approvals in place, leading to additional costs to a project being incurred without authorisation.

The issue centred around a disused 1960s property that the council plans to redevelop for use as temporary housing.

Tendring's cabinet took the decision to use the building, known as Spendells House, in 2020.

By September 2022, the cabinet had decided to award a contract to refurbish the disused building and make it suitable for temporary accommodation.

The original estimate for the project was £0.600m as included in the authority's HRA capital programme for 2022/23.

This was later increased to £1.4m, but costs grew even further during construction when the need for around £500k in additional works arose.

These works were not part of the original specification.

Delays to the project cost a further £175k, pushing the overall costs of the project to more than £2m and putting the project £850,000 in excess of the approved budget.

Writing in the section 5 report, the council's monitoring officer, Lisa Hastings, said some additional project costs were incurred "without proper authorisation".

Her report said: "The Council's financial procedure rules were not followed by project team by the seeking of funding for variations before commitments were made to the contractor. Accordingly, instructions have been given for which there is no authority and no budget."

As a result, the report – under section 5 of the Local Government and Housing Act 1989 – was issued to inform councillors that the council had, through contract management, "varied the contract works beyond the scope of the approvals in place, through previous decision making and sufficient budget provision".

The report revealed that the project team said it gave instructions to the contractor to proceed with works in order to limit stalling.

But the subsequent works led to the final cost of the project "substantially exceeding the contract sum and the approved budget without the relevant approvals in place," the report added.

The report said the council had a choice between continuing with the contract, increasing funding and confirming the additional works identified, or negotiating an end to the contract and then either discontinuing the project or seeking a further contractor to complete the project.

The monitoring officer report advised that "having got to this point the best value option from here is to continue with the project and the current contract".

It also recommended that an additional £850,000 capital spending and £100,000 in revenue spending is allocated from reserves to facilitate the completion of the project.

Tendring's cabinet agreed to the recommendations.

The internal audit team has also been called in to consider the council's arrangements for project management following the incident. Their investigation is still underway.

In the meantime, council officers have proposed the following interim measures:

• take a more measured and realistic approach to internal resources: seek consultancy leadership in the delivery of major projects and factor those costs in from the start
• implement project review points in the development stages to ensure that the scope is not stretched and that financial review forms part of change processes
• ensure that realistic contingencies are included in all contracts and that realistic timelines are established at the early stages
• implement short-term in-house development for staff in contract and project management
• identify appropriate staff to take part in formal project management training and potentially qualification
• include the importance of budgetary control and governance in one-to-one reviews
• hold monthly finance meetings between service and finance staff and formalise project review into monthly Portfolio Holder meeting agendas.

The council has now backed the additional expenditure to complete the scheme.

Cllr Andy Baker, Tendring's Cabinet Member for Housing and Planning, said lessons had been learned following the issues, but added that the council remains committed to the overall scheme.

“We recognise that the cost of this project has increased substantially and that works have been carried out without the proper authorisation,” he said.

“But we have reiterated our support for the project, the fundamental reasons for which remain - to provide much-needed temporary accommodation for homeless people and families in need."

Cllr Baker said: “The financial cost of emergency hotel provision to meet the escalating demand to provide temporary housing is unaffordable in the long term, while such accommodation itself is unsuitable for family life.

“Having got to this point, the best value option from here is to continue with the project.

“Alongside accommodating homeless people in more suitable facilities and reusing a redundant building, it will also save taxpayers’ money in the long-run.”

Adam Carey