NATIONAL AUDIT OFFICE
REPORTBY THE COMPTROLLERAND AUDITORGENERAL
LondonDocklands DevelopmentCorporation: The LimehouseLink
ORDEREDBY THE HOUSEOF COMMONS TO BE PRINTED 12 JUNE1995
LONDON:HMSO HC 466 Session 1994-95 Published 16 June 1995 f 6.95 NET London Do&lands Development Corporation: The Limehouse Link
This report has been prepared under Section 6 of the National Audit Act 1983 for presentation to the House of Commons in accordance with Section 9 of the Act.
John Bourn National Audit Office Comptroller and Auditor General 7 June 1995
The Comptroller and Auditor General is the head of the National Audit Office employing some 750 staff. He, and the NAO, are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources. London Do&lands Development Corporation: The Liiehouse Link
Contents
Page
Summary and conclusions 1
1. Background 6
2. Appraisal of the Limehouse Link project 20
3. Management of the construction of the Limehouse Lii 33
Appendices
1. Limehouse Link! Key dates 49
2. Organisations consulted by the National Audit Office 53 London Docklands Development Corporation: The Limehouse Link
Summary and conclusions
Background 1 The London Do&lands Development Corporation, established In 1981, is an executive non-departmental public body sponsored by the Department of the Environment. The Corporation has a statutory remit to secure the regeneration of its area. In May 1993 the Corporation opened the Limehouse Link, the longest cut and cover tunnel ln Britain. It links the City of London to the Isle of Dogs, including the Canary Wharf development, and provides access to the Royal Docks. The tunnel, which is 1.8 kilometres long, cost 2293.3 million to construct. The Corporation also incurred additional expenditure on acquiring the land; rehousing local residents; and providing grants to the local authority for social, economic and connnunity projects. Of the total additional expenditure of f155.3 million, the Corporation attributed E66.1 million as directly related to the Link and the remaining E89.2 million, comprising some rehousing expenditure and the grants, to the delivery of wider regeneration objectives.
Need for the road 2 In the 1970s the former Greater London Council and the London Borough of Tower Hamlets reviewed the need for road improvements to support Docklands development, including improvements in the Limehouse area, but in 1981 the Council decided not to pursue their Dockhands Northern Relief Road. Development forecasts produced by the Corporation in the mid 1980s indicated that road improvements were urgently needed to make Dockhands more accessible and therefore more attractive to potential investors, businesses and the local population. In 1987, the Department and the Corporation stated their intent to the former Olympia and York Limited, the developers of the Canary Wharf area, to provide a range of infrastructure improvements as part of the wider Dockland highways strategy. These improvements included a cut and cover tunnel road providing access to Canary Wharf from the west, subject to the necessary resources being available (paragraphs 1.6,1.8, 1.12 and 2.8).
Options for the road 3 In March 1986 the Corporation’s consultants completed an initial feasibility study in six weeks which investigated a range of options for a new western access road to the Isle of Dogs (three surface routes and two tunnels), drawing on the earlier work by the Greater London Council. This study did not fully identify the Corporation’s
1 London Docklands Development Corporation: The Limehouse Link
requirement. A further option, based on one of the options identified in the March 1986 study, was subsequently developed in discussions between the Corporation and interested parties. This further option was a cut and cover tunnel witb a serpentine alignment. It became known as the Limehouse Link (paragraphs 1.9 - 1.10 and 2.3-2.4).
4 In June 1986 the Corporation’s Board gave approval to develop the Limehouse Link option. The serpentine cut and cover tunnel offered an early completion date and involved the loss of less productive land and less demolition of property than the other options. It also allowed land above the tunnel with development value to be retained and offered environmental and community benefits. The indicative costing of the Limehouse Link option was E51 million at 1986 prices. The consideration of the options was developed further in the consultants’ update to their feasibility study in November 1986. The Limehouse Link remained the preferred option and the tunnel was then designed and the specification worked up. In August 1988, the project was submitted to the Department of the Environment for approval to go to tender with an estimated cost of ~2141.5mlllion. This increase was principally because of changes to the requirement, developments in the design and speciiication, inclusion of project management and professional fees, and provision for inflation (paragraphs 1.11, 1.17 and 2.4-2.7).
5 The Corporation identified the costs and benefits of the various options in the economic appraisal supporting its August 1988 submission of the scheme for Departmental approval. By this thne the Corporation had reached an agreement in principle with the London Borough of Tower Hamlets, known as the Accord, which secured its co-operation with the Corporation’s road schemes and wider regeneration programme. The appraisal showed that, after accounting for assumed increases in land values to reflect the regenerationbenefits of thescheme, atl theoption8 badnegative economic returns. Department of Transport road schemes are normally expected to have a positive benefit to cost ratio, but there is no accepted methodology for appraising the contribution made by road schemes to inner city regeneration. The Corporation and the Department of the Environment believed that the cost was justified by wider regeneration benefits which could not readily be quantified. The Corporation did not undertake a comprehensive sensitivity analysis of their appraisal to changes in all the various costs and benefits (paragraphs 1.15-1.17 and 2.10-2.12).
6 The serpentine cut and cover tunnel option was chosen because the economic appraisal showed it had the lowest discounted net cost of 291 million. The appraisal showed its high construction and maintenance costs were partly offset by gains in land values and
2 London Docklands Development Corporation: The Lhnehouse Link
benefits to through trafRc, and this option offered the earliest completion date. The Corporation considered that delaying the construction of the Link would adversely affect the momentum of Docklands regeneration, including placing at risk the development of Canary Wharf by Olympia and York. In October 1988 the Department of the Environment and Treasury gave approval to the construction of the Link on the basis of the economic appraisal, which enabled the Corporation to proceed to tender (paragraphs 1.17 and 2.11-2.181.
Construction 7 The Corporation adopted a suitable contract strategy which contract achieved a reasonable balance of risk between the contractor and the Corporation, given the project’s technical complexity. The design was frozen in September 1988 as at this point in time it was considered to be sufhcient for tender purposes. The construction contract was awarded In September 1989 to the lowest appraised bidder who had offered an earlier completion date, at a price of E171.1 million. At this stage the Corporation estimated the fmal construction project cost at ~2227.6million. Thereafter there were modifications to the tunnel design, which were made after the contractor was on site (paragraphs 1.20, 3.2, 3.11).
Project management 8 When problems developed on the contract, the Corporation’s and reporting resources for overseeing it needed reinforcing. The project was behind schedule and the estimated final project cost had risen from Z227.6 million to S284 million when additional m-house and consultant resources were bought in from December 1990. From this point on the Corporation managed the project so that two sections of the Link were completed ahead of the original planned date, and the third on time. Variations to the construction contract were agreed in March 1991 and again in June 1992. The March 1991 variation agreement, which involved significant financial obligations, was approved by the hiiiastructure Project Review Group and discussed by the Board, but this approval was not formally recorded by the Board until July 1991 (paragraphs 3.24-3.35 and 3.38).
Outturn costs and 9 The Corporation opened the Lbnehouse Link on 17 May 1993. benefits Completion of the Link in just over seven years from commissioning of the feasibility study compares favourably to the average of 15 years for new road schemes completed in 1992-93 elsewhere In the United Kingdom. The outturn cost of constructing the Link was 2293.3 million. This compared with the pre-tender estimate in August 1988, including contingencies and provision for inilation, of 2141.5 million (an increase of 107 per cent); and with the post-tcndcr cstimatc of E227.6 mihion (an increase of 29 per cent). In the Corporation’s view the increased cost of the Link must be seen
3 London Do&Lands Development Corporation: The Limehouse Link
in the context of the project’s special engineering requirements, environmental constraints, and against the background of the national and local economic climate over the period of the project (paragraphs 1.20-1.21, 2.21, and 3.9).
10 The Corporation acquired the land and property to construct the Link, and rehoused 556 local authority households which were on the line of the Link or in the vicinity of the Do&land highways. The net outturn cost of the housing package under the Accord with the London Borough of Tower Hamlets was f100.5 million, compared with the net estimated cost of 592.4 million approved by the Deparunent. The Corporation estimates that E41.3 million of the f100.5 million is directly attributable to the Limehouse Link. The remainder of the housing expenditure, together with 230 million which the Corporation provided to Tower Hamlets for social, economic and community projects, was attributed to the Corporation’s wider regeneration objectives. In addition some f24.8 million was spent on land acquisition and other costs, bringing to f66.1 million the total of the other costs directly attributed by the Corporation to the Link (paragraphs 1.15-1.16, 1.21, 2.22-2.23, 3.20-3.23 and 3.27).
11 Under the Accord with the London Borough of Tower Hamlets the Corporation rehoused more local authority tenants, using its regeneration powers, than would otherwise have been required under statutes applying to highway authorities. The Corporation made additional payments to some tenants under its regeneration powers because of their existing housing conditions. Private owners were paid compensation in accordance with the Land Compensation Acts. Generally, however, the Corporation decided there was no justification for using its wider regeneration powers to purchase private properties (paragraphs 3.13-3.15).
12 Only one option for rehousing by the Corporation met the timetable for constructing the Link, tenants’ preferences and the desire to maintain existing communities. Tbis was the more expensive of the two rehousing options, and provided more units than eventmdly required. The Corporation expected net income of f13.6 million from the development of surplus land for housing but, to contain costs in a declining property market, it decided not to carry out tbis development, foregoing the net income. Income horn the sale of surplus units acquired and subsequently sold to housing associations fell 213.1 million short of the cost of purchasing those units (paragraphs 1.19 and 3.16-3.23).
4 London Docklands Development Corporation: The Limehouse Link
13 The Corporation has not yet re-appraised the overall impact of the Link on land values as regeneration of the Isle of Dogs is still underway. The expected total land value gains of 240 million included an El1 million estimated gain to the British Waterways Board from newly created development land. Tbis gain has not to date been realised (paragraphs 1.14 and 2.24-2.25).
14 The traffic flows projected in 1988 were marginally below the dual two lane design standard adopted for the road. At the time the Department considered this was based on a conservative estimate of the likely amount of development in Do&lands. However, because of the depressed property market and less buoyant economic conditions, the level of development has been below that expected. Whilst the total amount of traffic using the Link is close to that forecast, the proportion which is Docklands traffic is estimated by the Corporation at 40 per cent. The Corporation is confident that Docklands trafhc will increase and estimate it will account for over 60 per cent by the turn of the century (paragraphs 2.26-2.28).
5 London Docklands Development Corporation: The Limehouse Link
1. Background
The Corporation 1.1 The London Docklands Development Corporation was set up in 1981 and Limehouse Liuk under the Local Government Planning and Land Act 1980. The Act requires the Corporation to secure the regeneration of its designated area, which was recognised as having widespread dereliction and deprivation. In May 1993 the Corporation opened the Limehouse Link, the longest cut and cover tunnel in Britain. It links the City of London to the Isle of Dogs, including the Canary Wharf development, and the Royal Docks (Figure 1) and was a key infrastructure improvement to support the regeneration of Docklands.
1.2 When plans for the Limehouse Link were drawn up in the mid to late 198Os, the national housing and commercial property markets were buoyant and construction costs were escalating. But this period was followed by a recession and declining housing and property markets in the early 1990s. By the time the Limehouse Link was completed in 1993 the local economy in Docklands was experiencing the effects of the general recession.
1.3 The Chief Executive of the Corporation, who is the Accounting Offtcer, is appointed by the Board, with the approval of the Secretary of State for the Environment. The Corporation operates under the provisions of a Management Statement and a Financial Memorandum issued by the Department of the Environment, together with Departmental approval of its Corporate Plan and budget. Delegated limits for expenditure are set out in the Financial Memorandum.Above these limits Departmental approval is necessary, and for the largest projects Treasury approval is required. The Department of Transport’ and local authorities, as highway authorities, retain powers and responsibilities for public roads within the Corporation’s area. The Corporation works closely with them on its new road schemes to secure their connection to the existing highway network and obtain the necessary technical approvals.
1.4 The Corporation’s planned gross expenditure for 1995-96 is f95 milhon, funded by f62 million in grant-in-aid from the Depariment and receipts which are largely from land disposals. ln the five years 1989-90 to 1993-94 the Corporation’s annual
Footnote (1) The Highways Agency, set up on 1 April 1994, is the executive agency of the Department of Transport now responsible for the national road network in England.
6 London Docklands Development Corporation: The Limehouse Link I.ondnn Docklands Development Corporation: The Limehouse Link
expenditure was significantly higher, totalling El.2 billion and peaking at f354 million in 1990-91. Of this some 90 per cent was funded by grant-m-aid. This higher expenditure was largely as a result of the Limehouse Link and another transport project, the Beckton extension of the Docklands Light Railway.
1.5 The National Audit Office examined the work of the Corporation in its report “Department of the Environment: Urban Development Corporations” (HC 492 1988-89). In their subsequent report the Committee of Public Accounts noted the importance the Corporation attached to providing adequate road and rail services to Do&lands, and emphasised that this should continue to receive high priority as the regeneration of Docklands moved forward. They also recommended that the Corporation should seek to strike a reasonable balance between the physical development of their area and the social and other needs of those living there (Committee of Public Accounts, ‘Rventieth Report, HC 385 1988-89).
Proposals for the 1.6 In the 1970s a substantial review of trafRc issues in the Limehouse road area of Docklands was carried out by the former Greater London Council and the London Borough of Tower Hamlets (Tower Hamlets). The Greater London Council consulted widely on their proposed Docklands Northern Relief Road scheme to cater for traffic generated by Do&lands development and to remove through traffic from existing local roads. They considered a range of road improvement options through Limehouse, but decided in 1981 not to pursue the Docklands Northern Relief Road.
1.7 In 1982 the Government declared part of the Isle of Dogs an Enterprise Zone, with a range of Rnancial incentives to attract new development. Following the abolition of the Greater London Council, under the Local Government Act 1985, the Department of Transport took on the Council’s responsibilities for most strategic roads in London. The Al3 trunk road, which is the responsibility of the Department of Transport, marks the northern boundary of the Corporation’s area in Tower Hamlets and runs from the City of London to Tilbury. Tower Hamlets remained the local highways authority. The Corporation decided that, with the increasing scale and nature of the proposed development in Do&lands, it would be best if it produced its own Dockland highways strategy to improve the roads infrastructure.
1.8 Discussions took place between the Department of Transport, the Corporation, and Tower Hamlets about the highways strategy and their respective responsibilities. The main priority was the improvement of access from the City of London to the western part of Do&lands. There was also significant pressure from developers
8 London Docklands Development Corporation: The Limehouse Link
to provide improved infrastructure to facilitate inward investment and jobs. Because of the urgency of the requirement it was agreed that the Corporation would promote its own strategy for Dockland highways. The alternative of widening the Al3 was not in the Department of Transport’s National Roads Programme and would have involved a long lead time.
Initial feasibility 1.9 In February 1986 the Corporation commissioned consulting studies engineers Mott Hay and Anderson (Motts) to carry out a feasibility study into options for delivering improved western access to the Isle of Dogs. The feasibility study by Motts drew heavily on the Greater London Council’s earlier work. Their initial report in March 1986 presented five main options, aimed at delivering sufficiently improved access to Do&lands, with indicative castings ranging from fll million to f45 million* (Figure 2 overleaf). One option was a straight cut and cover tunnel to the Isle of Dogs.
Selection of the 1.10 The Corporation’s preferred option for the western access road was preferred option a dual two lane cut and cover tunnel to the Isle of Dogs, continuing with a two lane tunnel to North Quay to provide access to the Royal Docks as part of the Dockhand highways. Subsequent discussions with developers and owners of land in the Limehouse area led to the identification of a serpentine alignment for this tunnel, which became known as the Limehouse Link. The Corporation regarded early implementation as essential to assist regeneration in Docklands, including the proposed development of the Canary Wharf area on the Isle of Dogs. It believed the Limehouse Link option could be completed by early 1992. An indicative costing for the construction of the Link of f51 million was estimated, at 1986 prices. This costing was not intended to be definitive as the tunnel, at that stage, still needed to be designed and the specification worked up.
1.11 In June 1986, in the light of the available information, the Corporation’s Board gave formal approval to progress its Dockland highways strategy, including the Limehouse Link, through the preparation of Compulsory Purchase Orders for the land required to construct the Link and the other roads. The Corporation then instructed Motts to take forward their initial March 1986 feasibility study and consider in more detail variations to the options. These included the serpentine tunnel alignment; the introduction of the link to North Quay which had been part of another of the Corporation’s road proposals; and variations to the Al3 option. Their supplementary report, submitted in November 1986, identified five options with indicative castings ranging from
Footnote (2) Costs quoted throughout the report are at prices current at the time unless otherwise stated.
9 London Docklands Development Corporation: The Limehouse Link
Figure 2: Optionsfor improvingthe westernaccess to the Isle of Dogsby the Corporation’sconsultants in March1988
-l tunnel with s,ralgh,al,gnmen,
I ’ ROthslb~T”“M ’ : 1 I 1 I ’ I ’ , ’ I ,’
Newsurface rosd to be Improvementsto Narrow Street CO”S,r”C,edalong wifh new road allgnmen,. a, an exlstlng Northey Street eSthla,edCoS, Of PS mnnon. angnment a, an BS,hnd~d TO be carried O”, I” cOn,“ncuon COS,0, El, minion. with A13 Im~ro~mmts.
Source: NationalAudit Officeand Creaseand Associates. The five optionsconsidered were forthree surfaceroutes and two tunnels, with indicativecastings of Eli million to f45 million.
10 London Do&lands Development Corporation: The Limehouse Link
Figure 3: Optionsfor improving the western accessto the Isle of Dogsby the Corporation’sconsultants in November1986
Widen A13 in Widen A13 in c~njunctfnn with a ~~njunctfon with tunnel with serpentins 2 lane fink along 2 lane link along alignment and 2 lans Northey Street at a” Narrow Street at a” llnk to North Quay, eS,hnated CDS*Of estimated cost of at an sstlmatedcost 230 million 257 million
+ BritishRail e Docklandsffght Rai/way
Owl 2 lane c”tand cow tunnel. with a 2 lane tunnel with straight cutand cover link to .dfgnment, at an estimat sd North Ouay. atan CDS*of ES9 million estimated CO& of i
Source: NationalAudit Gffce and Creeseand Associates The five options consideredincluded widening the A13 in conjunctionwith other roadsurface improvements and threetunnel options,with indicativecostings of f30 million to f65 million. The preferredoption ofthe serpentinecut and covertunnel, known asthe LimehouseLink, had an indicativecosting of f57 million (shadedbox).
11 London Docklands Development Corporation: The Limehouse Link
S30 million to E65 million (Figure 3 on page 11). The indicative costing for the Corporation’s preferred option of the serpentine cut and cover tunnel was estimated at 257 million (including fees and project management costs but excluding land acquisition and rehousing costs) and Motts recommended it be developed as the scheme. In December 1986 the Corporation engaged consulting engineers, Sir Alexander Gibb and Partners (Giib), to design, supervise and manage construction of the tunnel.
Agreement with 1.12 In July 1987 the Corporation signed a legally binding agreement Olympia and York with Olympia and York Limited, the former developers of Canary Wharf. This was for the construction of the iirst phase of a development of 12.2 million square feet of commercial space, providing 45,000 jobs on the Isle of Dogs. Subject to the necessary resources being available the Corporation agreed to provide a range of urgent infrastructure improvements, and stated their intent to provide other infrastructure works including a cut and cover tunnel road access linking the City of London to the Isle of Dogs.
Department of 1.13 The Department of Transport, as a result of their own study of Transport improvements required to the A13, asked the Corporation in requirements October 1987 to widen the proposed two lane tunnel to North Quay to a dual two lane carriageway. The upgrading to dual two lanes was required for safety and operational reasons.
Agreement with 1.14 The British Waterways Board (British Waterways) owned the British Waterways western third of the route and had proposals to redevelop land Board around Limehouse Basin for residential and commercial use. In April 1988 the Corporation and British Waterways concluded an agreement. British Waterways agreed to give the Corporation a licence to occupy its land during construction of the tunnel. The Corporationagreed to fundthe construction of newlock gates at a cost of El.5 million, to carry out works to clear the site and allow development above the tunnel, and to create new development land for British Waterways at British Waterways’ cost. British Waterways withdrew their objection to the Compulsory Purchase Order for land required to construct the tunnel.
Accord with Tower 1.15 The Corporation judged that completion of the Dockland highways, Hamlets including the Limehouse Link, satisfactorily and to its timescale required the co-operation and support of Tower Hamlets, the local housing and highway authority responsible for connecting the local road network to the Link. It considered that regeneration of Docklands including the Limehouse area would also reqoire the Borough’s commitment and co-operation. In June 1988 the London Docklands Development Corporation: The Lhnehouse Link
Photograph1: Limehouse Link UndergroundJunction
The schemeknown as the LimehouseLink, supportedby the Corporation’sBoard in June 1986. requiredan undergroundjunction with slip roadsto taketraffic to and from WestferryRoad and CanaryWharf.
Corporation reached an agreement in principle with the London Borough of Tower Hamlets, known as the Accord, which was approved by Department of the Environment Ministers.
1.16 The Accord was a broad agreement of principles and areas for co-operation between the Corporation and Tower Hamlets to deliver lnhastructure improvements and a close partnership on the regeneration programme. Under the Accord Tower Hamlets supported the enhancement of public transport infrastructure and the timely implementation of the Dockland highways strategy. In return the Corporation agreed to fund new or refurbished housing for local authority households in the vicinity of the Dockland highways. The Corporation also agreed to fund a package of social, economic and community projects at a cost of E35 million to benefit the local community and assist the regeneration of the area. Some of these projects had been identified by the Corporation as part of their overall regeneration programme, though without the Accord they
13 London Docklands Development Corporation: The Limehouse Liuk
would not have had the same priority or certainty of delivery. The Accord was subsequently further appraised and costed in detail and translated into a legally binding agreement in September 1989.
Economic appraisal 1.17 In August 1988 the Corporation submitted to the Department of the Environment for their approval, an economic appraisal of five options providing the required access horn the west to the Isle of Dogs (Figure 4 opposite). All of the options had negative economic returns. The preferred option remained the serpentine dual two lane cut and cover tunnel, which had the lowest estimated net discounted cost of E91 million. The Department considered the appraisal demonstrated that the scheme was appropriate to the Corporation’s regeneration objectives and represented good value for money. At the pre-tender stage the expected outturn for the construction contract, together with fees and project management costs, was 3341.5 mllllon. The Department’s and Treasury’s approval to proceed, in October 1988, enabled the Corporation to invite tenders for the contract to build the Limehouse Link.
Acquisition of land 1.18 In May 1988 the Corporation’s Planning Committee submitted the planning application for the Liiehouse Link to the Secretary of State for the Environment because it represented a departure from Tower Hamlets’ Development Plan. The Secretary of State decided not to call in the application but to leave it to the Corporation as the planning authority to decide. The Corporation granted planning permission in June 1988. A Public Inquiry into the compulsory purchase of land and proposals for road closures to facilitate the building of the Link was held in October and November 1988. The Secretaries of State for Transport and the Environment confirmed the Compulsory Purchase Orders and the road closures in June 1989. Land purchases were completed by November 1989.
Rehousing 1.19 The Corporation and Tower Hamlets set up a joint housing Task Force in September 1988 to implement the rehousing and refurbishment provisions contained in the Accord (paragraphs 1.15 - 1.16). In November 1988 the Corporation presented two options to the Department for providing the new housing required. The hrst involved the purchase of a private sector development, Timber Wharves, and construction of housing at two other sites; and the second, construction of the required housing by the Corporation on eight sites. In February 1989 the Department agreed to the hrst option.
14 London Do&lands Development Corporation: The Limehouse Link
Figure 4: Optionsfor improvingthe western accessto the Isle of Dogs submittedby the Corporationto the Departmentof the Environmentin August1988
Dual2 lane~“1 and COW, Dual2 lanesurface road andextending Narrow tunnelwith serpentine with WatQhtal,Qnment and streetto 2 ,“,I lanes. alionmsntand dual 2 lane dual2 lanelink to North EstimateddiScOunfed link to NorthQuay. Quay.Estimated discounted COnStrUCtiOncost- Estimatsddiscounted constructioncost- ES0mlllton. Nsl discounted cOnStructiOncost- f72 million. Netdiscounted cost-f92 milllon. El02 million. Netdiscounted cost-f117 million. cost-f91 m,,l,on. 77-
DocklandsLight Railway
cOnStr”ctioncost-fill million. Netdiscounted cost-ftte million.
Source: NationalAudit Officeand CreeseandAssociates Thefive options appraisedincluded three surfaceroads and two tunnels.The discountedconstruction costs rangedfrom f50 million to flll million. The LimehouseLinkwas identifiedas the preferredoption, at a discountedconstruction cost of flO2 million and a total net discountedcost of f91 million afterfaking account of other costsand benefits(shaded box). The Corporation’s economicaooraisal of the five ootions is shown in Table3 on oaQe26.
15 London Do&lands Development Corporation: The Limehouse Link
Construction of the 1.20 Tenders were invited for the construction contract for the Link in Link December 1988, and returned in May 1989. In September 1989 the construction contract was let to Balfow Beatty Fairclough with staged completion dates, and with the section to Westferry Road and the Canary Wharf area due to open in May 1993. When the Corporation let the contract they estimated the project would cost E227.6 million. The Corporation attributed tbe increase on the pre-tender estimated cost of E141.5 million to the additional cost of specialist plant; environmental constraints; the need for added reinforcement to the tunnel and higher than anticipated intlation. Ministers considered the likely tender price in July 1989, and agreed the project should proceed. They were subsequently informed of the agreed tender price before the contract was let.
Pre-tender Post-tender Approved Project Contract Outturn Application (1) Estimate (2) cost (3) August 1988 September1989 May 1995 fmillion fmillion fmillion Constructioncontract: Constractestimate/outturn 104.7 171.1 224.8 Contingencies 12.3 22.8 Inflation allowance 11.5 18.8 30.3 Totalconstruction contract 128.5 212.7 255.1 Othercosts: Insurance 1.3 Workdone for and chargedto others -0.6 Architecturalfeatures 2.5 Projectmanagement (4) 2.2 9.6 Professionalfees 12.7 25.4 (5) Totalatier costs 14.9 38.2 Totalconstruction cost 227.6 (6) 293.3
Source: NationalAudit OMce
Notes: (1) Rgurestaken from the Corporation’sapplication for approvalto proceedto tendecsubmittedin August 1988 (2) TheCorporation’s estimate ofthe outturn costat the time the constructioncontact was/et. (3) figures takenfrom the Corporation’sProject information System. (4) TheCorporation’s internal project management costs calculated as a percentageof projectexpenditure. (5) Excludessum repaidto the Corporationby Sir AlexanderGibb and Pamers. (6) Estimatedcosts includeprovision for inflation so havenot beenindexed.
The cost of the LimehouseLink Projectincreased to E293.3million dueto constructioncosts, fees, projectmanagement costs and inflation all being higherthan expected.
16 London Docklands Development Corporation: The Limehouse Link
Completion of the 1.21 The Corporation opened alI the sections of the Limehouse Liner on Link 17 May 1993. Completion of the Link in just over seven years from commissioning of the feasibility study compares favourably to the average of 15 years for new road schemes completed in 1992-93 elsewhere in the United Kingdom. The outurn cost of the project was E293.3 million. The main components were E255.1 million for the construction contract, g25.4 million for fees and Z9.6 million for internal project management costs allocated to the project (Table 1 on page 16). The Corporation also incurred additional costs of S155.3 million, of which it attributes f66.1 million directly to the Link. The remaining 289.2 million of expenditure was on further rehousing for local authority tenants in the vicinity of the Dockland highways, and social, economic and community projects under the Accord with Tower Hamlets, which the Corporation attributes to its wider regeneration remit (Table 2 below and Figure 5 on page 18).
Adoption of the Link 1.22 The Corporation is due to wind up in March 1998. The Department of the Environment and the Department of Transport are jointly considering options for who should adopt the Link and other strategic roads presently owned by the Corporation. The annual operational and maintenance costs of the tunnel are El.4 million.
CostItem Limehouse Link Regeneration Total f million f million f million
Expendituredirectly related to Landacquisition 13.2 13.2 the Link Enablingworks to DocklandsLight Railway 5.0 5.0 Paymentsto statutoryundertakers 4.1 4.1 Compensationto owner occupiers 1.o 1.0 Fundingof new lock gates 1.5 1.5 24.8 24.8
Expenditureunderthe Accord Rehousingof local authoritytenants (I) 41.3 59.2 100.5 with TowerHamlets Social,economic and communityprojects - 30.0 (2) 30.0
Total Expenditure 66.1 89.2 155.3
Source:National Audit Office
Note: (1) Corporation’sestimate of the cost of rehousing201households direct/y on the line of the Linkand otherrehousing expenditure meetingregeneration objectives. (2) Expenditureto May 1995againstthe f 35 million which the Corpomtioncommiited under the Accord with TowerHamlets.
Netexpenditure directly attributed to constructionofthe LimehouseLink is f66.1 million, and expenditureattributed to the Corporation’swider regenerationremit is f89.2 million.
17 London Docklands Development Corporation: The Limehouse Lfnk
Figure 5: location of housing coveredby the Accordbetween the Corporationand the LondonBorough of TowerHamlets
Bl,l~”MOWEIBh MI”0 ernsr 104Iinnsadjacenttofh8 andor”ors OPrmt eliby“Dule ll”krerllrbishedbetwan Housesdemoushsd and Blockdsmdiohed 1001and,093.Residents 37 ““it8 rehouasd.srte 56““ha nho”s*d temporarnyduringFO”etr”Ello”rehousedto boaold 1 a-
Oorphlnklllre 88““its not direOuyon the rune 0, the routewro rehoused under the Accord. Site to be sold
Rehousing Directly Attributed to the Link Rehousing Attributed to Wider Regeneration
Total known units 169 Total known units 296 Hidden Households 32 Hidden Households 59 Total of all units 201 Total of all units 355 Source: NationalAudit Gftke and Creaseand Associates The Corporationfinanced the permanentrehousing of 556 householdsunder the Accordwith the LondonBorough of TowerHamlets. The Corporationhas attributed the costs of rehousing201 of the 556 householdsdirectly to the LimehouseLink.
18 London Docklands Development Corporation: The Liiehouse Link
Scope and 1.23 The National Audit Office compiled information on the project from methodology papers and records at the London Docklands Development Corporation and the Department of the Environment. The report examines the Corporation’s appraisal of the project (Part ‘Itvo), and its contract strategy and project management arrangements (Part Three). A summary of the key dates in the development of the Limehouse Link is provided in Appendix 1.
1.24 The National Audit Office engaged a firm of engineering consultants, Thorhurn Colquhoun Limited, to assist with its examination of the appraisal, design and management of the project. Their Bndings have been incorporated into tbis report. Discussions were held with the Department of Transport, the London Borough of Tower Hamlets and the British Waterways Board. The National Audit Office also consulted several of the private sector hims with an interest in the project (Appendix 21. The report does not examine grants for social, economic and community projects paid by the Corporation under the Accord with Tower Hamlets. Some E30 milllon of the E35 million provided has been paid by the Corporation to date. The spending of the grants by Tower Hamlets is local authority expenditure audited by the District Auditor, who is appointed by the Audit Commission in accordance with Part III of the Local Government Finance Act 1982.
19 London Docklands Development Corporation: The Limehouse Link
2. Appraisal of the Limehouse Link project
Introduction 2.1 This section of the report examines the London Do&lands Development Corporation’s appraisal of the Limehouse Link project. The performance of the Corporation was assessed against the following criteria:
l whether the feasibility and cost of the project were investigated by the Corporation in a thorough and timely way;
. whether the case for the project was adequately reviewed in the light of rising estimates of its likely cost; and
. whether, before selecting the preferred option, the Corporation carried out an appraisal which accurately identihed the risks, costs and benefits of the various options.
Investigation of Did the Corporation have the necessary statutory feasibility and cost authority to undertake the project?
The Corporation acted within it.3 powers in c&&mcting~the’road to assist the regeneration of Docklands.
2.2 An Urban Development Corporation may “generally do anything necessary or expedient” under the Local Government Planning and Land Act 1980 to regenerate its designated area, subject to approval by the Department of the Environment and Treasury where necessary (paragraphs 1.1 and 1.3). The Corporation and the Department were satisfied that this only enabled the Corporation to construct roads designed primarily to achieve regeneration. Given the Department of Transport’s responsibility for trunk roads the Corporation has no powers or responsibilities to carry out works directly on trunk roads passing through its designated area.
20 London Docklands Development Corporation: The Limehouse Lii
Did the Corporation carry out au adequate feasibility study for the project?
Board with an initial range of options. Following discussions with
serpentine alignmentfor the tunnel as the preferred option.
2.3 In their feasibility investigations the Corporation drew on earlier work by the former Greater London Council. They commissioned Mott Hay and Anderson (Mattel to identify options for the project, review their engineering feasibiity and produce indicative castings. Six weeks were allowed for this initial feasibility study which was produced in March 1986. The study appraised an initial range of five tunnel and surface road options aimed at delivering sufficiently improved road access from the west to Docklands (Figure 2 on page 10). Widening the existing Al3 trunk road was identified as a cheaper option than building a new tunnel. The options examined did not include a serpentine alignment for the tunnel. Nor was the requirement for an extension to North Quay to access the Royal Docks and link to other Do&land highways identified as part of this feasibility study. However, at the time of the March 1986 feasibility study there was no suggestion that it was intended to identify all the possible options.
2.4 Subsequent discussions with developers and land owners led to the development of the serpentine cut and cover tunnel option, including an extension to North Quay. The serpentine alignment was considered to be the least contentious with the local community, required less land in productive use to be taken, limited demolition of property and offered the prospect of an early completion date. The Corporation supported this option in June 1986 at an indicative costing of E51 million. The option required only two blocks of local authority flats to be demolished, although the decision in October 1987 to widen the North Quay link led to the demolition of a third block. Minimising ~demolition of housing was considered to be important because of the cost implications of rehousing tenants and the limited availability of replacement housing locally. By putting the road in a tunnel the Corporation also considered that the development value of the land above the tunnel would be retained, new development land would be created in the Limehouse Basin, and that there would be less adverse environmental impact and disruption to the local community. In November 1986 the supplementary report by Motts conilrmed that the Al3 option could not be delivered by the Department of Transport within the Corporation’s required timescale and recommended the serpentine cut and cover tunnel scheme should be developed
21 London Docklands Development Corporation: The Limehouse Link
(Figure 3 on page 11). This was because the Department of Transport would have had to progress the scheme through statutory trunk road procedures and the scheme was not in their National Roads Programme.
2.5 The feasibility study also examined the appropriate design standard for the Liuk in relation to the standards of the adjoining local highways. It concluded a dual two lane standard was required along the whole of the Dockland highways, including the Link. The Deparlment of Transport later confirmed that, because of safety and operational reasons, the extension to North Quay should be built to a dual two lane standard.
Reviewing the case Did the Corporation review the project in the light of for the project emerging evidence of its likely cost?
As the plans developed and the tunnel was dekigned the’ indicative costing of the tunnel at ~551million was superseded. The pre-tender estimate of the cost was i341.5 million.
2.6 In June 1986 the Corporation’s Board gave formal approval to progress the Dockhand highways strategy through the preparation of Compulsory Purchase Orders for the preferred Limehouse Link scheme and the other roads, on the basis of an indicative costing of 251 million for the Link. As the plans developed and the tunnel was designed the estimated cost, including the extension to North Quay, increased. Between 1986 and 1988 the Corporation’s Board considered two revised budget forecasts, showing increases in the expected cost of the scheme. They re-appraised the project prior to its submission for Departmental approval to proceed to tender, in August 1988, at an estimated cost of 2141.5 million.
2.7 The August 1988 pre-tender estimated cost of E141.5 million included the following major additional costs compared with the 1986 indicative costing of 251 million, to meet the requirements for the Limehouse Link:
. dualling of the extension to North Quay (El3 million);
. corrective changes to the technical structure of the walls, floor and roof joints of the tunnel (El0 million);
. higher grade lighting and ventilation (E7.5 million);
. upgrading of tunnel services, including mechanical ventilation (E6 million);
22 London Docklands Development Corporation: The Limehouse Link
l diversion of utilities and advance works K6.5 million);
. extra strengthening of the ttnmel to allow development on the land above (El.5 million);
l project management and professional fees lE13 million): and
l contingencies and inflation (224 million).
Sow far was the Corporation committed to the project prior to seeking the necessary approvals?
,. ,( ,j ,,,.,,. . No ,,;;;,;, contiticti~ll,j ?;&1;2;~;~ & g; -;nbtiuc&on if.
the Link in advance of the &p&&&ate approvals. Assurances had been provided to the developers of Canary Wharf of the Government’s support for the Corporation5 road schemes, including the Link, but these were subject to the availability of resources. Most of the land required to construct the road was purchased after the Department and 7?easury gave approval to proceed to tender in 1988.
2.8 The former Olympia and York Limited, the developers of Canary Wharf, had made clear their view that a delay in constructing the Link would be unacceptable. In 1987, prior to the signing of their agreement with the Corporation, they were given written assurances by Ministers of the support “in principle” of the Department of the Environment and the Department of Transport for the Dockland highways. This accepted the desirability of providing access from the west as soon as procedures and resources would allow; and of completing Docklands roads at the earliest possible stage. The assurances were given subject to the need to consider the Link in the light of available public resources and the value for money to be obtained. There was also the proviso that no guarantee of delivery could be given. Olympia and York Limited became insolvent in 1992, before completion of the later stages of the Canary Wharf development.
2.9 The Corporation negotiated the purchase of most of the land required to construct the road between the date of the Public Inquiry (October to November 1988) and the conlhmation of the Compulsory Purchase Order for the land (June 1989). ltvo plots of land had been acquired by the Corporation by agreement in 1987.
23 London Docklands Development Corporation: The Limehouse Link
At what stage did the Corporation appraise the economic costs and benefits of the project?
The costs and benefits of theproject were~&lm-it~d iri the :~ : economic appraisal in August 19S8.
2.10 In June 1986 the Corporation’s Board gave approval to develop the serpentine cut and cover tunnel option on the basis of au indicative costing of E51 million (paragraph 2.61.The Corporation had still to design the option, estimate the associated costs of acqulrlng the necessary land and compensating residents, and evaluate the expected benefits of the Link. The Corporation first prepared a full assessment of the benefits as part of their August 1988 submission to the Department to obtain approval for the tender stage of the project.
Did the Corporation use an appropriate methodology in their appraisal? ,, ,_,, ,. The casefor the road LO& &&s~ed~i&n~ ati &ono& a~pr&al which compared costs with benefits to land values and to non-Docklands trafic.
2.11 There is no accepted methodology for appraising the contribution made by road schemes to inner city regeneration. The Department of the Environment and the Corporation took the view that the Department of Transport’s cost benefit analysis methodology for assessingtrunk road and motorway schemes would not take into account the regeneration benefits to Docklands of the road and was therefore inappropriate. The economic appraisal prepared by the Corporation included land value gains although it recognised the approach was a wholly new and untried one. The Corporation’s appraisalincluded the estimated costs attributable to housing replacement and housing relocation ae a direct result of the construction of the Link. It did not include the full costs of rehousing in the vicinity of the Dockland highways agreed in the Accord with the London Borough of Tower Hamlets (Tower Hamlets) (paragraphs 1.15 - 1.161 under its wider regeneration remit. The appraisal did not attempt to quantify wider regeneration benefits beyond increases in land values although some benefits, such as those horn the road being in tunnel, were inherently difEcult to quantify. The Corporation did not prepare a comprehensive sensitivity analysis, examining the impact of a range of assumptions and corresponding values, for all the various elements of the economic appraisal.
2.12 The methodology used by the Department of Transport measures benefits to road users, including journey time, operating and accident cost savings, and compares these with the capital and
24 London Docklands Development Corporation: The Limehouse Lii
maintenance costs of the scheme. Road schemes are normally expected to have a positive benefit to cost ratio. The average benefit to cost ratio of schemes announced in the Department of Transport’s National Roads Programme for 1994, prior to the March 1994 Trunk Road Review, was 2.3:1. Schemes with negative economic returns may however be justified by other factors such as positive environmental benefits.
Comparing the Did the Corporation’s appraisal consider a full range of options? ,. ;,I,+i,;,. !.,, ” Five four lane options were*appraaed, b’utthe,ctists and benefits of two lane options were not appraised.
2.13 The range of options considered in the Corporation’s submission for approval and their associated economic costs and benefits are shown in Table 3 overleaf. The appraisal considered a range of surface routes and tunnels. AR options provided four lanes of traffic, although the Corporation’s projections for traflk flows were marginally below the design standard for a dual two lane road. The appraisal did not consider the cost-effectiveness of providing two lane surface options, or the feasibility of providing a two lane surface road combined with a later widening of the A13. The Department had requested tbis analysis some months before but concluded that the five options in the August 1988 appraisal were suiEient.
Why was the chosen option selected? Ail the’opt’ionse~~mine~~~~~,nkt;c~~~~;~;~~e‘c;lt~~~~o;er:tu.~nel option was chosen because itshad the lowest net cost overall at E91 million and it offered the earliest completion date.
2.14 All the options had net costs, ranging horn E91 million for the preferred option to El18 million. The Corporation and the Department considered that the net costs of the Limehouse Link were justified by wider regeneration benefits which could not readily be quantified and so were not in the appraisal. The cut and cover tunnel option had the second highest construction costs and high operational and maintenance costs, but the appraisal showed these costs were partly offset by gains in land values and benefits to through lrafRc. By comparison the appraisal showed the surface road options were cheaper to construct but involved the loss of more land and more extensive rehousing, leading to higher costs. The surface roads would also have had greater adverse impacts on the environment (noise, vibration and pollution).
25 London Do&lands Development Corporation: The Limehouse Lii
Al3 Widening and Thames Serpentine Cat Straight Narrow St Upgrade ForeshoreTunnel & CoverTunnel SurfaceRoad Surface Road .imehouse Link] All figures are in fmillion(1) Construction 49 104 95 69 80 Contingency 1 7 7 3 3 tion&i&bn Cost 50 111 102 72 83 Landsterilisation 14 6 4 23 27 Housingreplacement 16 25 1w 60 33 Housingrelocation 1 a 7~2) 4 3 Operation/maintenace WV W) 11 11 EnvironmentaJreatment(4) 3 2 2 6 7 Total Cost a4 184 166 176 164 British WaterwaysBoard land again (11) Net PublicSector Cost a4 ia4 155 176 164 Landvalue gain (1) (31) (29) (27) (27) Benefitsto non-Oocklandstraffic (41) (41) (41) (41) Oisbenefitsto traffic from construction 9 6 6 9 9 NetTotal Cast 92 $16 91 117 105
Source: LondonDocklands Development Corporation.
Notes: (1) Costsand benefitswere discounted to 1988present valoes, and werebased on mid 1987prices. (2) Thecosts of tempomryhousing (f7million) and permanentrehousing (f 19 million) - fZ6 million in total - werebased on the 113units directlyalong the jne of the route and Sadjacent units. (3) Annual operatingcosts for the tunnel werecapitalised over the economiclife of the tunnel (5Oyears)and discountedto 1988 presentvalues. (4) Figuresfor environmentaltreatment costs werenotional as no fim~estimates were available. The preferredcut and covertunnel option-the LimehouseLink - hadthe lowestestimated net cost of f91 million. Althoughthis option had relativelyhigh constructionand maintenancecosts these were partly offset by the value of creatingdevelopment Iand by infilling the Limehouse Basin,general increases in land valuesin the EnterpriseZone and benefitsto through traffic.
2.15 Widening the existing Al3 trunk road and carrying out improvements to Narrow Street, which joined The Highway in Wapping to Westferry Road, had the lowest construction cost at 250 million, but the lowest benefits to non-Do&lands traffic and the lowest land value gains. Given the Corporation’s powers tbis option would have had to have been carried out by the Department of Transport and this could not be done to the Corporation’s timescale (paragraphs 2.2 and 2.4). The Corporation also considered that a new road was required to remove dependence on the inadequate access provided by the Al3 and to avoid the adverse environmental impact of increased traffic on Narrow Street.
26 London Docklands Development Corporation: The Limehouse Lii
2.16 Timing was critical to the Corporation’s proposal. The cut and cover tunnel had the support of Tower Hamlets, and the Corporation considered choosing another option would have delayed implementation. The Corporation believed construction could be completed by December 1992, while the other options In the appraisal could not be completed before April 1994. It considered that failure to achieve an early completion would adversely affect the momentum of Do&lands regeneration, Including placing Olympia and York’s Canary Wharf development at risk.
Did the Corporation obtain the necessary approvals to incur expenditure before proceeding with the preferred option?
The necessary approvals &re obtained, subject to cost ouerrune above agreed expenditure levels being met by postponing other projectsfrom the Corporation’s programme.
2.17 The Corporation’s application to the Department for approval in August 1988 identified an expected outturn for the construction contract, including fees and project management costs, of E141.5 million. In addition, there were related costs of E54.5 million, giving a total estimated cost for the project of El96 million (Table 4).
CostItem f million f million Construction(l) 141.5 Relatedcosts: land acquisition 12.0 Replacementof demolishedhousing(2) 22.5 Relocationand refurbishment(2) 4.0 Servicediversions (3) 7.0 Advanceworks 6.0 Landscapingand environmentalworks 2.0 Miscellaneous 1.o 54.5 Total cost 196.0
Source:London Docklands Development Corporation
Notes: (1) lncludas feesand projectmanagement costs. (2) Thecosts of replacementhousing, relocation and refurbishmentwere based on the 173uni& directlyalong the line of the route and 56 adjacentunits. (3) Estimatedexpenditure on diversionof gas, electric?,!water and telecommunicationsservices.
The Departmentapproved the LimehouseLink on the basisof an expectedoutturn costfor the projectand relatedcosts of f196 million as at August 1988.
27 London Docklands Development Corporation: The Limehouse Liok
2.18 The Department submitted the scheme to the ‘Deasury for 6naI approval because it exceeded its delegated limit for project expenditure of E20 mihion. The Treasury approved the scheme in October 1988 subject to resources being found within the Corporation’s expenditure levels as agreed during the appropriate public expendbure rounds. It expected the Corporation to delay or cancel development elsewhere If necessary. Miuisters confirmed the overah Docklands transport strategy, including the Limehouse Link, in January 1989.
Did the Corporation seek contributions from other private and public sector parties to assist in fmancing the project?
The Corporation decided not’to s&k contrib&ons towards the cost of the Link from others.
2.19 The Corporation considered whether Olympia and York, the former developers of Canary Wharf, should contribute to the scheme. It was decided not to seek funding from Olympia and York because the company had financed improvements to the Dockiands Light Railway, and would be only one of the many users who would benefit born the Link.
2.20 Corporation staff discussed internaIIy whether the Department of Transport should be asked to contribute towards the cost of duahing the North Quay arm of the Link, as they required this change for operational and safety reasons. A paper put to the Board in October 1987 referred to the expectation that the Department of Transport might fond the additional cost but a contribution was not sought. The additional cost was later estimated hy Corporation officers at about El3 mihion. outturn of Did the Corporation’s appraisal accurately estimate preferred option the potential risks and costs and benefits of the preferred option?
The appraisalof new madschemes was consideredin the NationalAudit Dffice’s1989 report”Departmentof Transport,Scottish Development Departmentand WelshOffice: Road Planning”(HC 688,1997-88). The Committeeof PublicAccounts, in their Construction related costs subsequentreport, called for regular 2.21 When approval was given to go to tender in October 1988 the monitoringof outturn againstoriginal forecastsand economicappraisal expected outturn cost of the construction project, including fees and assumptions(Fifteenth Report, project management costs, was E141.5 million (Table 1 on page 16). HC101,1988-89).
28 London Dockhands Development Corporation: The Limehouse Link
Photograph2: Construction of the dual two lane Link to North Quay
The Link to North Ouaywas widened to dual two lanesat the requestof the Departmentof Transport.at an additional cost later estimatedby the Corporationat f13 million. Part of the St Vincents Estate,which was subsequentlydemolished, is on the left of the picture.
This included f23.8 million (19 per cent) for contingencies and inflation in the estimated construction contract price of Zl28.5 million, which subsequently proved inadequate. The actual outturn cost was f293.3 million, an increase of 107 per cent compared with the pre-tender estimate. The increase, compared with the post-tender estimate of E227.6 million (Table 11, was 29 per cent. The reasons for the increases in construction costs are described at paragraphs 3.28 to 3.35.
Rehousing costs 2.22 In the application to the Department for approval in August 1988, the rehousing costs attributed to the Link were identified as those relating to the demolition of four blocks comprising 169 tits compared with the three blocks earlier thought to be affected (paragraph 2.4) and for refurbishing a further 136 tits. The application also included an estimate of the additional housing costs
29 London Docklands Development Corporation: The Limehouse Link
agreed to in principle under the Accord with Tower Hamlets (paragraphs 1.15 - 1.161, for rehousing tenants in a forther 307 units in the vicinity of the Dockland highways. The gross cost of the housing package was estimated at S69.5 million, of which f26.5 million was attributed to the Link (Table 4). This was expected to be offset by projected income of f22 million from the sale of local authority land and vacant housing along the route, which had been acquired by the Corporation at no cost, bringing the net cost to E47.5 million (Table 5). The land is still in the Corporation’s ownership, and is now likely to he redeveloped for mixed tenure housing.
2.23 During 1989 and 1990, the Department approved total gross expenditure on rehousing under the Accord of f116.7 million. The gross outturn cost was fl12 million (Table 5). The main reasons for the increase from the estimated cost of 269.5 million to the outturn of El12 million were the need to rehouse more households than expected in 1988, and the higher than anticipated costs of providing replacement housing which met the construction timetable and the terms of the Corporation’s agreement with Tower Hamlets. In addition, in its submissions to the Department during 1989 and 1990, the Corporation expected receipts of E24.3 million from the sale of surplus units and land. In the event E11.5 million of receipts have been achieved. The net outturn rehousing cost which the Corporation attributed directly to the Link, was E41.3 million.
August 1988 1989-90 Budgets Current Outturn Estimate Approved(1) as at May 1995 f million f million f million costs Replacement/refurbishedhousing 69.5 106.6 104.1 Temporalyrehousing 2.6 1.9
Income Localauthorff land and propelty OtherLand Saleof surplus units and land Other 4.4 ~i-“;7FhY~~,,: ;: ;;yz _: i;,: ,; 1;;’ ;:,;, t y ;, ;:,c; ,;;:; : ,<$,,: 1 ,~ ,; ;.. :,,._;, -,:I .,.”,.-, .T,FT ry,T;r:-~T ?$“vzFT>TJ ,i vi7y~7>i7 :..; ;:~-~~“-:~-..?” .‘. .s‘,‘,,i ^:. . . . . ,>,,* ?:<,~;c:i,. :I *,,:?i~i :/ d.$,.‘ii ,,244.3:“:L ., i ,:.“? ‘“‘i r ‘$i^” p “‘%>v,:$, : :!‘-11’,5-,::,.;‘~i- 2 ,: - ,,60,5 :, ;, I :, Netcosts ’ 47.5 92.4 ,,
Soume: NationalAudit Gffice
Notes: (1) TheDepartment of Environmentapproved 9ross expenditureoff1 16.7million on housing betweenMarch 1989endApril1990. (2) TheCorporation anticipates f&her receiptsfrom the se/eof remaininglend end properfyobtained from the local author@
The net cost of the rehousingpackage more than doubled,partly becausethe expectedincome from the saleof land and propertyhas not yet been achieved.
30 London Docklands Development Corporation: The Liiehouse Link
Land value gains 2.24 Land value gains of E40 million were included in the appraisal of the chosen option, of which g29 million was for gains in the Enterprise Zone. The Corporation estimated that 182 acres of mainly private sector land in the Enterprise Zone would increase in value by g346 million due to improved road access. Only X29.4 million of the E346 million increase was attributed to a dedicated Link. The appraisal assumed that this increase in land values had already occurred as developers had anticipated the construction of a new Lii. Since completion of the tunnel the Corporation has not reappraised the impact of the Link on land values.
2.25 The other element of land value gains included in the appraisal was an estimated gain to the British Waterways Board of fll million from the intIlling of the Limehouse Basin, which would make 5.5 acres of development land available in total. The British Waterways Board estimate that of this, 2.6 acres is newly created development land, which they are about to start marketing. Photograph3: Creation of development land in the Limehouse Basin
The economicappraisal included benefitsof fll million from the infilling of land owned by the British WaterwaysBoard in the LimehouseBasin, which is soon to be marketed.
31 London Docklands Development Corporation: The Lhnehouse Link
Traffic benefits and the design standard of the road 2.26 Benefits to local traffic were represented in the economic appraisal by land value gains. Benefits to through trafiic were based on the savings in vehicle operating costs and journey times. Options involving a dedicated Link were considered to have additional benefits to through lraftic compared with the Al3 option, which were valued at 241 million. They were partially offset by d&benefits to existing traffic from delays during construction. The Corporation are monitoring overall Arabic flows on the Link, but it would require a major survey of road users to establish the actual traffic benefits achieved. The Corporation has not yet carried tbis out because regeneration on the Isle of Dogs is still underway.
2.27 When seeking Treasury approval in September 1988 the Department acknowledged that, although the total projected IX&% flows were marginally below the design standard for a dual two lane dedicated urban road, they could eventually exceed the levels forecast because of the amount of future development in Docklands. Traffic survey data indicates that the total amount of traffic using the Link is close to that projected (Table 6).
2.28 The Corporation’s appraisal forecast that up to 44 per cent of peak hour traffic using the Link would be through trafiic, and therefore over 50 per cent would be local Docklands traflic attributed to regeneration. Docklands uafhc has not reached projected levels (Table 61 but tbis must be seen in the context of the depressed property market. The Corporation’s forecasts were based on more buoyant economic conditions. The Corporation estimates that 60 per cent is currently through traffic, without an origin or destination in Docklands. However, it considers that by the turn of the century over 60 per cent of traffic using the Link will be Docklands traffic. *.:i*;.+*.h!r,~~~:-~‘~:~~.~;r~~~:,~~~~~,~: o:~s~*~s~~;!;~I.-6, & il j ::;~jr$y$y\~:,A. ~~~~~~~~~~~~~enee?.of: ,,__profected ,, ,. ri wdh:qCttql:pe~k tr$ic:f DocklandsTraffic DocklandsTraffic Through Traffic Through Traffic Total Traffic Total Traffic Projected Actual Projected Actual Projected Actual No. % No. % ND. % No. % No. % No. % Westbound 1,680 58 1,120 40 1,220 42 1,680 60 2,900 100 2,800 100 Eastbound 1,760 56 1,080 40 1,390 44 1,620 60 3,150 100 2,700 100
Source: NationalAudit Office
Notes: (1) Projectionsassumed full developmentin Docklands,which wasexpected to occurby mid to late 1990s Full developmentis now expectedto occur by the turn of the century (2) Actual datafrom MetropolitanPolice speed surveys in August/September1994. (3) Thepropotiion of currenttraffic which hasan origin or destinationin Docklandshas beenestimated by the Corporation.No origin and destinationsurvey has beencarried out since 1991.
Althoughtotal traffic flows on the Link areclose to those projected,the estimatedlevel of Docklandstraffic is lowerthan expected.
32 London Docklands Development Corporation: The Limehouse Link
3. Management of the construction of the Limehouse Link
. Introduction 3.1 Tbis section examines the Corporation’s management of the construction of the project. The performance of the Corporation was measured against the following criteria:
. whether, before letting the construction contract, the Corporation took the necessary actions to minimise the risk of delays and cost overruns on the project; and
. whether, once construction was under way, the Corporation had effective arrangements for managing and reporting on progress.
Letting the contract Was a suitable strategy adopted for the road construction contract?
The Corporation adopted a suitable strategy for the construction contract. The contract conditions assumed the project design was near complete.
3.2 The National Audit Office’s consultant considered that, given that the project was technically complex and high risk, the contract strategy was appropriate and achieved a reasonable balance of risk between the contractor and the Corporation. The Corporation let two contracts: one for design, supervision and management; and the other for construction. This was standard practice for road building contracts at the time, and the first of the Department of Transport’s “design and build” road schemes was not trialled until 1991. The Corporation paid inflation increases on the construction contract, as specified by the contract terms, in line with the approach used by the Department of Transport on contracts which run for more than two years.
3.3 The Corporation used the standard conditions for government construction contracts (Government Contracts /Works 1 /Edition 21, with an amendment under which they took responsibility for any unforeseen ground conditions. The conditions require the contractor to complete the works in the time specified, or incur liquidated and
33 London Do&lands Development Corporation: The Limehouse Link
ascertained damages for late completion. The contract conditions assume that the design has reached a near complete state so that fmaI, or near IInaI, quantities can be priced at tender.
Did the Corporation ensure the project design was sufficiently complete before tenders were invited and construction began?
When the Corporation awarded the conmkctioti c&tract the design was judged saflcient for tender purposes, although modifications to the desi.qn occurred atier constraction had started.
3.4 Consulting engineers, Sir Alexander Gibb and Partners (Giib), were appointed in December 1986 to carry out the design, supervision and management of the project as the Corporation’s agent. They were given six months to undertake the preliminary design, and a further six months to undertake detailed design. In the event, design work continued for a further eight months as other necessary procedures, such as arrangements for the compulsory purchase of land, were taken forward. The design was h-oxen for the tender exercise in September 1988. At the time the contract was let in September 1989 the design was considered by the consulting engineers and the Corporation to be sufiicient for tender purposes. The consulting engineers had not issued their certificate indicating completion of the design at this stage, nor had the independent design checkers employed by the Corporation issued their certificate.
3.5 There were some deficiencies in the tender process:
l the iInaI results of the site investigations into ground conditions along the line of the route, were not firIIy analysed until April 1989, four months after tenders were Invited;
l the results of the independent structural check of the tunnel design were not available as the tunnel designers had not reached agreement with the independent design checkers on all aspects of the design. The result of the subsequent agreement on one item, the dowels securing the walls to the roof and floor slabs, led to extra estimated costs of E2 million: and
l assumptions about the expected noise restrictions reflected discussions from Autumn 1987 with Tower Hamlets (as the environmental health authority), but the final requirements were not known till agreement was reached with Tower Hamlets in March 1990.
34 London Docklands Development Corporation: The Liiehouse Link
3.6 The contract allowed for design modifications and both the Corporation and the contractor proposed such changes after the contract was let. Although this carried a risk of increased cost and delay to the project, the Corporation believe that this was partly offset by savings from improved design. The issue of working drawings showing the detailed design was finally completed by Gibb at the end of 1991, and the certificates were obtained in July 1992.
3.7 In July 1991 the Corporation’s Audit Committee requested an investigation of the delays and cost increases on the construction contract. This led the Corporation to conclude that after the contract was let the consulting engineers, Giib, had modified elements of the tunnel. Another of the findings of the investigation was that the Corporation needed to improve its control over arcbitecttu-al design changes initiated by its own staff. Other cost increases, for example on the mechanical and electrical works for the tunnel, resulted from the introduction of more stringent Department of Transport requirements after the contract award. Gibb have told the National Audit Offrce that although modifications were made to the design, they considered this was normal on a project of this nature, and did not delay the contractor or lead to significant cost increases.
3.8 Following a series of further investigations and corrective actions .~~~~~:b~~~~~~~~~~~~~~~~~ taken by the Corporation throughout the period 1991 to 1993, it CL”>~ .,i;i:‘~.,,;~,rr:,r-xn L,,i,i 1.x < ,,P..i :., instructed its solicitors to seek advice from an expert in geotechnical The Departmentof Transportlet contractson the basisof an accepted matters in March 1994. The expert investigated whether alleged tender oricesubiectto authorised changes in available information on ground conditions led to the variationsto the work and unforeseen design modifications after the contract was let, and whether the conditions.Design changes and tunnel designers had made the design changes promptly. Wbile unforeseenground conditionswere investigations continued the Corporation issued a writ against the identifiedas the main reasonfor final designers primarily to protect itself from subsequent limitation of costs beinghigherthan the original tenderprice on Departmentof liability. Negotiations ensued between the Corporation and the Transportroad contracts completed in designers and an agreement was reached without the need for the 1990-91in the NationalAudit Office’s service of legal proceedings, the terms of which are commercially Report “Departmentof Transport: confidential. Gibb did not accept liability for any alleged design Contractingfor Roads”(HC 226 defects. 1992-93).The Committeeof Public Accountsregarded the reasonsfor theseincreases in costs in Department of Transportroad contracts as unsatisfactoryand lookedto them to improvein this area (Forty-thirdReport, HC 467 1992-93).
35 London Docklands Development Corporation: The Limehouse Link
Were the tenders for the construction contract thoroughly evaluated, including a post-tender appraisal of the scheme?
Tenders were thoroughly evaluated. The Corporation selected from the two lowest bids the one with the earliest completion date. The Department of the Environment re-examined thefive options appraised in 1988 in the light of the tender prices.
3.9 Six bids were received ranging from E164.9 million to E239.2 million. The bids ranged between 28 and 86 per cent above the Corporation’s pre-tender estimate, (Table 1 on page 161, and none of them conformed entirely to all the Corporation’s requirements. The Corporation thoroughly evaluated the tenders and carried out an assessment against its pre-tender estimate. The main reasons for the increase from the pre-tender estimate were, in the Corporation’s view, the additional cost of specialist plant, environmental constraints, the need for added reinforcement and higher than anticipated intlation. The four highest tenders were rejected. When the Corporation adjusted the remaining two offers to compare them on a like for like basis the prices offered were very close. Only the successful tenderer, Bah’our Beatty Fairclough, proposed early completion. The Corporation considered that their offer to complete the scheme in three and a half years rather than four, as specified in the tender documents, would provide benefits estimated at E5.5 million.
3.10 The National Audit Office consider that the instructions to tenderers should have stated clearly that a shorter construction programme than that specified would be a key factor in the selection of the successful bid. The Corporation told the National Audit Office that the length of time for construction is important in the majority of contracts and is generally dealt with by specifying a date for completion. The date for completion specified in the Limehouse Link tender was thought by the Corporation to be the optimum scenario and offers of earlier completion were not therefore anticipated. The Corporation did not pursue a later offer by the other remaining tenderer to open the tunnel by the earlier date. This was because it would have lengthened the tendering process and delayed the project, and because it had been open to all bidders to offer different delivery dates as part of their tender bids.
3.11 In September 1989, before the contract was awarded, the Department re-examined the five options appraised in 1988 in the light of the tender prices. They concluded that the cut and cover tunnel option now had a higher net economic cost than the combination of widening the Al3 and carrying out improvements to
36 London Docklands Development Corporation: The Liiehonse Link
Narrow Street. However, the Department considered that the case for the dual two lane capacity remained robust. The cut and cover tunnel was the most practicable option for delivering the new road capacity In time and the most cost-effective way of the Corporation achieving its regeneration objectives. In the Department’s view the marginal cost difference between the tunnel option and the Al3 option was far outweighed by the consequences of delay.
Managing land Did the Corporation establish satisfactory acquisition and arrangements for acquirmg land and property rehousing needed for construction along the route of the Link?
Land and property necessary to con&-z& the Link zvas acquired through compulsory purchase procedures and by agreement.
3.12 The Corporation purchased land required for the Lii from a number of public and private sector owners through compulsory purchase procedures and by agreement. The agreement negotiated with British Waterways Board provided benefits to both parties. The Corporation funded the construction of new lock gates at a cost of El.5 million and has recovered X0.7 million in return for the licensed use and enhancement of British Waterways land. The Corporation could have acquired the land at its market value of E2 million and sold it for development later but it could only have done so with British Waterways’ agreement. However, the mutually beneficial arrangement helped ensure British Waterways’ co-operation in the construction programme.
Were the Corporation’s arrangements for compensating the local authority and its tenants and owner-occupiers satisfactory?
Local authority tenants received additional payments to the statutory compensation payable to residents affected by highway construction. These additional payments were made under the Corporation’s regeneration powers. The Corporation judged that the use of its powers to purchase properties from some private owners was not justified.
3.13 In the absence of the Accord with the London Borough of Tower Hamlets (Tower Hamlets), the Corporation would have had to acqnlre from the local authority the housing comprising the 113 units within the area of the Compulsory Purchase Order and the 56 units it later found were adversely affected by the Lii. In addition, the Corporation would have had to pay the net cost of
37 London Docklands Development Corporation: The Limehouse Link
relocating the 169 households. Any compensation applicable to other properties would have been in accordance with the Land Compensation Act 1973.
3.14 Under the terms of the Accord the Corporation acquired other local authority land and property, which it Intended to dispose of for regeneration. Although these acquisitions were at nil cost, the Corporation assumed responsibility for the cost of rehousing the occupants. The Corporation also made additional payments to some tenants under its regeneration powers to reimburse them where the Environmental Health Officer certified that their goods and possessions should not be moved into their new accommodation on health grounds.
3.15 Owner-occupiers along the route of the Link were treated in accordance with the 1973 Act. Occupiers withIn one private development, St George’s Square, fell within the provisions of the Act and the owners were accordingly entitled to compensation. The Corporation has to date paid compensation for the loss in value of their properties totalling Z1.0 million under Part 1 of the Land Compensation Act. Individual payments ranged I?om E11,OOOto E50,OOOper unit. The Corporation had the power under Section 26 of the Land Compensation Act to pm-chase the properties if the conditions of the residents were rendered intolerable, but concluded there was no justification for using these powers. In addition, noise attenuation measures were made available under the terms of the Noise Insulation Regulations 1975 for eligible properties @oth public and privately owned). Owner-occupiers who had purchased leaseholds in local authority housing on the open market and not through a “right to buy” scheme were bought out hy negotiation.
Did the Corporation identify options for the rehousing?
Two rehousing options~were ideritijied,‘bne if &&be&r i&t & ’ Corporation’s requirement to rehouse tenants without delaying construction of the Link.
3.16 When the principles of the Accord were agreed ln June 1988 the Corporation estimated that 476 households would require permanent rehousing. This comprised the 113 units to be demolished; a further 56 units which would have to be replaced if another block of flats, Risby House, was found to be adversely affected by the Link; and 307 additional units in the vicinity of the Dockland highways.
38 London Docklands Development Corporation: The Limehouse Link
Photograph4: St George’sSquare adjacent to the western approach to the tunnel
The Corporationhas paid compensationto the residentsof St George’sSquare, a private developmentadjacent to the western approachto the tunnel, ranging from fll.OOO to f50,OOOper unit.
3.17 The Corporation’s best estimate before it consulted the households concerned was that 350 of the 476 households would take up new or nearly new housing managed by housing associations, which the Corporation would provide. A further 90 households were expected to opt for rehousing by the local authority. The remaining 36 households were expected to opt for the right to buy, shared ownership, or transferable discount schemes sponsored by the Corporation.
3.18 In November 1988 the Corporation consulted the Department on two options for acquiring the 350 units of new or nearly new replacement housing it estimated at that time would be needed. Its preferred option included the acquisition of a part-completed private sector development on the Isle of Dogs, known as Timber Wharves, which offered 301 units under construction. However, to meet its requirements to make appropriate provision for larger families, the Corporation estimated it would need a further 90 units
39 London Docklands Development Corporation: The Limehouse Link
Photograph5: Risby Houseadjacent lo the Limehouse Link
In September1989 the Corporationdecided that the construction of the Link would adverselyaffect Risby House,which contained56 flats, and it would haveto be demolished.The terms for rehousingthese tenantswere not specifically coveredby the Accord,and were not agreeduntil June 1990,causing somedelay to the main construction programme.
at two other locations. The Timber Wharves site also offered the potential to construct a further 120 units which the Corporation intended to sell on the open market to generate income. The gross cost of the rehousing, including refurbishment, provided under this option was estimated at E98.5 million. The Corporation anticipated in November 1988 that the sale of the surplus units at Timber Wharves, together witb local authority land acquired by the Corporation under the Accord, would bring the net cost of the rehousing under the Accord down to E448.3million.
3.19 The alternative option involved the Corporation constructing housing on eight smaller sites, and allowed for 357 housing units at an estimated cost of E43 million. The housing provided under tbis option would have more closely met the Corporation’s rehousing requirement and had a lower unit cost. But less than half the units would have been ready for tenants at the end of 1989 when
40 London Docklands Development Corporation: The Limehouse Link
construction of the Link started. The requirement to meet the construction timetable was an important factor in selecting the Timber Wharves option. In addition, the alternative option was considered by the Corporation to be less attractive to the residents as the phasing of provision would have fragmented the local community. The Department and Ministers approved the purchase of Timber Wharves in February 1989.
Did the Corporation’s rehousing programme represent value for money?
The Corporation purchased:land and housing at market rates, which were certified by an independent valuex The Corporation overestimated the number of households choosing new housing and acquired housing surplus to its requirements which was disposed of below the purchase price.
3.20 The net outturn cost of the rehousing and associated payments made under the Accord was E100.5 million. Costs have been in line with the sums approved but expected income from receipts has not been fully realised (Table 7 overleaf). The Corporation’s initial estimate of 476 households requiring rehousing was based on the number of tenancies notEed by Tower Hamlets. However, under the 1989 Accord the Corporation had also anticipated there would be a need to rehouse up to 90 other “bidden” households living in overcrowded conditions, who were priority cases for rehousing. The estimated total, therefore, increased to 566 with the final number actually rehoused being 556.
3.21 As only one of the rehousing options fully met the Corporation’s timetable for constructing the Link, it was in a diEcult negotiating position. The terms of the Timber Wharves purchase changed unfavourably between January and February 1989, from a total cost of E68 million to X70 million. This later price represented a cost of f166,OOO per unit for 421 units. The price included the repurchase of 36 units already sold to private owner-occupiers, at a cost to the Corporation of E6.2 million. At the outset of discussions with the developers of Timber Wharves the Corporation had established that there was planning permission for up to 482 units. However, the Corporation had reduced the number of units it required to be constructed $om 482 to 421 in the agreement with the developer in order to stay within its budget for rehousing. The Corporation considers that the cost of the housing purchased reflected the market price, and the price was certified by an independent valuer as the best deal the Corporation could secure given the developer’s alternative of selling on the open market.
41 London Do&lands Development Corporation: The Limehouse Link
Project No. of Description Sum Expected Outturn Disposal households approved receipts cost receipts rehoused to date fmillion f million fmillion f million
TimberWharves 212 314 units purchased.102 surplus units disposedof in 70.0 24.3 62.7 9.0 (1) 1991/92for ft2.0 million lessthan the purchaseprice (Table8).
42 73 largerunits built. 31 surplus units disposedof in 9.3 - 7.6 2.2 1992forfl.O million lessthan the construcboncost flable 8).
Lukin Street 27 30 largerunits built. 3 surplus units disposedof in 4.4 - 4.4 0.3 1992for fO.l million lessthan the constructioncost (Table8).
Localauthority 114 Corporationprovided local authority with f96,OOOfor 8.6 - 11.9 rehousing most of the householdsrehoused. The localauthoriv receiveda higherpayment in somecases.
Housing Refurbishmentof localauthority propertyadjacent to 7.0 - 7.0 - refurbishment the Link.
Transferable 93 Householdsexercising their right to buy receivedan 5.7 - 3.4 - discounts averagepayment of f37,OOO.
Movesout of the 68 Paymentsto housingassociations to rehouselocal 3.6 - 7.1 - borough authority householdswishing to moveout of the Boroughat an averagecost of f104,OOO.
Temporaryrehousing Temporaryrehousing for residentsaffected by 2.6 - 1.9 - construction.
Homelossand Paymentsunder LandCompensation Act 1973,and 3.1 - 2.9 - disturbance other compensation. payments
Noise attenuation Provisionof noise insulationfor 422 households 1.0 - 1.7 - affectedby the constructionof the LimehouseLink.
Securitymeasures Provisionof securityfor vacatedpremises. 0.5 - 0.9 -
Othercosts Includescost of joint Corpomtionand TowerHamlets 0.9 - 0.5 - housing unit, and costs of temporarilyrelocating housingassociation tenants.
Total 556 116.7 24.3 112.0 11.5 NetTotal Cost 92.4 100.5
Source: NationalAudit Gffke Note: (I) includesf 1.2million from the sale ofsurplus land,not shown in Table8. The total net cost of the rehousingunder the Accordwas f100.5million and the Corporationrehoused 556 households,compared with the 476 forecastin June 1988.The outturn cost was in line with the sums approved,but therewere lower than expectedreceipts from the sale of surplus land (f1.2million) and surplus units (f7.8million) at mmberWharves.
42 London Do&lands Development Corporation: The Liehouse Link
3.22 In autumn 1989 the Corporation decided not to construct the surplus units which it had intended to sell for E19.9 million, to contain costs in a declining property market. This further reduced the total number of units constructed at Timber Wharves to 314. The Corporation has sold some surplus land on the site for El.2 million, but the reduced number of units removed net projected sales income, after building costs, of E13.6 million. The Corporation also constructed 103 housing units at sites in Devons Road and L&in Street, at a cost of E12.1 million. Of the 417 units provided in total, 136 were not eventually required, including 34 of those built by the Corporation in Devons Road and Lukln Street (Table 8).
3.23 The surplus housing was becoming vandalised, and the Corporation incurred additional security costs. The Corporation attempted to market the surplus units to private sector buyers, but because of the lack of interest, they were sold freehold to housing associations, at current market values. The main disposals were made between March 1991 and June 1992. The units were disposed of for f13.1 million less than their purchase or construction costs (Table 8). The purchase of the surplus units by a number of housing associations was made with Housing Association Grant provided by the Housing Corporation. As public money had been used to ac@e the houses initially, this represented a form of double subsidy to the benefit of the London Docklands Development Corporation. As a result the Department considered whether the receipts should be deducted from the London Docklands Development Corporation’s grant-in-aid, but decided against this as the Corporation’s investment programme was formulated on the basis of retaining the receipts.
~;q-g” ;;~:*,,iq*>f 9-*y?P 8. - ,,T- - - _”7:’ ; Bi,,Fy :, )i;c *-,$,&W” i CW~ ““‘” 2’” ,, /(,,>;*,,;* ,,~ ,~.,: j,x :’r ;;& ,, s.,i I‘, ‘! i_~/ li( .si :,i_i,.,. :._, .-,., iL*.>~,i /^ _j ,_-_ ,...?.,> ,..,,,, .,,,,. ,, &~Szs :,‘. ” Development No. of Units No. of Surplus Cost of Units Income from Shortfall on Average Constructed/ Units Sold(‘) sales disposal loss/unit Purchased f million f million f million f
Timber Wharves 314 102 19.8 7.6 (12.0) 117,000 Lukin Street 30 3 0.4 0.3 (0.1) 33,000 DevonsRoad 73 31 3.2 2.2 (1.0) 32,000 Total 417 136 23.4 10.3 (13.1) 96,000
Source: NationalAudit Mfrce
Note: (1) Thetotal cost is basedon the actualmixof units sold.
Ofthe 417 units purchasedor built by the Corporationfor rehousing,136 were surplus to requirements,and were disposedof for f13.1 million lessthan their purchaseor constructioncost.
43 London Docklands Development Corporation: The Limehouse Link
Managing the Did the Corporation have satisfactory arrangements project for overseeing the management of the project?
Initially the CorporatiOn coMidei@d their in-hm&r&our-cek for overseeing the management of the project were adequate. When problems arose in 1990, additional resources werefound to be necessary. In mid 1990 the Corporation introduced changes to the existing management arrangements with the consulting engineers. In December 1990 additional resources were added to the in-house team.
3.24 Initially the project was overseen by an internal team responsible for all the Corporation’s strategic road projects and the extension to the Do&lands Light Railway. The Link was managed by a team consisting of a project leader and project manager, with support from a quantity surveyor and a financial analyst, who directed and received regular reports horn the consulting engineers to whom day to day management was delegated. The Corporation expected these resources would be sufficient for managing the project.
3.25 In June 1990 a review of project management arrangements on the Corporation’s main infrastructure projects, particularly the Limehouse Link, was commissioned from Bechtel Limited (Bechtel). The review confirmed that the project required more m-house management resources to monitor and control the project. The report proposed an internal restructuring and the employment of ten experienced project management personnel in key positions to oversee the Corporation’s key infrastructure projects.
3.26 In December 1990, following Bechtel’s appointment, a team of Bechtel and Corporation staff was set up to manage the construction of the Limehouse Link, and other Docklands road schemes with a valueof E95million plus other infrastructure projects. Bechtel provided expertise in engineering, contractor’s claims, contracts and cost scheduling. Under this team the project management of the construction contract became more effective, and tighter control was exercised over progress. In January 1992 a team of Corporation and Bechtel staff took over direct supervision of the contract, assessing progress and costs and liaising with the consulting engineer, who continued to monitor the works on site. Bechtel resources were subsequently withdrawn horn May 1993 as the Corporation’s infrastructure schemes, including the Link, were completed.
3.27 The joint housing Task Force, with limited staff resources, faced a major task in relocating a large number of households to meet the tight timescale for the road construction. In overall terms the
44 London Docklands Development Corporation: The Limehouse Link
programme achieved its objectives, but there were some delays in decanting residents; in handing over blocks to the contractor; and in providing noise insulation. These affected progress on the construction contract and led to claims from the contractor for additional payments.
Financial control Did the Corporation have satisfactory arrangements and reporting for financial control and reporting?
There were arrarigern&s kplace for financial control and Ireporting on the construction and rehousing, which were irAprovedfrom early 1990. 1 3.28 Soon after the construction contract was let, the Corporation’s Board members sought to improve the control and reporting arrangements for the Corporation’s major iniYa.structure projects. In February 1990 the Corporation set up a sub-committee of the main Board, the Infrastructure Project Review Group, to oversee these projects, and it received regular reports on the progress of the project,including estimates of final cost. The Corporation identified that noise restrictions imposed on the contractor, design changes, delays in decanting local authority residents and unscheduled demolition were causing delay. At this stage, though the contractor had submitted programmes of works they had not been approved by the consulting engineers because further information was required. It was, therefore, difficult for the Corporation and their consultants to monitor progress fully or forecast costs accurately until August 1990 when a programme of works was approved. At that time the estimated cost had risen from f227.6 million to E284 million (Table 1 on page 16).
3.29 In the early stages there was insufficient financial control over some aspects of the rehousing programme. Two double payments totalling 26.6 million were made to the developer of Timber Wharves, Ideal Homes. Both payments were recovered when the errors were highlighted by the Corporation’s Internal Audit Unit. The Corporation also initially failed to take action to recover 53.1 million due to them from Tower Hamlets under the Accord in respect of ‘hidden” households. In addition the Corporation sought and obtained assurance from Tower Hamlets that E11.9 million paid in respect of tenants who chose to remain with the local authority had been spent on rehousing in accordance with the terms of the Accord.
45 London Docklands Development Corporation: The Limehouse Link
Did the Corporation have adequate procedures for substantiating and approving claims and variations to the contract?
,,,, ,, Claims were settled arid variatior&tb’the co&&t @e&d ii accordance with the variation agreements.
3.30 The Corporation’s procedures for approving variations to the contract generally reflected the standard conditions adopted by the Association of Consulting Engineers. In addition, all variations, however small, required authorisation by the Corporation.
3.31 Progress on the contract in the first six months was delayed by a number of factors, (paragraph 3.281. The Corporation had made assumptions at the tender stage about the expected noise resnictions the local authority would accept. When agreement was reached in March 1990 the terms were not as envisaged and this contributed to cost increases on the contract. In May 1990 the contractor stated that the disruption caused by these factors would lead to a substantial claim for extra costs, and an extension of 57 weeks to the contract completion date. The Corporation started negotiations with the contractor to avoid further delays and bring the project back on schedule.
3.32 After extended negotiations the Corporation and the construction contractor reached a variation agreement in March 1991. Under the agreement, the contractor received f17.5 million in addition to the original contract price, and there was a three month extension to the May 1993 completion date, for the section to Westferry Road and the Canary Wharf area, to August 1993. The agreement also entitled the contractor to an incentive bonus of f107,OOO per day for early completion of this section in advance of the new August 1993 completion date or ifthe contractor was delayed by any days in the period up to December 1993 due to circumstances beyond’their control. The bonus provision was capped at a limit off 15 million. In return the contractor waived entitlement to claims arising horn events before 1 October 1990, and withdrew all claims for extension of time from events that took place before 1991. The contractor later submitted a revised programme providing completion to the Canary Wharf area by the original agreement date of 15 May 1993. As the Link was completed in May 1993, ahead of the revised schedule, the contractor received a bonus of f9 million.
3.33 The value for money achieved by the variation agreement was reviewed by the Corporation’s internal auditors. They considered the variation agreement was the best solution to the problems faced on the progress of the contract. A detailed breakdown of only
46 London Docklands Development Corporation: The Limehouse Link
f16 million of the f17.5 million had been supplied, but internal audit agreed on the basis of Corporation estimates that the value of prompt settlement outweighed the unsubstantiated difference of El.5 million.
3.34 A further contract amendment was agreed in June 1992, almost one year before completion of the project. It specified a revised contract price of f251 million, and bought out any claims for additional payment by the contractor for events causing disruption and delay between January 1991 and May 1993. It brought forward the completion date for all sections of the Link to May 1993. Substantial damages were payable if the contractor failed to achieve the completion date and this transfer of risk to the contractor was taken into account in the revised contract price. All sections of the Link were opened on 17 May 1993 with a hnal contract price of f255 million. Included in this was the bonus payment of Z9 million, under the March 1991 variation agreement, to the contractor. The increase of f4 million h-om the revised contract price of J5251million was due to further changes in the scope of the project requested by the Corporation.
3.35 A technical audit of the final account was carried out by Corporation staff in April 1994. As the contract progressed the Corporation had only been able to assess claims and make interim payments in respect of claims with incomplete information. The contractor’s view, however, is that they had supplied all the information requested by the Corporation. The technical audit also identified that the contract amendments improved the normal contract process by instituting regular early meetings to settle contractors claims. The technical audit concluded that the evidence suggested that the final account did reflect the true intentions of the parties and provided an auditable account.
Did the Corporation keep the Department informed of significant matters and obtain the required approvals?
The Corporation started appointment procedures for the project managers without first seeking the Department’s approval, although approval wasjinally obtained. The Corporation reduced the housing built at lFmber Wharves without informing the Department, and the Department subsequently expressed concern that theu had not been informed at the time.
3.36 Department of the Environment Ministers approved the principles of the Accord with Tower Hamlets in 1988, and the Corporation obtained the Department’s and the Treasury’s approval before
47 London Docklands Development Corporation: The Limehouse Link
letting the main construction contract in September 1989. Elements of the rehousing expenditure above the f0.5 million project delegation limit at that time were approved by the Department, and Treasury agreed to the acquisition of Timber Wharves in February 1989. The decision by the Corporation to reduce the number of properties built at Timber Wharves from 421 to 314 was not reported to the Corporation Board, although it removed net potential income of f13.6 million (paragraph 3.22). The Department’s approval was not required, but they subsequently expressed concern that the Corporation had not informed them of this change of plan at the time the decision was taken.
3.37 The Corporation did not obtain the Department’s approval before starting appointment procedures for the project management contract, which was estimated to cost f7 million. The Department had already approved the appointment of Bechtel by single tender to carry out the urgent review of project management arrangements. After approving Bechtel’s recommendations, the Corporation proceeded with the appointment of Bechtel for the project management contract itself. However, the Department refused approval without a competitive tender. The Corporation then carried out a competitive tender for this contract and Bechtel was appointed. It considered Bechtel was the only company which fully met its requirements, although the tender was the most expensive of those short-listed.
3.38 The variation agreement on the construction contract, which involved an additional payment of f17.5 million to the contractor, together with a maximum bonus payment of f15 million (of which f9 million was paid), was approved by the Infrastructure Project Review Group and discussed at the Board’s meeting in February and March 1991. The approval of the variation agreement was not formally recorded by the Board until July 1991. The Department told the National Audit Office that Departmental approval was not required because the increase in the contract price fell below the 20 per cent threshold for reapproval.
48 London Docklands Development Corporation: The Limehouse Link
Appendix 1
Limehouse Link : key dates
1986 March Initial feasibility study by Mott Hay Anderson (Mot@) into options for providing road access to the Isle of Dogs from the City of London was completed.
June The Board of the London Do&lands Development Corporation (the Corporation) approved the further development of a dual two lane cut and cover serpentine tunnel option, with a two lane tunnel to North Quay, which was called the Limehouse Link. Preparation of the Compulsory Purchase Order for land required for the preferred option was approved by the Corporation’s Board.
Motts’ supplementary report recommended the serpentine cut and cover tunnel should be developed.
December Sir Alexander Giib and Partners (Gib) were appointed to design, supervise and manage the construction of the tunnel. 1987 JOY The Corporation signed an agreement with the former Olympia and York Limited for a major development at Canary Wharf and stated their intent to provide necessary infrastructure, including a cut and cover tunnel to Docklands from the west, subject to the necessary resources being available.
Gibb commenced detailed design work.
October The Corporation decided to widen the tunnel to North Quay to a dual two lane carriageway.
The Corporation concluded an agreement with British Waterways Board to occupy land needed for tunnel construction.
49 London Docklands Development Corporation: The Limehouse Link
JUtle The Corporation reached an Accord in principle with the London Borough of Tower Hamlets (Tower Hamlets). Tbis secured their co-operation with the Dockiand highways programme, including the Llmehouse Link, and included a package of rehousing and social and community projects.
August An economic appraisal of five options for improved access to the Isle of Dogs from the west was submitted by the Corporation to the Department of the Environment for approval.
The Corporation and Tower Hamlets set up a joint housing Task Force to oversee the Accord rehousing programme.
The detailed design work by Gib was frozen for tender purposes.
October The Public Inquiry into the Compulsory Purchase Order for land and Road Closure Orders for the Limehouse Link started.
Approval to proceed to tender was given by the Department of the Environment and Treasury.
November The Public Inquiry was completed.
The Corporation submitted two options for providing replacement housing units to the Department. The preferred option involved the purchase of Timber Wharves and the purchase and development of two other sites, Lukin Street and Devons Road.
December Tenders for the Limehouse Link construction contract were invited by the Corporation. 1989
February The Department approved the purchase of Timber Wharves to rehouse residents in the vicinity of the Dockland highways, as agreed under the Accord with Tower Hamlets.
April The full report on ground conditions for the Limehouse Link was made available to tenderers.
The Department approved the purchase of sites and construction of housing at L&in Street and Devons Road, the remaining replacement housing sites.
May Tenders for the Limehouse Link construction contract were returned.
50 London Docklands Development Corporation: The Limehouse Link
June The Secretaries of State for Transport and Environment confiimed the Compulsory Purchase Order and the Road Closure Orders.
September The Accord between the Corporation and Tower Hamlets became legally binding.
The contract for construction of the Limehouse Link was awarded to Balfour Beatty Fairclough.
A post-tender appraisal was carried out by the Department.
November The contractor started on site, 1990 February The Corporation’s Infrastructure Project Review Group was set up to oversee its infrastructure programme.
March Agreement was reached with Tower Hamlets about noise and other environmental restrictions on site work.
Balfour Beatty Fairclough identified cost and time overruns and the Corporation began negotiations to bring the project back on schedule.
June A review of project management arrangements was undertaken by Bechtel Limited (Bechtel).
August The apparent cost overruns on the project were investigated by the Corporation.
December Extra project management resources were provided by Bechtel staff 1991 March A variation agreement to the construction contract was agreed between the Corporation and Balfour Beatty Fairclough.
Disposals of surplus housing at Devons Road and Lukin Street to housing associations commenced with the approval of the Department.
JAY The Corporation’s Audit Committee began investigations into tunnel design changes.
December Gibb’s design of the tunnel was completed.
51 London Docklands Development Corporation: The Limehouse Link
1992 January The Corporation took over supervision of the construction project.
March The Department approved the disposal of further surplus housing.
June A further contract amendment was agreed between the Corporation and Balfour Beatty Fairclough.
Design certificates were obtained from the tunnel designers and independent design checkers and submitted to the Department of Transport. 1993 April The Department of Transport signed the design certihcates.
May The Limehouse Link was opened by the Prime Minister on 17 May. 1994 February The Corporation’s lawyers appointed an independent expert to prepare a report on the reasons for the design changes.
April A technical audit of the final account of the construction contract was carried out by Corporation staff.
November The Corporation reached a negotiated settlement on confidential commercial terms with Gibb.
52 London Do&lands Development Corporation: The Limehouse Link
Appendix 2
Organisations consulted by the National Audit Office
Government Department of Transport Departments HM Treasury
Oher public London Borough of Tower Hamlets authorities and bodies The Housing Corporation
British Waterways Board
Private sector Sir Alexander Gibb and Partners organisations Mott Hay and Anderson
Bechtel Limited
Balfour Beatty Fairclough
Ideal Homes
Canary Wharf Limited
53