Cardiff Council Cyngor Caerdydd Cabinet Meeting: 29 January 2014

CARDIFF COUNCIL CYNGOR CAERDYDD

CABINET MEETING: 29 JANUARY 2014

MAJOR PROJECT UPDATE - MULTI-PURPOSE ARENA

REPORT OF DIRECTOR OF ECONOMIC DEVELOPMENT

AGENDA ITEM: 6

PORTFOLIO: FINANCE & ECONOMIC DEVELOPMENT

The information contained in Appendix 3 is exempt from publication for the reasons contained in paragraphs 14 and 21 of Schedule 12A to the Local Government Act 1972

Reason for this Report

1. To provide Cabinet with an update on the Multi-Purpose Arena project following the publication of a Prior Information Notice (PIN) on the Official Journal of the European Union and receipt of further market advice by industry experts The Right Solution.

2. To outline the next steps towards the delivery of the Multi-Purpose Arena project and to gain Cabinet approval to progress towards a full OJEU procurement.

Background

3. The Multi-Purpose Arena project is a long standing Council priority and is widely regarded as the next major infrastructure investment required to support Cardiff’s development into one of Europe’s most ‘ liveable’ capital cities. The project involves the delivery of a circa 12,000 seat Indoor Arena, a circa 1500 seat conference auditoria, meeting rooms and circa 8000 sq m of exhibition space to enable the full range of international conferences and business events and premium entertainment and sporting events to be delivered in Cardiff.

4. The Cabinet report of 12 September 2013 provided an overview of the Council’s requirement and is attached as Appendix 1. The report also provided authority for the Council to test market interest through a Prior Information Notice (PIN) on the Official Journal of the European Union. The PIN was issued on the 11th October 2013 and the process closed on the 29th November 2013 with 45 responses received. A summary of responses is attached as Appendix 2. The key points raised are outlined in this report.

Page 1 of 7 5. The Council’s specification for the combined elements of a Multi-Purpose Arena have developed over a number of years based on advice from industry experts The Right Solution (initially in 2004, and subsequently updated in 2011 and 2014). The recent update provided by The Right Solution in January 2014 is attached as Appendix 3. The Council has also engaged with designers, owners and operators of similar facilities across the UK and internationally over the last few years to understand current market trends.

Market Testing

6. The feedback received through the OJEU PIN exercise closely reflects the advice received from The Right Solution as well as other market information gleaned by Council officers through engagement with the sector . The key points are as follows:

• There is significant market confidence that Cardiff has the potential to be a very successful conference and arena destination.

• There is significant private developer interest to deliver the project, especially if the Council is prepared to take a head lease, although proposed funding options are not limited to this approach.

• All of the major arena operators are interested in the project as well as a number of international developer/operators introduced to the project through third parties.

• Feedback from operators suggests Cardiff’s capital city status is a significant attribute that will help to make commercial operation more viable and attractive. The availability of adequate numbers of hotel beds in close proximity to the facilities are critical to successful long- term commercial viability.

• The Council will need to make a significant contribution towards the delivery of the project, either in the form of an up-front capital contribution or through a head lease to help mitigate developer risk. However the precise level of contribution and risk is a matter for competition between interested parties that can only be confirmed through a procurement process.

• Developers and operators have identified a number of potential income streams to help minimize the cost of delivering the project to the Council. The key income stream opportunities are a lease from an operator, naming rights and sponsorship income, car parking income, and potential rental income from related ancillary development. The Council has also received a number of more innovative and complex income generating ideas that would need to be tested through the procurement process.

• Despite proposals for arenas and convention centres being explored in Bristol and Newport, Cardiff is seen to have a sufficiently strong basis for its own facilities based on having the benefit of an

Page 2 of 7 appropriate scale local and regional population base with relatively easy access to the city-centre; a strong University presence with a large resident student population; and the significant benefit of capital city status.

Issues

7. Siting : A key issue to be considered as part of the procurement process is the siting of the various components of the project. Given the limited number of large conference events hosted in the UK (with over 1500 delegates), there seems a limited case for building a conference auditorium for over 1500 delegates. Therefore, in order to attract the less frequent larger events the Council is minded to co-locate the indoor arena, convention auditoria and exhibition facilities either under one roof or as part of a Multi-Purpose Arena complex in close proximity to one another.

8. Location : There is a clear preference from developers and operators for the facilities to be located in the city-centre with ease of access to hotel beds, parking, transport nodes and other city centre infrastructure. The area of land required to accommodate the Council’s current requirement side by side or under one roof is circa 8-10 acres. Developers will also require land adjacent to the facility to enable additional value to be created to support the project. Again, a city centre locational is thought to maximize the opportunity to create value.

9. Access : Connectivity to the local and regional population, and nationally and internationally is a crucial factor in the location of a Multi-Purpose Arena. The project will also support and be supported by key transport aspirations to link the city to the region, such as the Metro project, and aspirations to link Cardiff to the world including the investment in improving Cardiff Airport.

10. Specification : The Council’s specification for each of the component parts of the project is fairly well established and remains more or less the same following the market testing exercise. It is however acknowledged that the final specification will be shaped through the procurement process as build costs and on-going operational viability will be key considerations. At present the Council’s requirement remains as follows: • Arena: 12,000 seats in a ‘U’ shaped bowl configuration • Convention auditorium: 1500 seats with flexibility to be adapted • Exhibition space: circa 8000 sq m • Banqueting hall: 1500 covers

11. Funding : The Council has allocated funding in its Capital Programme to support delivery of the project. The Council now needs to undertake a procurement process to understand exactly what facilities and finishes can be delivered with the existing allocation and to fully understand any additional costs required to deliver enhanced facilities. The inclusion of

Page 3 of 7 any enhanced facilities requiring additional Council funding will require a further Cabinet/Council decision at the appropriate time.

12. Operation : There are numerous approaches to operation adopted across the UK and internationally, ranging from in-house Council provision, to public-private partnerships, and full operation by the private sector. All of the UK’s leading arena operators (as well as other international arena operators) have shown an interest in the Cardiff project. It is the Council’s preference for the facility to be managed by a private sector operator skilled at maximizing revenue generation to ensure commercial viability and sustainability. A key consideration through the procurement process will be that the Council’s contribution to the project will be limited to supporting the construction of the facility, with the day to day operation of the facility being delivered without public subsidy.

Delivery

13. The Council has undertaken a land appraisal exercise and has a clear understanding of the sites in Cardiff that have the potential to deliver the project. It is the Council’s intention to secure control of its preferred site before starting the procurement process. This will ensure the procurement process is not restricted to only 2 or 3 potential bidders that have managed to secure land interests in the city, and will help to avoid a beauty contest around potential sites. Instead it is hoped the approach will maximize the potential for the largest number of potential development partners/operators to engage in the process and enable the process to concentrate on maximizing facilities and minimizing the Council’s financial exposure.

Procurement Approach

14. Grant Thornton has recently been appointed to work with the Council to develop with the Council’s legal, financial, procurement and technical teams a detailed procurement strategy. Part of this work will include advice on the extent of facilities that are deliverable within the Council’s current funding envelope, the likely additional costs to the Council of delivering the full range of desired facilities, and how these costs could potentially be mitigated. This advice will form the basis of the Council’s procurement strategy.

15. Different approaches to procurement have been utilised across the UK depending on a variety of local factors. The key issue is whether to undertake a single process - Design, Build, Fund and Operate (DBFO) - to secure a development partner who would bring an operator as part of their team (or vice versa); a two stage process where the Council procures an operator first and then a development partner on a Design & Build (D&B) contract; or some hybrid approach.

16. As part of the procurement process the Council would also like to explore the potential for the existing St David’s Hall to be operated by the chosen development partner/operator during the period that the new facility is being constructed.

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Reasons for Recommendation

17. To update the Cabinet on recent progress with the Multi-Purpose Arena project and to seek authority to begin the procurement process to deliver the project.

Legal Implications

18. The procurement strategy will consider the options for delivery of the Multi-Purpose Arena project including financial implications and risks associated with the project and the means to manage these most effectively to achieve the project objectives.

19. The Council has a legal obligation to ensure value for money in regard to its acquisition of land and its procurement of works and services. The Council’s Procedure Rules for the Acquisition of Land requires advice to be obtained from a professional valuer at all stages of a land acquisition. A decision made by Cabinet or an officer under delegated powers requires appropriate budgetary funding to be available in respect of that decision.

20. The Council’s decision makers need to take account of the Council’s fiduciary duty and the duty to make arrangement to continuously improve in carrying out its functions including doing so in terms of strategic effectiveness, innovation, sustainability and efficiency.

21. These duties should be reflected in the procurement strategy being developed.

Financial Implications

22. This report updates Cabinet on progress in respect of the Multi-Purpose Arena project and seeks authority to begin the procurement process to deliver the project. As outlined in the financial advice of the September 2013 report the Council must ensure that it identifies the financial implications and risks associated with the project.

23. The Council has engaged Grant Thornton to prepare a Procurement Strategy in relation to the project and this will consider the indicative capital costs of the proposed facility and associated funding sources, including those contained within the existing Capital Programme.

24. Should the outcome of this exercise identify the need for additional Council capital support over and above this then a further report would be need to be presented to Cabinet/Council for consideration when setting its Capital Programme. This would also be the case, should it become clear during the procurement process that additional financial support is required from the Council and therefore the procurement

Page 5 of 7 documentation should set out for potential bidders the amount of support that is currently available.

25. The Council’s current Capital Programme includes an allocation of £15 million in respect of economic development, transport and public realm schemes within the Central Enterprise Zone. As identified in previous Budget Reports the financing of this amount is contained as a £1.5 million revenue budget under the heading Medium Term Policy Initiatives. Members will also be aware of the land acquisitions that the Council has made recently at Central Square with a view to both economic regeneration of the areas and a return of these monies as the development progresses. Progress against the Central Square continues to be monitored and should monies become available there may be an opportunity to recycle these into the Indoor Arena project.

26. The report refers to a private sector operator managing the day to day operation of the facility without public subsidy with the Council’s support being limited to that associated with the construction of the facility.

27. The recommendations request the approval from Cabinet to secure control of the Council’s preferred site for the delivery of a Multi-Purpose Arena via an option to purchase. The costs of this purchase will need to be agreed in conjunction with the Council’s professional valuers as demonstrating value for money and it should be noted that should the project not proceed then these and other associated costs will become abortive and will be charged to revenue.

28. Any revenue costs arising from the initial development of this proposal along with associated procurement will need to be met from within existing resources.

RECOMMENDATION

The Cabinet is recommended to delegate authority to the Chief Executive in consultation with the Cabinet Member for Finance and Economic Development, the Section 151 Officer and the County Solicitor to:

1) Undertake and conclude all aspects of the procurement of a Multi- Purpose Arena to reflect the outcome of the procurement strategy and to return to Cabinet before signing any legal contracts.

2) Secure control of the Council’s preferred site for the delivery of a Multi- Purpose Arena via an option to purchase.

NEIL HANRATTY Director 23 January 2014

The following Appendices are attached:-

Appendix 1 – Cabinet Report 12 th September 2013

Page 6 of 7 Appendix 2 – Summary of PIN Exercise Appendix 3 – The Right Solution Report January 2014

Page 7 of 7 Appendix 1

CARDIFF COUNCIL CYNGOR CAERDYDD

CABINET MEETING: 12 SEPTEMBER 2013

INTERNATIONAL CONVENTION CENTRE, EXHIBITION CENTRE AND MULTI-PURPOSE INDOOR ARENA

REPORT OF DIRECTOR OF ECONOMIC DEVELOPMENT AGENDA ITEM: 2

PORTFOLIO: FINANCE & ECONOMIC DEVELOPMENT

Reason for this Report

1. To seek authority to commence the process to procure the delivery of an International Convention Centre, Exhibition Centre and Multi-Purpose Indoor Arena through the publication of a Prior Information Notice (PIN) to the Official Journal of the European Union. The publication of the PIN will allow the Council to test the market and work with potential developers and operator consortia which will help shape the Council’s approach to the subsequent stages of the procurement process.

Background

2. Over the past 20 years Cardiff has seen significant investment in cultural and leisure infrastructure, including the creation and development of Cardiff Bay as a visitor destination, the Millennium Stadium, Wales Millennium Centre, the SWALEC stadium, Cardiff City Stadium and the St David’s 2 shopping centre. These investments have enabled the city to host major international events, attract international visitors, and have raised the city’s international profile. These investments have also contributed to Cardiff’s growing reputation as a ‘liveable city’ which can attract and retain a skilled and talented workforce.

3. The Administration’s Corporate Plan for 2013 – 2017 identifies the delivery of an International Convention Centre and Indoor Arena as one of the key deliverables for developing and attracting high value business activity in Cardiff. ‘Rebuilding Momentum’, the City Government’s Green Paper consultation, published in March 2013, identifies the lack of a Convention Centre as a major structural economic weakness. The responses to the consultation exercise continue to strongly support the delivery of a Convention Centre as a core infrastructure requirement for a Capital city, which has recently been further endorsed by the new Cardiff Business Council.

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International Convention Centre (ICC)

4. Not surprisingly, there is compelling evidence to suggest that Cardiff’s reputation as both a visitor destination and a business centre is stronger amongst people that have actually visited the city than amongst those that have not. This suggests that if the Administration is going to secure Cardiff’s role as Wales’ economic dynamo by attracting inward investment and new jobs then it needs to do more to attract to the city those who can help influence those outcomes. In addition, business tourism is a highly lucrative source of revenue helping to underpin the jobs of those employed in the hotel and hospitality sector. For all these reasons, an International Convention Centre, capable of attracting global conferences, conventions and events must be a priority for the city.

5. Since opening in 1995 Edinburgh’s ICC has attracted around 980,000 delegates to more than 2,400 events, generating an estimated £340m for the Scottish economy. It has also stimulated the development of a new Grade A office environment in the immediate vicinity of the facility. There is significant evidence to suggest that this facility has been a catalyst for the city’s economic development success.

6. The lack of an ICC in Cardiff creates a significant gap in the city’s infrastructure at a time when city’s are competing against one and other for global business. More importantly, in the current economic climate an ICC project will employ some 1000 people during its construction phase and will, when operational, create around 500 direct full time equivalent jobs and hundreds more indirect jobs through its supply chain.

7. In order to help understand an optimum ICC requirement for a city the size and status of Cardiff the Economic Development Service commissioned a report from leading industry advisors Right Solutions which has recently been updated. Right Solutions advise that significant demand exists for a modern purpose built Convention Centre in Cardiff that is capable of hosting conferences of up to 1,500 delegates. This would enable 95% of all conventions delivered in the UK to be accommodated. The Right Solutions advice is provided in Appendix 1-3. The Service has continued to engage with Conference Centre operators and event promoters around the UK and has concluded that the case for building a larger facility capable of accommodating all conferences is weak owing to the significant additional costs involved. Instead, it is considered more prudent to consider co-locating complementary facilities such as an Exhibition Centre and/or an Indoor Arena to ensure a capability to host the largest global conventions.

Exhibition Space

8. The availability of exhibition space has become an increasingly important aspect of any convention centre project. Most of the convention centres in the UK are now expanding the space available for exhibitions either as integral parts of their existing facilities, e.g. Edinburgh, or as new adjacent stand-alone facilities, e.g. Liverpool. Exhibitions are increasingly used to generate sponsorship funding to provide financial viability for

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convention events, and as such more and more space is being required by event operators. Right Solutions have previously suggested that Cardiff would require a minimum exhibition space of 3,500 square metres. However, informal consultations with convention centre operators in Edinburgh, Glasgow and Liverpool suggest that a minimum of 5,000 square metres is more appropriate and even more if it can be afforded. At present the Council’s intention is to require 5,000 square metres as an integral part of its ICC project. However, the Council will also seek a solution that will provide the potential for the development of a substantially larger stand- alone facility that could be developed as a later phase as and when demand requires it and/or funding becomes available.

Banqueting Halls

9. The ICC project will also require a significant facility to accommodate major gala dinners and banquets of the scale associated with the convention industry. Research suggests that appropriate space needs to be provided for the same number of delegates as can be accommodated in the ICC’s main auditoria. As such Cardiff’s current position is to require a banqueting hall with the capacity to accommodate 1500 delegates.

Mutli-Purpose Indoor Arena (IA)

10. Rebuilding Momentum further identifies a Multi-purpose Indoor Arena as “an important building block for any liveable city”. Cities around the UK are starting to realise the importance of attracting premium events. New arenas have recently been constructed in Liverpool, Leeds and Glasgow, and the Mayor of Bristol has begun to explore the potential for a regional facility in the centre of Bristol as part of the Temple Meads Enterprise Zone.

11. Whilst Cardiff benefits from the Millennium Stadium and the other sporting stadia capable of hosting large events it lacks an appropriate facility to attract many of the premium UK entertainment events and the mobile international entertainment and sporting events attracted to the UK. Competition for these events is increasing across the UK and the expectations of event organisers and performers in terms of the facilities provided are rising accordingly. If Cardiff wants to maintain its capital city status and its position as the primary regional centre for major events it will need to respond to the market and provide a bigger and better facility in the city.

12. Whilst primarily supporting a regional market, the Indoor Arena will also help to attract new visitors to the city and raise the city’s profile, particularly in the UK context. The facility would also complement and add value to the ICC by enabling larger conferences, such as party political conferences to be attracted to the city. This is achieved by locating all of the required exhibition space for larger events in the Indoor Arena, freeing up the integral exhibition space in the ICC to create much larger areas of flat floor seating capable of accommodating up to 4,000 delegates, and larger banqueting halls.

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13. Some cities, most recently Liverpool, have developed integrated ICC/IA facilities. However, the operating models for an ICC and an IA are significantly different and sometimes conflicting and feedback from facility operators and event organisers suggests that the two facilities are better provided as independent facilities. This also seems to be a lesson learned by Liverpool who will be investing in a new stand-alone Exhibition Centre adjacent to the ICC/IA which is soon to begin construction.

14. The Administration is, therefore, currently minded to provide separate facilities in close proximity to one another. However, it also appreciates the need to keep its options open to secure the most deliverable solution and at the best value for money and will therefore consider the views of those responding to the procurement process.

15. In terms of the indicative capacity of an Indoor Arena for Cardiff, feedback from arena operators in the UK suggests that major cities can support audiences of between 12,000-15,000 people. This is evidenced by the size of arenas recently constructed in the UK. The Administration is minded to pursue a horse-shoe shaped arena similar to Liverpool arena that seems more flexible and better suited to attracting sporting events than the alternative fan-shaped arena recently delivered in Leeds.

Procurement Process

16. It is proposed to issue an information pack to interested parties to include:

• The “Rebuilding Momentum” Green Paper • The Aecom Cardiff Masterplan Study • The Right Solutions Reports on Conference Facilities (Appendices 1-3)

Reasons for Recommendation

17. The recommendation in this report is to issue a Prior Information Notice via the Official Journal of the European Union to carry out an appropriate market testing exercise to establish the need for and optimum size, location and configuration of an International Convention Centre with appropriate exhibition space together with a Multi-purpose Arena. The project is designed to enhance Cardiff’s existing conference and sports facilities and to enable broader economic development activity by stimulating investor confidence in Cardiff.

Local Member Consultation

18. The proposal does not involve a local issue.

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Legal Implications

19. The publication of a PIN in the Official Journal of the European Union does not oblige the Council to embark on a procurement exercise. It gives notice that the Council is considering its options in regard to the relevant project and invites views from the market on the options open to the Council.

Financial Implications

20. Information provided via the PIN will be essential in assisting the Council in assessing the scope, viability and funding options to deliver the facilities quoted in the report. This will also assist in development of a robust options appraisal and business case which will be needed to ensure that all financial implications and risks for the Council are determined, with a view to identifying mitigating actions and wider implications for the City. Any business case will need to be reported to Cabinet in future reports and at that time consideration will need to be given to any budgetary framework issues. Any costs in the initial development of this proposal will be met from existing revenue budgets.

RECOMMENDATION

Cabinet is recommended to agree to the issue of a Prior Information Notice, including an information pack, to assess market interest in a project to design, fund, construct and operate a Convention Centre, associated exhibition space and a Multi-purpose Arena.

NEIL HANRATTY DIRECTOR OF ECONOMIC DEVELOPMENT 6 September 2013

The following appendices are attached:

Appendix 1 – Right Solutions - Cardiff Convention Centre Study 2004 Appendix 2 – Right Solutions - Cardiff Conference Centre Study 2004 Appendix Appendix 3 - Right Solutions – Cardiff Convention Centre Study 2011

Page 5 of 5 Appendix 2

Cardiff International Convention Centre Exhibition Centre and Indoor Arena

Summary of Responses to Prior Information Notice (PIN)

1. Executive Summary 2. Introduction 3. Optimum size of facility 4. Location of the facility 5. Configuration of the facility 6. Delivery model 7. Funding model 8. Procurement route and maximising competition in procurement process

Appendix A - Respondents to PIN Appendix B - Next Steps Appendix C - Potential Configurations

1. Executive Summary

Cardiff Council is exploring the delivery of an International Convention Centre, Exhibition Centre and Multi-Purpose Indoor Arena within the City.

A Prior Information Notice (PIN) was issued to the market on the 11 th October 2013. There was a very positive response with 45 organisations (Appendix A) responding to the PIN prior to the deadline of Friday 29 th November 2013. This report is set out in a way that reflects the structure of the PIN.

The market was asked to a) express its interest in this project, b) the potential commercial options to deliver the Project and c) provide us with their views on the following:

1. Optimum size of facility; 2. Location of the facility; 3. Configuration of the facility (Combined facility or three separate stand alone facilities); 4. Delivery model (e.g. Operator, Developer, Design and Build Contractor, Special Purpose Vehicle); 5. Funding model; 6. Procurement route and maximising competition in procurement process.

To summarise the above (there is more detail further in this report) the market advised that a 12,000 seater arena with the ability to increase to 15,000 by the removal of some seating would be ideal. Only one respondent commented that the capacity was too large and recommended that Cardiff consider a 10,000 capacity arena.

With regards to location, all responses that didn’t submit a specific site commented that a City Centre site was the ideal, with excellent public transport links and availability of car parking key considerations in finalising the location of this facility.

There was also wide spread consensus from the submissions that the optimum configuration of the facility was three separate facilities (arena, conference and convention centre) located on the same site reaping economies of scale of shared transport links, shared infrastructure and shared service facilities.

With regards to the delivery model, all the major submissions recommended a Design, Build, Finance and Operate (DBFO) model. The main feature of DBFO projects is the transfer of risks and responsibilities from the public sector to the private sector through a special purpose vehicle (SPV). This leads on to the financing element of the scheme where several submissions advised that with the DBFO model a long lease agreement would be sufficiently attractive to a large number of institutional investors such as insurance companies, annuity funds, life providers and pension funds to act as funders of this scheme. By entering in this type of contract, the Authority commits to paying a fixed unitary charge/payment to the SPV per annum which accounts for the servicing of the debt raised during construction, facilities management and maintenance services during the operational phase .

The net liability to the Council would be reduced through a number of subordinate revenue streams potentially including hotel revenue, office space, operating lease (potentially including food and beverage rights), naming rights and other sponsorship income, car parking and other subsidiary income. If this income could be maximised, then there is a chance that the Cardiff Council’s annual liability could be zero or even generate an income for Cardiff Council.

The responses regarding procurement were mixed. AECOM advised that two procurement exercises needed to be carried out, one for an operator and one for a developer (as was the case with the Leeds arena). AEG opposed this, advocating choosing a delivery partner first and foremost, as did New Conventions Limited. The latter has advantages in terms of time and simplicity, the former advantages in terms of maintaining competitive tension in the process until award of contract. A decision will need to be made as to the preferred option for Cardiff.

2. Introduction

Cardiff Council is exploring the delivery of an International Convention Centre, Exhibition Centre and Multi-Purpose Indoor Arena within the City.

The Council’s Corporate Plan for 2013 – 2017 identifies the delivery of an International Convention Centre and Indoor Arena as one of the key deliverables for developing and attracting high value business activity in Cardiff and is designed to enhance Cardiff’s existing conference and sports facilities to stimulate investor confidence in the city.

A Prior Information Notice (PIN) was issued to the market on the 11 th October 2013. There was a very positive response with 45 organisations responding (Appendix A) to the PIN prior to the deadline of Friday 29 th November 2013. This report is set out in a way that reflects the structure of the PIN.

The market was asked to a) express its interest in this project, b) the potential commercial options to deliver the Project and c) provide us with their views on the following:

This report is structured as per the above.

What is clear from the PIN responses is that this is a complex project with many inter related elements that need to be successfully integrated to make this project a success. The diagram below shows these separate, yet inter related elements that need to come together.

3. Optimum size of facility

Most respondents to the PIN who commented on this aspect advised that a 12,000 seat arena would be the correct capacity for an arena in Cardiff. Most also commented that this should be able to be increased to 15,000 with the removal of seating to create a standing area.

Bam Nutall posted a cautionary note with regards to size, stating “In our experience, a 15,000 seat arena needs a large local population and home sports teams to make it viable. For example, Berlin has a 17,500 seat arena (built by BAM) and a population (the same as the whole of Wales) of 3 million. The local ice hockey team attracts a full house and good income for every game. However, the basketball team does not attract sufficient spectators to cover the cost of safety, security and cleaning for each game. The construction cost of a 15,000 seat arena is exponentially higher per seat than a 12,000 seat facility. We consider that a 12,000 or even a 10,000 seat arena more suited to Cardiff whose population is 324,000.”

4. Location of the facility

Several different sites have been put forward by prospective bidders. Callaghan Square, Waterside at Cardiff Bay, the Red Dragon Centre site, the current Brains site and the Cardiff City stadium were all specifically mentioned by bidders. The submissions that didn’t submit a site commented that a City Centre site with excellent public transport links, competition, wow factor and availability of car parking were key considerations in finalising the location of this facility.

5. Configuration of the facility (Combined facility or three separate stand alone facilities)

All respondents advised that the facility is designed as an integrated multi-functional complex with distinct but directly connected and flexibly configurable component elements, namely the Arena, Exhibition Centre and Convention Centre.

ICC, the organisation that operates the NEC in Birmingham stated that “as an operator of convention, exhibition and arena facilities, we would suggest that with a sophisticated operating approach, the optimal solution from the combined perspectives of operational efficiency, build cost viability, regeneration impact and return on infrastructure investment can be derived from an integrated venue”.

With regards to the layout of the Arena, the PIN response was conclusively in favour of the horseshoe layout. This is demonstrated in Appendix B. The Leeds Arena, which is a similar size as the anticipated Cardiff Arena is the Super Theatre arrangement that is also demonstrated in Appendix B.

6. Delivery model (e.g. Operator, Developer, Design and Build Contractor, Special Purpose Vehicle)

All the major submissions recommended a Design, Build, Finance and Operate (DBFO) model. The main feature of DBFO projects is the transfer of risks and responsibilities from the public sector to the private sector through a special purpose vehicle (SPV). This SPV owned by an investor will pass down all design and build risks to the Design and Build contractor and all operating and maintenance risks to the Operator. The DBFO usually involves a long-term contract between the Authority and the SPV which incorporates a construction period (c. 2-3 years) and an operational phase (20-30 years). Depending on the revenues generated by the Project itself, the payment mechanism can be either availability-based (PFI) or traffic/volume- based (concessions), or a mix of the two.

By entering in this type of contract, the Authority commits to paying a fixed unitary charge/payment to the SPV per annum which accounts for (i) the servicing of the debt raised during construc ti on and (ii) the provision of facilities management and (iii) maintenance services including lifecycle costs during the operational phase .

The benefits of this are: • Scarcity of direct public funding available • Stakeholders’ interests aligned with the Project • Single partner through the SPV from design through financing, construction and operate on to maintenance • Transfer of a majority of the technical, financial and commercial risks to the private sector via the SPV • An optimised project with regards to whole life costing • Increased certainty that costs will be controlled and deadlines met

other subsidiary income. If this income could be maximised, then there is a chance that the Cardiff Council’s annual liability could be zero or even generate an income for Cardiff Council.

An alternative to this, proposed by Bouygues, is a Design, Build and Finance model. This model would only appear to work when the Council could finance the construction itself. As such, this option has limited appeal to Cardiff Council at this juncture.

7. Funding model

Several submissions advised that with the DBFO model a long lease agreement would be sufficiently attractive to a large number of institutional investors such as insurance companies, annuity funds, life providers and pension funds to act as funders of this scheme.

Bawn Management commented that “We believe that Cardiff Council will need to consider the financing options from both a holistic and strategic perspective. Most importantly, we encourage Cardiff Council to allow itself the time and resource to evaluate different approaches and options. Piecing together a £50 - 150 million investment will require a collaborative approach and, most likely, a consortium consisting of public, quasi-public and commercial funding sources will be required. We acknowledge the three primary sources of funding set out in the project information, which are private funding, developer and public funding. We agree that whilst the private funding options might have the most emotional appeal, the likelihood of achieving a successful outcome within an acceptable time frame will be low, unless Cardiff Council already has established relationships with such benefactors and can introduce these to the process.”

Two submissions commented that the amortised value of the Red Dragon Centre site or the Motorpoint Arena site could be included to help the funding ‘stack up’ for this project.

Knight Frank, working on behalf of Aviva Investors, had this to say on funding “Irrespective of its location, the most realistic method of funding and developing an appropriately sized convention centre (and arena) is for the Council to commit to an overriding lease, at a rent which would fully fund the capital requirement of the initial development and fitting-out of the facility. A combination of capital contribution from the Council and rental income secured against an appropriate lease can also be envisaged. In order to secure the greatest amount of capital for the least rental cost a lease to the Council of not less than 25 years would be required. Aviva Linked Property Fund, in conjunction with other Aviva funds such as the REaLM and Lime Funds, could also consider other financial structures such as an income strip transaction, otherwise known as a finance lease. Typically these funds will require longer lease terms of 35 to 45 years, but with a right for the tenant to purchase the freehold interest for a nominal sum on lease expiry. This type of structure should enable a lower initial rent to be payable and would require RPI, or similar index linked, increases in the rent payable. The aim of such a funding model would be to give the Council full and complete control of the building and other facilities, so that the Council can decide upon the most appropriate and cost effective operating model, with the intention that an appropriate proportion of the income and operating profit would ameliorate the rent payable under the terms of the lease.”

8. Procurement route and maximising competition in procurement process

The ‘traditional’ procurement route for a project of this magnitude would be to run two separate procurements. AECOM’s submission supports this “We expect CCC to manage two procurement competitions – one to select an operator (for both venues) and one to select a developer”.

AEG, the acknowledged market leader in this field, stated “AEG believes the most efficient method of procurement contributing to the long-term success can be achieved by the Council first identifying the most experienced and best positioned partner to operate and/or deliver the aforementioned facilities, and then direct negotiation with the selected company for the preferred results. Should the negotiations fail to achieve the best desired outcome for both

parties, then the Council would have the flexibility to begin direct negotiations with the second best identified company.”

This approach was supported by New Conventions whose proposal “is based on a single Design, Build, Finance and Operate (DBFO) delivery structure. This holistic approach allows us to achieve the most cost-effective means of funding the capital cost of the project through the debt-leverage of future revenue streams. This integrative approach also allows for maximal input from the Operator at the very earliest design phase of the Arena, Exhibition Centre and International Convention Centre. The complexities involved in managing a split procurement process would also almost inevitably push the completion of this project well into the early years of the next decade. We would hope for an accelerated and expedited procurement process with an open call tender based on DBFO but with no specified site moving into competitive dialogue, short-listing and then on to the selection of preferred bidder.”

Therefore, it appears that the risk of a single procurement exercise is that Cardiff could select an operator that is in consortia with a less than favourable funding or construction partners. For the reason alone, Leeds took the decision to run two separate procurements (operator and developer) when procuring an Arena. Contrary to that, the risk of running two separate procurements has a time implication that does not fit with Cardiff’s desired timeline for this project.

APPENDIX A – Respondents to PIN

Company Name Nature of Business IPW3 Delivery Partner Bawn Management Delivery Partner AEG Delivery Partner New Conventions Ltd Delivery Partner Knight Frank Delivery Partner AECOM Delivery Partner Bellerophon Delivery Partner Chesham Estates Delivery Partner Bouygues Delivery Partner BAM Construction Ltd Construction Mott Macdonald Construction Arup Construction Balfour Beatty Construction Theatre Projects Architecture 3XN Architecture Holmes Millar Architecture Boyes Rees Architecture HKS Architecture Foster + Partners Architecture Holder Mathias Architecture Seymour Harris Architecture Ramboll Acoustics Ernst & Young Advisory Inspiratia Advisory Right Solution Advisory C&C Catering Equipment Catering Equipment HCE Foodservice Catering Equipment SQE CDM Co-ordinator RPS Group CDM Co-ordinator GI Energy Energy NRF Flooring Flooring JS Baltic Furniture Musgrave Generators Generators Willis Insurance/Risk Gavin Jones Ltd Landscaping Curti Lifts Lifts Lutron Lighting Link Lockers Lockers Bonham/Wills & Associates Marketing/Naming Rights The ICC Operator Style South Partitions Gardiner + Theobald QS + Project Management Shellcase Shutters Rockwool Thermal/acoustic/fire UK Power Solutions Utilities

APPENDIX B – Next Steps

APPENDIX C - Configurations