Major Schemes Full Business Case South Shields, Metro Training And

Major Schemes Full Business Case

South Shields, Metro Training and Maintenance Skills Centre

Contents Page

1 Executive Summary 4

2 The Strategic Case 11 2.1 Introduction 11 2.2 Problems and Opportunities Identified 11 2.3 How the Proposed Measure Addresses the Problem Identified 14 2.4 Scheme Objectives 17 2.5 Background to Nexus and the Tyne and Wear Metro 18 2.6 Policy Context 19 2.7 Key National and Regional Policies 21 2.8 Drivers of Change 24 2.9 Rail Industry Training Case Studies 28 2.10 Options for Development 32 2.11 Scheme Details 35 2.12 Maintenance, Training and Skills Activities 40 2.13 Job Creation 42 2.14 Summary of Benefits 42

3 The Management Case 43 3.1 Introduction 43 3.2 Programme Management 43 3.3 Project Governance 44 3.4 Project Planning 45 3.5 Scheme Programme 47 3.6 Evidence of Similar Projects Undertaken 48 3.7 Risk Management 48 3.8 Communications and Stakeholder Management 49 3.9 Benefits Realisation 51 3.10 Monitoring and Evaluation 51 3.11 Programme and Project Dependencies and Constraints 52

4 The Commercial Case 54 4.1 Introduction 54 4.2 Procurement Strategy 54 4.3 Project Management, Cost Management and Planning 54 4.4 Design Services 54 4.5 Main Contract 55 4.6 Contract Management Strategy 55

4.7 Payment Mechanisms 58 4.8 HR Issues 58

5 The Financial Case 59 5.1 Introduction 59 5.2 Project Cost Profile 59 5.3 Contingency Plan 60 5.4 Revenue Implications 61

6 The Economic Case 62 6.1 Introduction 62 6.2 Rationale for Intervention 63 6.3 Options Analysis 64 6.4 Economic Analysis of Options 65 6.5 Approach to Cost Benefit Analysis 65 6.6 Costs 65 6.7 Transport Benefits 66 6.8 Regeneration Benefits 72 6.9 Results of Cost Benefit Analysis 75 6.10 Summary of Net Present Value and Benefit to Cost Ratio 82 6.11 Sensitivity Tests 83 6.12 Summary 87

Appendices

Appendix A Risk Register and Designer’s Risk Assessment Appendix B Nexus Project Controls Manual Appendix C Nexus Stage Gate Checklist Appendix D Appraisal Summary Table Appendix E Benefits Realisation Plan Appendix F Monitoring and Evaluation Plan Appendix G State Aid Statement Appendix H Output-based Specification Appendix I Scheme Programme Appendix J Value for Money Statement

1 Executive Summary

The Strategic Case

1.1 Rail transport plays an important part in delivering economic growth, and at a regional and local level the Tyne and Wear Metro is a vital part of this process. In the future, Metro will continue to play a major role in the economic strength of the North East region by providing sustainable, affordable transport for residents and visitors to the area.

1.2 A strategic opportunity has arisen to create a new Metro Training and Maintenance Skills Centre iin South Shields, Tyne and Wear. The facility will fulfil three key aims:

• Improved maintenance facilities for the existing Metro fleet, and the new train fleet which is currently at the planning stage. • A better Metro service for South Tyneside, resulting from the ability to start services earlier and finish later by housing trains at the centre overnight. • More comprehensive training, apprenticeships and skills opportunities for all Nexus and Metro staff within a dedicated environment, with everything located on a single accessible site.

1.3 The key aim of the scheme is:

“To establish a high quality facility providing additional Metro maintenance and rail engineering, skills and training capacity, ensuring the long-term future of the Tyne and Wear Metro, and enabling lifelong, transferable skills for careers in the rail industry.”

1.4 This leads to the definition of the key objectives of the scheme, which are:

• To improve Metro reliability and performance across South Tyneside and beyond through the provision of a new stabling and light maintenance facility located separately from the main fleet depot at Gosforth. • To create local jobs and apprenticeships by increasing the range and scope of training undertaken in-house by Nexus. • To support the training of people already working in the rail industry, and those seeking to develop a career within it. • To increase the economic vitality of South Shields town centre and support the regeneration objectives of the South Shields 365 masterplan.

1.5 Through the establishment of the South Shields Metro Training and Maintenance Skills Centre (MTMSC), Nexus and Metro will benefit from an expanding portfolio of training and operational activities across a range of specialisms including train and track maintenance, engineering, rail safety, management and other industry

activities. The centre will become the hub for all Nexus training competencies: management, safety, operational and technical.

1.6 The location in the heart of South Shields town centre offers exciting possibilities for South Tyneside Council and Nexus, as Metro enters a dynamic new chapter with plans for new trains and potentially additional routes in the coming years.

1.7 The facility will be a training centre of excellence for light rail, offering high standards of training qualifications and apprenticeships to Nexus staff with opportunities for new industry entrants to gain qualifications likely to lead to permanent jobs in an industry beset by skill-set shortages, as the age profile of existing employees rises. The need for highly trained specialists becomes more apparent as the industry becomes increasingly technologically advanced, evolving from an era of camshaft control to wireless technology.

1.8 The training offered at South Shields will be fully aligned to all UK and international best practice, delivered locally to meet the needs of all staff engaged in the delivery of Metro services. It will also contribute towards the wider town centre regeneration agenda set out in South Tyneside Council’s South Shields 365 masterplan, where the principle of a strong local economy investing in jobs and training for the future is a key element of the proposals.

1.9 A more reliable and flexible Metro service for the South Shields area is also an important element of the scheme. The centre will be able to stable trains overnight as a satellite facility to the main network depot at Gosforth, allowing a longer operating day, better service recovery and more reliable services resulting from the additional maintenance facilities incorporated within the MTMSC. It will also facilitate an improved Metro service for the iconic annual Great North Run, when over 50,000 runners and their supporters arrive at the South Shields finishing line.

1.10 In the longer term Nexus has ambitious plans, subject to available resources, to invest further in the South Shields Metro corridor, by converting the existing single- track sections between Pelaw and Bede to double track. This would facilitate more frequent services, additional stations and a more reliable Metro. Together with the new bus and Metro interchange to be built on a neighbouring town centre site, the MTMSC will transform future Metro operations to and from South Shields, delivering the standard of sustainable access essential to the success of the area. The preferred option identified within this business case fits best within this framework by providing a more resilient and reliable Metro service, alongside improved maintenance and training facilities.

Key Scheme Elements

1.11 An integrated Metro training and maintenance centre located north of the existing South Shields Metro station will offer classroom tuition and practical indoor and outdoor training in a range of electrical, mechanical, structural, safety, management training and personal development subjects. These activities will be delivered at a new building and associated permanent way sidings north of the existing South Shields Metro station. The site grid reference is NZ 36207 67461. The location in central South Shields has been identified as being highly suitable for the new MTMSC. It offers a combination of strategic advantages, including excellent communication links by Metro and road, a town centre location and the ability to be both connected to and separated from the rest of the Metro network as required, to enable the full range of operational, training and maintenance activities to be undertaken.

1.12 Rail sidings within the site will allow for Metro fleet cleaning, light maintenance and overnight stabling, as well as outdoor training activities. On-site train storage facilities will allow for Metro services to run over a longer operating day, and provide increased operational resilience for special events such as the Great North Run, and when the Metro network south of the river is severed from the main depot location because of essential engineering works.

1.13 Site activities have been designed to operate flexibly and creatively, delivering economies of scale across the organisation. There will be controlled overlap between Metro-specific operational activities and wider training and maintenance delivery. These will be co-ordinated by an on-site Nexus management presence, ensuring that the operational requirements of Metro are met at all times, whilst maximising the potential for training activities and staff development.

1.14 Nexus will own the facility and be responsible for overall site management. Nexus owns Metro rolling stock and infrastructure, and operates Metro services on behalf of the North East Combined Authority (NECA). It is planned that the introduction of a new train fleet will result in fleet maintenance being outsourced as part of new operating arrangements; Nexus will set the terms of such operations, including a requirement for future maintenance and training to be undertaken at the South Shields training centre as set out in this business case.

1.15 Centralisation of all Metro training activities at a single site will also deliver qualitative benefits such as improved staff communications across different delivery areas. The fact that the site is already owned or controlled by Nexus also increases the affordability and deliverability of the scheme. Further details explaining the shortcomings of existing training arrangements for Nexus and Metro staff are set out in section 2.2.

The Management Case

1.16 The Management Case explains how the problem identified in the strategic case can be resolved through the proposed solution and that objectives can be realised. It provides details of project planning, governance structure, risk management, communications and stakeholder management, benefits realisation and assurance.

1.17 The scheme will be project-managed by Nexus which has extensive experience of the delivery of similar schemes through the implementation of the Metro Asset Renewal programme. Construction will take place using a design and build contractor with Nexus project management oversight.

The Commercial Case

1.18 The Commercial Case provides evidence as to the commercial viability of the South Shields Metro Training and Maintenance Skills Centre scheme and the procurement strategy that will be used to engage the market. It outlines project management, cost management and planning methodologies and summarises the proposed contract management strategy.

The Financial Case

1.19 The Financial Case sets out affordability issues, risk and contingency, revenue costs and provides a full project costs profile.

The Economic Case

1.20 The Economic Case confirms that the scheme offers high value for money, with a Benefit to Cost ratio of 2.51 under the preferred option.

Figure 1: Map of South Shields town centre

Figure 2: Site Plan

Figure 3: Site Layout

2 The Strategic Case

2.1 Introduction

2.1.1 The strategic case provides answers to two fundamental questions that must underpin any business case:

• What are the identified problems and opportunities? • How will the proposed scheme address these problems and deliver improvements?

2.1.2 The strategic case demonstrates the case for the facility with a clear rationale for investment, confirms the strategic fit with national, regional and local government objectives, and describes how the scheme will further the aims and objectives of the NECA, the North East Local Enterprise Partnership, South Tyneside Council and Nexus. It specifies the business need, describes the issues that the scheme will address, and identifies a series of aims aligned to organisational and wider Government objectives.

2.2 Problems and Opportunities Identified

2.2.1 Nexus has identified three key issues that the MTMSC proposal will address.

• The need for better training facilities for Nexus staff • Expanded maintenance facilities to improve service reliability • The need to stimulate the local economy of the South Shields area

Better Training Facilities

2.2.2 Improved training facilities have been identified as key to delivering a better Metro service for the local area. The ‘Eden Centre’ premises located at Gosforth Industrial Estate in Newcastle upon Tyne are basic portable buildings of limited size and scope, and lack potential for expansion or enhancement to meet future training needs. This rules out additional training activities that require more space, such as training linked to the introduction of a new Metro fleet including a training simulator for driver training – the South Shields site is ideally suited to this purpose. The MTMSC would allow the range and scope of staff training to be increased with greater emphasis upon on-the-job learning, and more opportunities for all Nexus staff regardless of their specialisms to share facilities and ideas to mutual benefit. The centre will also provide facilities to deliver essential Health and Safety training more effectively. In summary - the current Nexus training facilities limit the depth and variety of courses that can be delivered and offer little opportunity for the various areas of the workforce to train and up-skill in a more collaborative and cross-functional way, to the benefit of Metro users.

2.2.3 The Tyne and Wear Metro system is on the cusp of change. The trains running today are unreliable and are close to the end of their working life. The Government has accepted the principle of the requirement for a new fleet and Nexus has developed an outline business case making a strong case for funding. In addition, following a period during which the operation of Metro trains and stations was operated as a concession, all operations have now returned in-house to Nexus until further notice. These circumstances offer unique opportunities to upgrade training provision across the organisation and to install improved maintenance facilities that will help to make the old trains more reliable and smooth the transition towards the introduction of a new fleet. It will be difficult to accommodate these growing requirements within the existing limited infrastructure, hence the need for a new integrated training and maintenance facility that will bridge this period of change and provide a solid foundation for future Metro operations.

2.2.4 The rapidly changing landscape of skills training has implications for Nexus as a light rail operator, and for the success of the wider region. Nexus must play its part in training and developing appropriately skilled workers to meet the growing skills shortage within the rail industry. The average age of the Metro workforce continues to increase as those who joined the network when it opened in the 1980s reach retirement age, and the taking back of work in-house formerly outsourced has already demonstrated clear financial and delivery benefits in retaining and developing a multi-skilled and well-qualified workforce. The delivery of training courses and apprenticeships within a ‘live’ railway environment is a specific benefit that the national rail industry sees as central to the thinking behind the ‘hub and spoke’ delivery model of rail training, exemplified by the National Training Academy for Rail (NTAR). As Nexus seeks to expand the scope of its project delivery capabilities beyond its existing assets on behalf of the NECA with the delivery of the Metro Futures programme of Metro and local rail enhancements through the NECA Metro and Local Rail Strategy, this aspect will assume increasing importance in the future.

Expanded maintenance facilities to improve service reliability

2.2.5 The reliability and resilience of Metro maintenance and operations will be enhanced by setting up a subsidiary facility to the Gosforth depot headquarters to deliver increased operational flexibility, including the ability to run earlier and later services to and from South Shields, and to respond to engineering challenges robustly, such as the quicker recovery of failed trains occurring south of the Tyne. Metro is especially important to the South Shields area due to the town’s geographical location and the direct link it provides to the national rail network at Central Station. The Metro network requires continual maintenance to ensure it can deliver a safe and reliable service. Its fixed assets and fleet need sustained

investment to ensure that the network delivers the standards of service its customers rightly expect. There are currently limited opportunities to broaden the extent and scope of in-house maintenance activities owing to space constraints. This results in the increased use of external facilities at greater cost to the public purse, and can result in a focus upon mandatory and business-critical training activities.

2.2.6 Current Metro reliability levels are poor due to the age of the rolling stock. A few high-profile incidents can result in system-wide delays. This can particularly affect the single-track sections of the South Shields branch, where a breakdown immediately halts the service in both directions. One of the main issues surrounding Metro service recovery is the ability of rapid response teams to attend on site from their Gosforth base; this takes place by road because of equipment required. At peak traffic times it can take up to one hour to attend due to road congestion; a response team located at the training and maintenance facility should be able to reach all Metro locations east of Pelaw within 20 minutes. This is a clear benefit of establishing a second engineering presence in the South Shields area.

2.2.7 Rolling stock renewal and network enhancements are likely to change the way in which Metro services are delivered. Increased demand could generate more frequent services in the future, and capacity improvements to the South Shields corridor would bring new operating challenges and opportunities. The increased capacity and additional facilities provided by the MTMSC will remain important factors throughout and beyond this period of change.

2.2.8 The training, maintenance and operations issues outlined above are all inter- related. There are clear overlaps in terms of the necessary infrastructure required for these purposes, and at South Shields all can be met through the construction of a single diversified facility that delivers more than the sum of its parts by combining these activities within a multi-functional, inter-disciplinary environment providing new opportunities for engineering, educational and personal development.

The need to stimulate the local economy of the South Shields area

2.2.9 The third issue identified is the need to increase the economic vitality of South Shields town centre. This can be achieved through this scheme in two ways; by supporting town centre regeneration by greater levels of economic activity, and by providing additional Metro services at the beginning and end of the day, as well as a more reliable service overall.

2.2.10 South Tyneside Council is amongst the 10% most deprived council areas in England – across the 7 ‘domains of deprivation’, South Tyneside had the following rankings in 2015 (higher rankings indicate more deprivation and are out of 326 authorities):

• Income: 15 • Employment: 7 • Education: 98 • Health: 15 • Crime: 186 • Barriers163 • Living: 313

2.2.11 The Beacon and Bents ward of South Tyneside within which the training centre site and the town centre are located is within the 6% most deprived wards in England (1893 out of 32844 according to IMD 2015.) The town centre in recent years has suffered from changes in retail habits familiar to many places. Retailers such as Marks and Spencer and House of Fraser have moved on, and footfall and economic activity have suffered as a result.

2.2.12 To help counteract these trends South Tyneside Council has produced a comprehensive regeneration plan, South Shields 365, referred to elsewhere in the business case. The emphasis is upon stimulating the local economy through investment in town centre infrastructure such as a new multi-media centre, transport interchange and public realm improvements. Whilst the training and maintenance centre is not part of this programme, the increased activity and retail spend that it will generate will boost the local economy.

2.3 How the proposed measures address the problem identified

2.3.1 The South Shields MTMSC is an opportunity to achieve the strategic objectives of Nexus, whilst also addressing a specific local issue. This will be achieved by centralising training, light maintenance and Metro out-stabling facilities at a town centre, rail-connected site within an area of high unemployment. Training provision will be both relevant to the operational needs of the business and to local people seeking apprenticeships or work within the rail industry.

2.3.2 The end result will be a facility which strengthens Nexus’ role in providing training for its own staff and potentially for the wider rail industry, and provides scope to increase operational flexibility and expand the level of in-house works carried out in relation to the safe and reliable operation of Metro in ways which current

facilities do not permit. The preferred approach meets all requirements for skills, training and Metro operations including:

• A secure, self-contained location which is on the Metro network but can also be physically separated for training and security purposes. • A site large enough to centralise all Nexus training activities. • Integration of practical and theoretical maintenance and skills training, with customer and employee benefits. • Excellent town centre facilities close at hand providing benefits to Nexus staff and helping to generate employee spend within the local area.

2.3.3 This confirms the location in central South Shields as being highly suitable for the proposal. It offers a combination of strategic advantages:

• The site is already owned by Nexus and is at the terminus of a Metro route. • It is physically linked to the rest of the Metro network, but will be capable of being electrically and operationally isolated as required to allow training and maintenance activities to be safely undertaken. • There is space within the site to accommodate both theoretical and practical training and workplace activities. • It has excellent Metro and bus links, minimising the need to travel there by car. • It is located close to shops and other services within an area of high unemployment and will thus help to bring extra spending into a deprived local area.

2.3.4 In addition to training and maintenance considerations there are sound operational and economic reasons to locate this facility at South Shields:

• Two Metro trains of the current length could be securely stabled there overnight, allowing for an earlier start of service from South Shields, possibly with through services to Newcastle International Airport, and later evening services from Newcastle city centre. Based on the existing start and finish of services at South Shields – from 0542 to 2356 on weekdays, additional earlier trains could be timetabled to depart as early at network start-up of 0500 and arrive as late as system shutdown at 0030. • Earlier and later services would not only improve Metro accessibility in the South Shields area but also within the catchment areas surrounding the 18 stations between South Shields and South Gosforth, where the earliest trains to Airport station currently begin and end their journeys to and from Gosforth depot. • Better accessibility to Newcastle International Airport matters not only in terms of economics; it is also a major regional employer and offering a wide

range of jobs to which better accessibility by public transport is a positive development for the South Tyneside area. At present, the earliest arrival time possible at Newcastle Airport from stations in the South Shields area is 0645 on weekdays, including one change of train. The economic benefits of earlier and later Metro services are explained in the Economic Case in section 6. • Special events, particularly the Great North Run, would be more easily catered for as up to five trains could be strategically positioned on standby within the MTMSC to augment the regular service as required. In 2016 queues for Metro peaked at 1250 people at South Shields station after the race1 as shown in Figure 4, and any increase in service frequencies during the period of greatest demand will help to improve service delivery and wider perceptions of the region.

Figure 4: Post-Great North Run Queue, South Shields Metro 11 September 2016

1 Metro Passenger Surveys, 11 September 2016.

• If there are operational problems in the local area it may be easier to achieve service recovery more quickly if there are trains and/or staff on stand-by at the new facility. For example, South Shields Metro station is 20 km away by road from the central Nexus engineering facility in Gosforth, Newcastle. Any incident there would require attendance by engineers by road which is subject to peak-time delays caused by congestion. • A wider variety of engineering facilities within an additional site would allow for extra cleaning and light maintenance to be carried out, and for greater operational resilience during future line closures when the route to and from Gosforth depot may be unavailable.

2.4 Scheme Objectives

2.4.1 The problems and opportunities described above lead to the definition of the following principal scheme objectives as follows:

• To improve Metro reliability and performance across South Tyneside and beyond through the provision of a new stabling and light maintenance facility located separately from the main fleet depot at Gosforth. • To create local jobs and apprenticeships by increasing the range and scope of training undertaken in-house by Nexus. • To support the training of people already working in the rail industry, and those seeking to develop a career within it. • To improve the economic vitality of South Shields town centre and support the regeneration objectives of the South Shields 365 masterplan.

2.4.2 These objectives help to define the key aim of the scheme which is:

“To establish a high quality facility providing additional train maintenance and rail engineering, skills and training capacity, ensuring the long-term future of the Tyne and Wear Metro, and enabling lifelong, transferable skills for careers in the rail industry.”

2.4.3 The following indicators are proposed to measure the achievement of the objectives.

2016/17 baseline for competency-based training

Training days per year delivered to Nexus staff 1500

Training days per year delivered to Metro staff 3000

External training days facilitated by Nexus 313

External training days facilitated by Metro 85

Training days delivered to contractors 832

Contractors attending training courses at Nexus 473

Total events (Nexus and Metro staff combined) 4000

2.4.4 From April 2017 the day-to-day operation of Metro services reverted to Nexus. This has resulted in training formerly undertaken externally being delivered by Nexus from that date. In 2019, the anticipated opening year for the MTMSC, Nexus will be delivering all training requirements across the business and it will be a condition of future Metro operating arrangements that all training will be delivered on MTMSC premises wherever practicable. This will result in a doubling of the existing level of training activities currently delivered at the exiting Nexus Eden Centre in Gosforth, Newcastle. These circumstances give rise to an urgent and permanent requirement for additional training facilities to meet the changing circumstances of Metro operation which will remain constant through changing delivery structures.

2.4.5 These give rise to the following proposed targets and indicators for MTMSC once in operation:

Increase in training days per year over current Nexus activity 11%

Increases in number of apprenticeships per year 33%

Number of new training courses delivered per year 5%

Increase in the number of new jobs created in South Shields 10

Increase in Metro service quantum at South Shields 2.5%

Improve charter punctuality by 1.6 percentage points by 2023 by enhanced maintenance procedures and faster incident recovery times Base-line 80.6%

Number of new training courses by type introduced as a result of additional and improved training facilities at South Shields Base-line nil

2.5 Background to Nexus and the Tyne and Wear Metro

2.5.1 Nexus is the operating name of the Tyne and Wear Passenger Transport Executive. Nexus is responsible for delivering transport policies set out by the North East Combined Authority (NECA) for Durham, Gateshead, Newcastle upon Tyne, North Tyneside, Northumberland, South Tyneside and Sunderland, in relation to public

transport provision across the Tyne and Wear sub-region. Nexus provides light rail services to the area via the Metro network.

2.5.2 The strategic aim of Nexus is to create the conditions where people will increasingly choose to use public transport. Nexus provides, plans and promotes public transport to improve the economic prosperity of Tyne and Wear and the daily lives of its people. Nexus also looks to the future, creating travel networks people will want to use in decades to come. It currently employs over 1000 staff and had a £190 million turnover during 2015/16. Nexus owns and operates the Metro system to service standards set by the NECA. Nexus also owns and operates the nearby Shields Ferry, pays for non-profitable but socially necessary bus services, and runs a number of key public transport interchanges.

2.5.3 The key themes of Nexus activity are:

• Leading the delivery of better public transport • Prepare Metro for the future • Deliver the Bus Strategy • Continuous Organisational Improvement

2.5.4 Nexus has already secured over £350 million in government grants to refurbish and revitalise all aspects of Metro including stations, trains, engineering and customer facilities. This programme is running to time and budget and demonstrates the ability of Nexus to deliver complex construction schemes through from concept to operation. Nexus has also prepared business cases for a new fleet of trains to replace the current unreliable fleet, and for further essential infrastructure renewals investment.

2.5.5 Metro is the UK’s busiest light rail system outside of London. Nexus has exciting plans for the future of Metro which include the introduction of a new train fleet and potential network extensions, as set out in the NECA Metro and Local Rail Strategy2. These activities will inevitably require additional depot maintenance and stabling facilities, hence the need to progress with the South Shields proposal from an operational perspective.

2.5.6 Nexus works closely with NECA and the North East Local Enterprise Partnership to deliver high quality public transport that creates and supports the regional economy by delivering sustainable accessibility across the region.

2.6 Policy Context

2 NECA Metro and Local Rail Strategy. NECA 2016.

2.6.1 The South Tyneside area continues to experience higher than average levels of unemployment. In late-2016 the Jobseeker’s Allowance (JSA) claimant proportion for the South Shields parliamentary constituency stood at 3.4%, the highest recorded in the NECA area and well above the average for that area of 2.1%. At the time only six English constituencies had a higher rate of JSA claimants3. This highlights the need for jobs and training opportunities that are accessible across the region and beyond, and particularly within an urban area where the resident population can struggle to find work.

2.6.2 Nexus is keen to contribute towards reducing local unemployment particularly through re-skilling and up-skilling people to work in the rail industry, to ensure that Nexus can continue to employ a skilled workforce to maintain and improve Metro during the decades to come.

2.6.3 Passenger demand for Metro services is projected to increase by up to 50% by 2030, according to the outputs of an independent demand forecast4. This may result in a larger fleet of trains being required to meet demand across the existing network and on any future network extensions, with a resulting requirement for additional stabling and maintenance facilities to those currently available at Gosforth fleet depot. In any event, the testing and commissioning of a new fleet alongside the operation of the old fleet would create a need for additional workshop, testing and storage facilities. Whilst the above considerations are a little way into the future, they highlight the strategic importance of the MTMSC proposal to the longer-term operation of Metro, in addition to its more immediate objectives of providing infrastructure maintenance and training to stimulate job creation and equip people with marketable and transferable skills.

Key Stakeholders

2.6.4 The key stakeholders with an interest in the delivery of the scheme are listed below. Stakeholder engagement is covered in section 3.8.

• The North East Local Enterprise Partnership, as the scheme helps to create and sustain economic activity and employment both directly and in terms of ensuring a robust and reliable Metro service.

• The North East Combined Authority has strategic objectives relating to growing the economy of the area and the provision of high-quality sustainable transport links.

3 Regional Labour Market September 2016. Office for National Statistics. 4 Metro Demand Study. MVA 2012.

• South Tyneside Council, the local authority within which the centre will be located, seeks to maximise employment and economic development throughout the borough and in particular in South Shields town centre.

• Nexus and its employees will benefit corporately and personally from a better-trained workforce and improved train maintenance facilities. Employees who currently work at the old training centre will transfer across to the South Shields operation under the Transfer of Undertakings (Protection of Employment) Regulations 2006.

• Local residents will be able to apply for a number of new posts at the centre and benefit from the resulting increased economic activity across the local area.

2.7 Key National and Regional Policies

2.7.1 The proposal demonstrates conformity with national and regional organisations and policies as follows:

2.7.2 North East Local Enterprise Partnership – the LEP is strongly committed to ambitious economic targets for the area and encourages the development of vocational skills and training. Section F of the Strategic Economic Plan5 is devoted to Skills. The Plan’s 2024 vision in relation to skills and training is as follows:

“Providers and education establishments provide a mix of world class academic, technical and professional education, apprenticeships and higher level apprenticeships in all of the growing areas of our economy, ensuring that those entering the labour market have the right skills to thrive

That skills supply underpins business growth and talent is retained in the region. Every young person can identify routes into work, supported through experience and exposure to the world of work and inspiration. We want them to understand that life and work experiences, alongside career and formal qualifications, are incredibly valuable.

A reduction in inactivity levels in our 50+ workforce, as skills investment enables older workers to remain in work”.

5More and Better Jobs- The North East Strategic Economic Plan. North East Local Enterprise Partnership 2017.

2.7.3 The Plan also emphasises the importance of local transport networks providing connectivity to enable the region to work better in economic, environmental and social terms. It states:

“Connectivity and accessibility, and the underpinning critical infrastructure including the ‘ecosystem services’ provided by the natural assets of the region are key to supporting economic growth”.

“We want our transport system to: . Support the creation of more and better jobs . Help people access education, training, employment, leisure and other services . Assist in the safe, rapid and cost-effective movement of goods in the region and to national and international markets . Underpin our tourist economy by encouraging people to visit our area . Be one integrated transport system for the area, which enables people to use innovations in integrated ticketing and digital technologies to catch, pay for and use transport”.

2.7.4 The Metro Training and Maintenance Skills Centre scheme demonstrably contributes towards the visions outlined within the 2017 Strategic Economic Plan.

2.7.5 North East Combined Authority – the NECA works closely with the North East LEP to help create the conditions for regional economic growth. Its role in transport and skills is critical in supporting a growing economy and workforce and the co- ordination of investment in economic infrastructure helps to ensure that the area can attract new investment and people. In the case of the MTMSC proposal at South Shields, both the transport and skills portfolio responsibilities are directly relevant to the expected outcomes of the scheme.

2.7.6 NECA is currently preparing a Transport Plan to guide the future direction of regional transport strategy and policy. The Plan will be informed by the NECA Transport Manifesto6, which aims to facilitate a transport system that is:

• Easy to use. It should be easy to plan safe journeys, find out the best way to travel, pay for tickets and get all the essential information for your journey.

• Reliable. The transport network should be one that we can rely on to work, with buses and trains running on time and congestion kept to a minimum.

6 Our Journey – a Transport Manifesto for the NECA area. NECA 2016.

• Affordable. The cost of travelling will not be a barrier to commuting, learning or exploring.

• Accessible. Transport should run as closely as possible to where people live and be easy for all to use.

2.7.7 In terms of helping to maintain a more resilient and flexible Metro service, the scheme aligns strongly with these aims. Other relevant guiding principles of the Manifesto include:

• Drive economic growth – more and better jobs.

• Create prosperous cities which act as a focus for growth, together with attractive and accessible smaller towns and rural areas with good local services.

• Enhance access to local workplaces, services, shops and leisure in all our communities.

2.7.8 Tyne and Wear Local Transport Plan 2011-21 - the existing adopted transport policy is the Tyne and Wear LTP which currently carries statutory weight until supplanted by the NECA Transport Plan. The LTP supports the future of public transport in general, including Metro, as set out in the overall LTP vision:

“Tyne and Wear will have a fully integrated and sustainable transport network, allowing everyone the opportunity to achieve their full potential and have a high quality of life. Our strategic networks will support the efficient movement of people and goods within and beyond Tyne and Wear, and a comprehensive network of pedestrian, cycle and passenger transport links will ensure that everyone has access to employment, training, community services and facilities”.

2.7.9 The proposed MTMSC accords with the ambitions of the UK government to deliver an increase in the number of apprenticeships resulting in a workforce that is skilled, flexible and adaptable and equipped to deal with future workplace challenges. There is also a specific commitment towards the transport industry. In August 2015 the then Secretary of State for Transport announced plans to create 30,000 apprenticeships in road and rail industry by 2020, to combat emerging skills shortages. To help deliver this ambition a Transport and Infrastructure Skills Strategy was under the leadership of the Crossrail Chair Terry Morgan CBE, to ensure that the transport industry can rely upon a continuous supply of skilled

workers. The strategy7 suggests a number of initiatives designed to improve the level of industry skills, including a Strategic Transport Apprenticeship Taskforce, the establishment of transport centres of excellence, making best use of the apprenticeship levy across the transport sector, maximising local opportunities, and the use of procurement levers to influence the training practices of the transport industry.

2.7.10 The principles behind the Metro Training and Maintenance Skills Centre are very much in line with the aims of the Skills Strategy as over the next ten years, the National Skills Academy for Rail (NSAR) has forecast a skills shortage of over 8,000 jobs specifically in rail traction and rolling stock disciplines. In addition to the industry’s ageing workforce referred to earlier, a key problem is a lack of diversity, with females comprising 4.4% of the rail engineering industry workforce in 20148. The government is keen to redress these balances, and the proposed scheme will help to deliver these objectives at a local level by offering a better, more professional training environment which helps deliver up-skilling for all, to reduce sector inequality.

2.8 Drivers of Change

2.8.1 The concept of a new Metro Training and Maintenance Skills Centre has been influenced by a number of factors in a rapidly changing environment for local skills training.

Ability to provide vocational training

“Rail is vital to the UK’s economic prosperity. If rail services are inefficient and do not meet people’s needs for routing or frequency, business and jobs suffer.”9

2.8.2 There is good evidence that demand for engineering skills at all levels currently outstrips supply10. As the government attempts to create a more balanced economy as well as deliver its commitments on the railway network, engineering skills are likely to be at the forefront, driving economic growth by adding value to products and services. Railway engineering has been synonymous with the North East for over 200 years and is seeing resurgence in train assembly with the construction of the £82 million Hitachi factory in Newton Aycliffe, where the new

7 Transport Infrastructure Skills Strategy: building sustainable skills. DfT 2016. 8 Alison Munro, then HS2 Chief Executive, quoted in The Guardian 23 June 2014. 9 https://www.gov.uk/government/policies/expanding-and-improving-the-rail-network 10 Royal Academy of Engineering, Jobs and Growth: the importance of engineering skills to the UK economy Sept 2012

Intercity Express Passenger fleet is being assembled, and the global headquarters of Hitachi Rail has been established.

2.8.3 Aside from the wider regional context, Nexus is currently undertaking a significant investment in Metro infrastructure, this requires a range of skills and experience across a range of railway engineering disciplines. As part of this process, work has been undertaken by in-house Capital Delivery teams, as well as being outsourced via competitive tender. Recently both Nexus and sub-contractors have struggled to attract sufficient local employees with the relevant skills, qualifications and experience. This has led to contractors bringing in staff from elsewhere in the country to fill key roles on projects in the North East. With persistently high rates of unemployment in the local area as detailed above alongside substantial ‘under- employment’ this is an unsatisfactory state of affairs and it is within the gift of Nexus and its strategic partners to do something to alleviate this skills problem. The new training centre helps to address this in the long term by reducing industry costs and helping to rebuild a local skills base.

2.8.4 Nexus has recently created around 65 in-house posts specifically to deliver capital projects. This process highlighted a shortage of candidates from the region with higher level skills in Signalling and Electrical Inspection and Testing. Also, NSAR research suggests a significant gap in traction and rolling stock experience at a national level. Skills in this area will become critically important to Nexus, as the fleet of Metro cars is replaced as they approach life-expiry.11

2.8.5 The centre will enable Nexus to develop bespoke training provision to increase the skills and knowledge of its own workforce, from Health and Safety accreditation to track-work safety competencies (often a basic requirement of employers to apply for rail industry positions), through to higher level technical and managerial qualifications.

Existing restrictions on Nexus and Metro in-house training

2.8.6 Nexus delivers in-house training for its staff across a wide range of disciplines including Permanent Way; Signalling; Overhead Line; Track Safety; Health and Safety training; Lifting; Operations; Working at Height; Portable Transportable Mobile Plant; Customer Services, and Conflict Management. The focus of training to date has been on delivering routine maintenance work on Nexus infrastructure. Development of the South Shields centre would allow the range of skills training which Nexus offers to its own staff, including renewals work, to be expanded to areas where external specialist contractors may currently have to be drafted in, partly because the facilities do not exist to train Nexus staff. As demonstrated by

11 https://www.railnews.co.uk/news/2013/01/20-skills-shortage-threat-to-25bn.html

the establishment of an in-house Capital Delivery team, this will offer greater value for money on Asset Renewal Programme works through undertaking renewal activities in-house, rather than outsourcing them.

2.8.7 In addition Nexus has an established apprenticeship scheme accredited by a local further education partner. Currently there is an average intake of 10 apprentices each year. Places on this course could be offered more widely to train a pool of future engineers.

Changes to Metro

2.8.8 Since it began operating in 1980, Metro has been a very stable and consistent product and these attributes are valued highly by its customers. Positive change is in prospect as the existing train fleet enters its fifth decade of service. The government has accepted12 the principle of a business case for fleet replacement, and there is every prospect that a robust funding bid will be financially supported during the coming years.

2.8.9 New trains will bring new technologies, better performance and reliability and potentially new routes and service patterns. They will deliver clear economic, environmental and social benefits alongside new training and maintenance challenges. The South Shields site will also offer the opportunity for the delivery and commissioning of new trains at a site away from everyday service operations as they are delivered individually from the manufacturer.

Economic regeneration imperatives

2.8.10 The proposals for the South Shields centre would address some of the recommendations of the 2013 Adonis Independent Economic Review, which set out evidence that the North East has a shortage of jobs, the skills levels in the region are not good enough to support a modern and diverse economy, and local connectivity must be improved to strengthen the economy. Establishment of a Training and Maintenance Skills Centre would improve the area’s reputation as a place where engineering skills are valued and are as much a part of the region’s future as its past. The centre is complementary to the recently-opened Newcastle College rail engineering academy in Gateshead, and will help to nurture a cluster of rail training expertise in the area alongside the Sunderland University collaboration with Hitachi developments at Newton Aycliffe, resulting in the creation of the South Durham University Technical College. There are clear longer-term agglomeration benefits to be gained from these related activities.

12 http://www.nexus.org.uk/news/item/metro-bosses-welcome-chancellor%E2%80%99s-support-new-trains

Predicted increased demand for Metro services

2.8.11 Metro patronage has generally increased in recent years. Since a low point of 36 million passenger trips in 2013, an additional two to four million trips per year have been recorded in the last three years so that there are now around 38-40 million trips made per year. The outcomes of an independent demand study suggest that this trend has further to go.

2.8.12 Demand forecasts13 of Metro patronage have been prepared as part of the long- term forward planning process for the Metro network. These forecasts are based on known land-use planning proposals, demographic projections, and energy cost and Gross Value Added (GVA) assumptions. Even the low growth scenarios predict an increase of more than one third in the number of Metro passengers by the year 2030. These forecasts are not specific to South Shields, but are available at two levels; system-wide, and by existing network corridor – in this case ‘Newcastle – South Shields’. The overall growth forecast is shown below.

Figure 5: Forecast Demand Increase for Metro to 2030 (whole network)

13 Tyne and Wear Metro Demand Forecasting Study. MVA 2012.

2.8.13 The forecasts are of projected network demand over ‘low’, ‘high’ and ‘core’ scenarios. They indicate a 13% increase over current demand by 2018, and total increases of between 29% and 73% by 2030, with a central forecast of 50%. The South Shields branch is projected to have the highest rate of increase of all sectors of the existing network, between 37% and 103% as shown below:

Newcastle to South Shields Metro corridor (journey numbers) Scenario 2011 2020 2030 Low 9.649m 11.646m 13.205m Core 9.649m 13.150m 16.896m High 9.649m 14.509m 19.679m

2.8.14 These figures relate to existing service patterns and take no account of increases in demand that would arise from the additional early and late services which the MTMSC would facilitate. This level of predicted demand lends weight to the principle that Metro infrastructure improvements will be required to provide additional capacity across all areas of the network.

Improvement in the overall quality of journeys

2.8.15 The proposal will help to reinforce the reliability of the Metro service across the conurbation and consequently increase its attractiveness as a mode of sustainable transport, contributing indirectly to reduced road congestion along strategic corridors. The proposal will deliver particular service benefits to the South Shields area by providing the opportunity for a longer service day and better service recovery from disruption as described above, as well as network-wide benefits arising from a reliable, well-maintained fleet benefitting from the additional facilities proposed at the MTMSC.

2.9 Rail Industry Training Case Studies

National Training Academy for Rail (NTAR), Northampton

2.9.1 The MTMSC facility is based around some of the key principles upon which the National Training Academy for Rail was established. NTAR, with its multi-million pound state-of-the-art facility based in Northampton, acts both as a UK flagship and an international Centre of Excellence for skills development and collaborative working in traction and rolling stock, addressing a skills gap that would otherwise become a barrier to both maintaining and growing the workforce. One of its key attributes is the co-location of practical and theoretical training facilities on a single

site so that students can transfer from workshop to classroom in minutes. It specialises in the delivery of courses that originate from the proposition of what the industry requires in terms of skills, qualifications and personal attributes, and then considers how these can best be delivered through activities on site. The then Transport Minister Baroness Kramer summed up this ethos at the NTAR opening ceremony in 2014:

“Generations of young people will benefit from the apprenticeships and training provided here to find new jobs and get on in life... this academy is well on its way to becoming a much-needed facility to support our railways.”

2.9.2 NTAR is a joint project between the National Skills Academy for Rail (NSAR), the Department for Business, Innovation & Skills (BIS) and the Department for Transport (DfT) who provided half the funds required, with industry partner Siemens contributing the remainder. The academy will play a leading role in the new railway skills development programme being driven by NSAR – working with the market to make sure that industry priorities are met. NTAR specialises in traction and rolling stock training, with the Northampton centre acting as a hub to support and deliver services to customers across the country. Satellite NTAR training facilities are located at Southampton (Northam); Manchester (Ardwick); Hornsey (North London) and Crawley (Three Bridges). These basic principles underpin the thinking behind the establishment of a training and maintenance facility in South Shields along similar lines; basing the MTMSC on the NTAR model will help to achieve conformity with rail training standards being applied across the UK, ensuring that what is delivered on-site is both appropriate to the needs of the Metro business, and compatible with the wider industry. This will ensure that the centre remains outward-looking and uses evolving best practice.

Figure 6: Technical Training Hall, NTAR Northampton

Figure 7: Virtual Reality Suite, NTAR Northampton

Figure 8: Relationship of Training Hall with Classroom Area, NTAR Northampton

AMRC Training Centre, Rotherham

2.9.3 Not part of the NSAR network, but with strong similarities in terms of its training ethos and vocational engineering specialisms, the AMRC (Advanced Manufacturing Research Centre) in South Yorkshire is a partnership with the University of Sheffield. It is recognised as a ‘Centre of Excellence’ for apprenticeship and CPD delivery within the Yorkshire and Humber region. The recently-opened centre offers both practical and academic training. Working with employers, the AMRC identifies and provides the skills required that manufacturing companies need to compete globally, from apprenticeship through to doctorate and MBA level.

2.9.4 The centre is led by a team of respected specialists who have experienced the challenges of developing world-class talent, and learning specialists who understand the requirements of the manufacturing sector. These result in a flexible approach to learning and development tailored to business needs. The 5500m² facilities include classrooms, lecture theatres and shop-floor areas specialising in machining, welding and fabrication to give apprentices and students the mix of theoretical training and practical instruction that gives individuals the in-demand skills to further their engineering careers.

Figure 9 AMRC, South Yorkshire

2.9.5 The AMRC is another example of the fusion of on-the-job training adjacent to theoretical tuition which is gaining traction across a variety of disciplines, and demonstrating proven success.

2.10 Options for Development

2.10.1 Taking account of the national, regional and local policy evidence outlined in the preceding sections, four potential options were considered for the Metro Training and Maintenance Skills Centre at the options feasibility stage:

i. Do nothing – do not build a facility at South Shields, and continue maintenance and restricted training as currently practised at locations in the Newcastle area, or rent additional space short-term in locations away from the Metro network. ii. Do minimum - development of additional training facilities either at the South Shields site or elsewhere, with no scope for an associated additional maintenance facility. iii. Full development – achieved with Local Growth Fund investment and additional Nexus funding, providing a centralised high quality training centre and maintenance facility combined on a single site at South Shields. iv. The full scheme, as described above, at an alternative location to South Shields.

Do nothing

2.10.2 To do nothing will fail to address the problems identified in this business case, nor will it achieve the key aim of a step change in levels of rail-related vocational and theoretical training in the NECA area. Nexus would continue to operate within cramped facilities in the Gosforth area with restricted space and no scope for expansion and training on new technology, assets and processes.

2.10.3 This option has the following disadvantages:

• No scope for Nexus to offer additional training and careers opportunities related to rail maintenance and operations, due to existing space constraints.

• No opportunity to provide a new rail training facility more closely aligned to the NTAR ‘hub-and-spoke’ model.

• No opportunity to introduce a Ticketing and Gating test facility.

• Training activities will continue to be geographically fragmented, restricting opportunities for staff from different disciplines to work collaboratively.

• Reduced opportunities to develop the long-term future of Metro in terms of servicing a larger network and/or commissioning a new fleet of trains.

• No scope to relocate new jobs and training activities away from the existing north Newcastle focus to an area with a higher rate of unemployment.

• No opportunity to establish a separate, additional Metro maintenance facility that can provide the flexibility to incorporate present and future technological training needs.

• No ability to introduce additional Metro services along the South Shields corridor starting from a secure operating base at the terminus of the line.

2.10.4 From the above it can be seen that this option will not allow the key scheme objectives set out at 2.4.1 above to be achieved and for these reasons, alternative options are necessary.

Do minimum

2.10.5 A do minimum basic scheme is envisaged as the construction of additional or replacement facilities at Gosforth, or elsewhere on the Metro network, to resolve the existing fragmented pattern of training delivery and the lack of physical capacity. The existing Metro depot is unsuitable for the cross-functional ethos which this proposal is based around. A do minimum scheme could not deliver the advantages of an integrated training and maintenance facility because no location has been identified on the Metro network which would achieve this in the way which is planned for the South Shields facility. A scheme elsewhere could not deliver the scope of additional maintenance facilities benefiting service delivery planned at South Shields, or enable the operation of additional services from and to South Shields at the beginning and end of the operating day. For these reasons this option has also been discounted, as only the site and facility identified at South Shields can deliver the full spectrum of training, maintenance and operational enhancements required.

Do Something 1 - Full scheme development

2.10.6 The South Shields facility will deliver a range of benefits:

• Integrated training and maintenance activity at a single site • Earlier and later Metro services on the South Shields corridor • Additional fleet and equipment maintenance facilities • Increased employment within the local area

2.10.7 It will allow Nexus to upscale its training capabilities to provide more apprenticeships and jobs for local people, and provide facilities for the delivery of rail infrastructure and safety training courses to develop the skills and attributes to forge a career within the rail industry. Track, civil, mechanical and electrical engineering; signalling, electronics and testing will all come within the scope of activities to be carried out at the South Shields centre. It is proposed to build a station platform within the maintenance building, so that Nexus can simulate all

aspects of the working rail environment including customer service, passenger evacuation procedures, conflict management, escalator refurbishment and lift maintenance. These facilities will reduce the need to take public lifts and escalators out of passenger service for scheduled training purposes. South Shields MTMSC will give Nexus the ability to expand the level of in-house light maintenance it undertakes to ensure the safe and reliable operation of the Tyne and Wear Metro, and to offer a more flexible pattern of Metro operations along the South Shields route including an earlier start of service and a later end of service, and increased operational resilience. The scheme will also provide opportunities for building closer relationships with Police and Fire & Rescue services by facilitating familiarisation events and emergency table-top exercises. These integral benefits justify the additional investment into the full scheme proposal.

2.10.8 The combination of these roles within a single integrated facility will enable Nexus to establish a rail maintenance and training facility combining real-world engineering outputs - providing a better Metro service for the local economy - with theoretical and applied learning opportunities. As a rail operator with substantial experience and expertise in infrastructure maintenance and service delivery, Nexus is well placed to transform its internal training facilities into an outward-facing facility delivering skills, qualifications and practical experience across a range of disciplines. The site identified offers a combination of long-term strategic opportunities for the development of the Metro network, alongside more immediate training provision highly relevant to future rail industry careers, within easy reach of a large number of people living in wards with high levels of unemployment. The facility will also allow all-important early morning services to Newcastle Airport and Central Station to be established, ensuring sustainable connectivity for the South Tyne Metro corridor.

Do Something 2 - Full Scheme Development at an Alternative Location

2.10.9 As part of the option selection process, alternative locations for the MTMSC facility were scouted. To match or exceed the potential of the South Shields site, locations had to be able to deliver the combination of attributes listed above. No potential locations were identified could fulfil these criteria and also offer the opportunity to upgrade the quality of service for passengers across South Tyneside, due to their locations on the network. Sites elsewhere in the Newcastle area, if available, would merely replicate the geographical attributes of the Gosforth site and offer no additional benefits for the Metro network south of the Tyne, whilst a potential alternative location in the Hebburn area, now designated in the council’s Local Plan for housing development, was located well away from the route terminus and from a Metro station for the use of staff attending the facility. Nexus does not own any alternative sites on the Metro network that could be suitable for this purpose, and

an off-network location is unsuitable for an integrated training and maintenance facility. Full scheme development at a location other than South Shields was therefore not seen as a viable alternative.

2.11 Details of Proposed Scheme

Construction proposals

2.11.1 A groundwork and geotechnical survey of the site has taken place. The surveys show that subject to the possible presence of unexploded ordnance dating from World War II (to be detected and disposed of if present) the site is suitable for the uses proposed, subject to the necessary planning consents. Outline planning permission was approved by South Tyneside Council in October 2016. The following sections describe how it is intended the site will operate, and the form and function of the infrastructure required to deliver the scheme objectives outlined above. A future application for detailed planning consents will further refine the scheme details, which will not alter from those in this business case document to any material extent.

2.11.2 The form and scale of the proposed structure have been influenced by the predicted level of activities, the scale of the site and by operational requirements which dictate a double-height clear span space for the maintenance shed with associated training facilities alongside. The building will be of modular construction to reduce costs and minimise intrusive on-site construction activities.

2.11.3 The site is within the town centre area, and as a primarily skills and training facility is in accordance with the Council's strategic planning and land-use allocation policies.

2.11.4 Detailed issues that may need to be addressed prior to applying for full planning permission include possible noise disturbance to nearby residential properties which can be addressed through the use of materials, sound attenuation measures and hours of operation; the impact of height and appearance on nearby residential properties; vehicle access and manoeuvres, and ecological issues if trees/shrubs are removed as part of the development.

2.11.5 The centre will be a 'clean' environment accommodating offices, meeting rooms and classrooms. The design has been developed to produce a building that is flexible, user-friendly and accessible to all. The elevations to the ground floor and first floor are treated as a single element with glazed openings to provide natural light to the internal spaces where required.

2.11.6 Figures 9 to 11 illustrate the proposed layouts of the floors of the MTMSC, showing a combined training and maintenance building. These are as at tender stage and subject to minor change as plans are amended at detailed design stage. The floor plans show the main facilities as follows:

• Ground floor – reception, canteen, kitchen, showers, plant room, mock control room, ticketing and gating test room, ICT server room, mock station lobby, material storage and refuse store. Two-bay train light maintenance area, including a full platform edge along one side. • First floor - break-out area, toilets, offices, training escalator and lockers. • Second floor – offices, IT suite, toilets, meeting rooms, 4 classrooms, mock control room, potential driver training facility, break-out area and plant room.

2.11.7 The classrooms will be designed with folding partitions between rooms to maximise the flexibility of the building. The mock control room to be located on the second floor will be used for staff and students to provide an introduction to Metro network operation. The Metro system is controlled from a central facility at South Gosforth where signalling and power control functions take place. For the most part the system is automated, but manual intervention takes place to regulate service patterns and react to incidents across the network. Replication of the control systems - on a view-only basis - will provide insight for staff and students into how a busy light rail network is operated and regulated, and offers the opportunity to stage simulation exercises highlighting strategic decision-making and effective team-working under sometimes challenging circumstances.

2.11.8 The training building will be approx. 3450 square metres in size.

Figure 10: Ground Floor and 1st Floor layout (not to scale)

Figure 11 Second Floor Layout (not to scale)

Figure 12 Indicative cross-section of Maintenance Building

2.11.9 The facility will house operational, maintenance and training activities combining to achieve maximum utilisation of the site and provide real-world experience within a safe and controlled environment. The building accommodates a Metro maintenance shed consisting of a clear-span space allowing for two sets of tracks with pits between the rails allowing for light maintenance and cleaning of Metro units. The building also allows for practical training with the inclusion of facilities such as a rail-side station platform, mock station lobby, ticket barriers, escalator, lift and external training tracks. These are activities and facilities which the existing portable cabin accommodation is simply unable to provide; neither would these be achievable within the classrooms of a local college. This is an important differentiating factor of the MTMSC scheme.

2.11.10 The size of the maintenance area will be of the order of 1300 sq. metres, not including training areas.

2.11.11 Whilst the building is functional in its purpose, the design proposals will result in a distinctive and recognisable building. Car parking spaces have also been provided, kept to an operational minimum to encourage use of Metro as a means of sustainable access, and reflect adequate on-street provision in the vicinity.

2.11.12 Constructional details include the use of a steel-framed structure in the design of a portal frame, providing the clear height and width required for maintenance activities. For the ancillary and training spaces the use of a modular approach with a design life of 60 years has been utilised; this not only allows the building to be economically built but also constructed within a tighter programme.

Figure 13: Indicative Modular approach of construction (not to scale)

2.12 Maintenance, Training and Skills Activities

2.12.1 The following functions and activities will be undertaken at South Shields through delivery of the preferred option. These are flexible enough to be refined in scope as full details of the scheme are developed through the business case process.

• Cleaning and light maintenance facilities for Metro trains. • Hands-on training facilities focussed on the following subject areas: track, overhead line equipment, operational control, signalling, electrical engineering, high-voltage supply training, escalators and lifts, driver training simulator and ticketing and gating facilities. • Vehicle acceptance procedure training for a new fleet of trains.

• Track safety certification training. • Rail-related ‘employability’ training. • Secure stabling sidings for Metro trains. • Overhaul and maintenance of rail-based plant and machinery. • Customer services.

There will also be opportunities to undertake road/rail vehicle gauging and testing on a commercial and in-house basis.

2.12.2 In terms of training and asset maintenance, the MTMSC scheme will deliver:

• A facility providing the up-skilling and training necessary in order to help deliver the rail transport improvements envisaged by the NECA Metro and Local Rail Strategy. • Access to excellent training facilities for all Nexus employees. • Facilities to be provided to support the development of the next generation of rail skills, as well as up-skilling the current workforce. • Opportunities for the wider rail supply chain to demonstrate and exhibit their products and technologies. • Support for the development of further collaboration within the rail industry. • Nexus to offer Metro safety awareness courses to local schools. • The development of e-Learning and on-line resources linked to the centre’s activities.

2.12.3 At this stage, the primary training focus is expected to include the following activities:

• Rail Infrastructure and re-skill and up-skill training for work in the rail industry. • Apprentice Training at Intermediate; Advanced and Higher levels ranging from National Qualifications Framework (NQF) Level 2 to NQF Level 6. The NQF Level 2 Intermediate Apprentice programmes objective is intended to complement the Rail Academy at Newcastle College. • Critical Skills Training for all levels of Rail Employee Groups. • Health and Safety for all levels of Rail Employee Groups. • Continuing Professional Development [CPD]. • Graduate Programmes. • Leadership and Management Training from NQF Level 4 to NQF Level 7.

2.12.4 As set out above, the NECA has ambitious plans to increase the size of the Metro network through a programme of targeted network enhancements and service improvements. Over the coming decades it is expected that more Metro services will be running to more destinations; this will consequently result in a greater number of employees with training needs, further increasing the throughput of people and the level of outputs at the MTMSC.

2.13 Job Creation

2.13.1 It is envisaged that the five staff who work at the current Nexus training facility employed in delivering training content to Nexus staff will relocate to South Shields, and that the MTMSC will generate at least eight new jobs in cleaning, security and site management resulting from the increased training activity at the facility. As described above, in the longer term it is planned to outsource maintenance of a new fleet and to specify that all training activities related to the delivery of Metro must take place at the South Shields facility. This will guarantee that the throughput of employees is stable or increasing, with potential enhancements to the Metro network and additional work linked to new fleet commissioning.

2.14 Summary of Scheme Benefits

2.14.1 The benefits of the South Shields MTMSC proposal can be summarised as:

1. An integrated, state-of-the-art training and skills centre for all Nexus employees. 2. Better Metro services for the South Shields area by enabling services to begin earlier and finish later. 3. A new town centre skills base, providing additional training and employment and increased spend within the local area. 4. Additional Metro maintenance capacity, delivering local service resilience and improved system-wide reliability. 5. Potential to be a base for new Metro fleet commissioning in the 2020s.

2.14.2 These achieve wider scheme objectives from section 2.4 as follows:

• To improve Metro reliability and performance across South Tyneside and beyond through the provision of a new stabling and light maintenance facility located separately from the main fleet depot at Gosforth – scheme benefits 1, 2, 4 and 5. • To create local jobs and apprenticeships by increasing the range and scope of training undertaken in-house by Nexus - scheme benefit 3. • To support the training of people already working in the rail industry, and those seeking to develop a career within it – scheme benefits 1 and 3. • To improve the economic vitality of South Shields town centre and support the regeneration objectives of the South Shields 365 masterplan – scheme benefits 2, 3 and 4.

3. The Management Case

3.1 Introduction

3.1.1 The Management Case sets out a clear plan to ensure that the problem identified in the strategic case can be resolved through the proposed solution and that objectives can be realised. The section provides details of project planning, governance structure, risk management, communications and stakeholder management, benefits realisation and assurance.

3.2 Programme Management

3.2.1 The individuals filling the key posts for this project to develop the South Shields facility are listed below. Accountability for delivery within the project sits with the Project Manager. The Project Manager is responsible for delivery of the Client’s scope within the Project Team, meeting the programme reporting requirements to timescale.

Nexus Client Representatives Client David Bartlett, Head of Business Change and Technology, Nexus Scheme sponsor Michael Bennett, Head of Health, Safety, Training, Quality and Environment; Nexus Asset Manager Brian Wilson, Head of Engineering, Nexus Delivery Representatives Corporate Manager, Business Change and David Bartlett, Nexus Technology Project Manager - Construction Stuart Griffin, Nexus Project Manager - Training Noeleen Fraser, Nexus CDM and Designers CDM Client Nexus Principal Designer (pre-construction phase) W A Fairhurst and Partners Principal Contractor Galliford Try plc (subject to award) Other contractors To be confirmed, post-funding Design consultant (during construction phase) W A Fairhurst & Partners Project Support Project Planning Nexus Project Management Office Procurement Manager Julie Warnett, Nexus Commercial Manager Rachel Gibson, Nexus Quantity Surveyor David Swan, Nexus PMO Analyst/ Planner David Cole, Nexus

3.3 Project Governance

3.3.1 A Project Steering Board will be established comprising representatives of Nexus planning and delivery teams. The Project Steering Board will meet monthly to provide direction, receive interim reports and approve the agreed deliverables against the emerging Project Plan. It is also proposed that a separate Stakeholder Group of employers and training providers be established to ‘test’ the emerging outcomes of the project.

3.3.2 Nexus has adopted a code of corporate governance which is consistent with the principles of the CIPFA/SOLACE Framework “Delivering Good Governance in Local Government”. The governance framework comprises the systems and processes, culture and values by which Nexus is directed and controlled and its activities through which it accounts to, engages with and leads its communities. It enables Nexus to monitor the achievement of its strategic objectives, and consider whether those objectives have led to the delivery of appropriate services and value for money. The entire project will be delivered in accordance with the Tyne and Wear Passenger Transport Executive’s Standing Orders which govern the activities of Nexus.

3.3.3 Control of Nexus’ projects is managed using the governance processes and tools detailed in the Nexus Project Controls Manual. This provides a framework for delivery of the Nexus South Shields Training and Maintenance Centre project. The manual outlines the processes and procedures by which schemes must follow.

3.3.4 Project governance is applied through the Stage Gate and Engineering Change process. All projects delivered by Nexus must follow the Stage Gate process. The diagram below outlines the core areas of the process which cover strategy, development and implementation.

Figure 14: Nexus Project Governance

3.4 Project Planning

3.4.1 The Stage Gate process breaks up a project into logical steps or stages and ensures Nexus consistently controls projects that renew the Metro network. Nexus has developed this approach to monitor, review and approve the development of projects and ensure their compliance with relevant policies and processes. It has been used successfully to manage the progress of similar major schemes including the recent refurbishment of Central Station Metro.

3.4.2 The Stage Gate process also aims to minimise and mitigate the risks associated with delivering projects. It divides a project into seven distinct stages. The overall approach is product, rather than process driven, and within each stage an agreed set of products should be delivered to fulfil the Stage Gate requirement.

- Output definition

- Pre-Feasibility

- Option selection

- Single option development

- Detailed design

- Construction test and commission and hand back

- Project close out 3.4.3 Formal Stage Gate reviews are held at varying points within the Stage Gate lifecycle. The Stage Gate review process examines a project at key stages in its lifecycle to provide assurance that the project complies with the relevant policies and procedures and is in line with the agreed scope and objectives. The Stage Gate Review Group approves or rejects progression to the next stage. The Nexus Programme Management Office (PMO) ensures that all project programmes contain the necessary Stage Gate milestones and produce an annual Stage Gate Baseline in conjunction with the Project Managers. Deviations to amend the baseline can only be made following a strategic change which impacts on the development of a project. Any changes must follow the Nexus Engineering Change process, owned by the Head of Engineering, then be approved by the Stage Gate Review Group in advance of the change. Once Stage Gate 3 and Stage Gate 5 are reached, each project is formally reviewed by the Nexus Corporate Management Team to ensure compliance with the scheme budget and the objectives set down at the outset. This scheme achieved Stage Gate 3 status following Nexus management team approval on 8 November 2016.

3.4.4 This procedure is to ensure that the project documentation complies [where appropriate] with the requirements of The Railways and Other Guided Transport Systems (Safety) Regulations 2006 (ROGS). It is also intended to standardise the information requested and provided, to ensure that the objectives, deliverables, timescales and budgets are clear to all relevant stakeholders and interested parties, at all stages of the projects.

3.4.5 The planning process for the South Shields MTMSC will use proprietary project planning software and Primavera (P6) is Nexus’ preferred choice. It is the responsibility of the Project Manager to ensure the programme is up to date and accurately reflects the project costs and progress to date. The project programmes contained in P6 are updated at least once a period at the PMO Reviews. Updates also take place:

- With each Stage Gate estimate - Where a strategic change has been agreed - On receipt of a revised contractor’s programme - Where a Stage Gate or other key milestones are missed - Where compensation events or early warnings have been received or issued - When a financial change to the project is authorised

3.4.6 Construction activity sequence and milestones will be developed in conjunction with stakeholder consultation and contractor’s programme.

3.4.7 The scheme is fortunate that it has few physical dependencies, given that Nexus owns the site and there are no regular rolling stock movements which make use of the existing infrastructure. Subject to the grant of full planning permission, satisfactory ground conditions and safe working arrangements with the nearby South Shields Transport Interchange, there is considerable potential flexibility for the contractor to deliver the scheme subject to achieving the agreed costs and timescales.

Programme review

3.4.8 The programme review role stands to one side of the programme structure, its core purpose being to help ensure that the business case is adhered to, that user needs and expectations are met and managed, and that ‘scope creep’ is minimised. The Programme Review team is there for the Programme Board to call upon however others may approach the team for assurance at any time.

3.4.9 Project Progress Reports are completed for each period. The process is cyclical each period and contains regular check points, and key responsibilities and meetings for each person during the reporting are identified.

3.5 Scheme Programme

3.5.1 A draft scheme programme is included as Appendix I. This is a Nexus programme rather than a contractor’s programme at this stage of the contract award process.

Activity Name Start Prior Information Notice (PIN) Issued September 2016 Outline Planning Permission granted October 2016 PQQ Issued November 2016 Out to tender (Main contract) July 2017 Tender return 11 August 2017 NECA & Local Enterprise Partnership approvals 19 September 2017

Final Contract award 17 October 2017

Achieve detailed planning consent Early-2018*

Main Construction period March 2018*

Main Contract Completion January 2019* * Subject to award to successful tenderer and contractual programme

3.6 Evidence of similar projects undertaken

3.6.1 Nexus has recent experience of delivering complex construction projects including the comprehensive refurbishment of North Shields, Haymarket and Central Station Metro stations.

3.6.2 Nexus can demonstrate proven project management skills with the ability to deliver complex projects to time and within budget. Within the organisation there are specialist rail industry skills and oversight, to ensure that progress of the scheme in a confined area and a within a working railway environment is successfully executed.

3.6.3 Nexus has also built up a close understanding of town centre construction schemes through its involvement in the planning of the South Shields Interchange project.

3.7 Risk Management

3.7.1 Risk will be managed in accordance with standard Nexus and industry procedures. Nexus has an established Risk Management Strategy which has been developed by its in-house Project Management Office. It is used as the template for risk allocation and management across all projects that form part of the Metro asset renewal programme and is adjudged as being suitable for this scheme as it has with other recent capital projects. The principles of the Risk Management Strategy carry through to the risk register for each scheme. The most recent version of the Nexus Programme Management Office Project Controls Manual V3 (June 2017) is included as Appendix B, for information. Risk management helps the Project Manager to identify and address the risks facing Nexus, and in doing so increases the likelihood of successfully achieving its businesses objectives.

3.7.2 The primary output of the risk management process is a risk register. By identifying the risk and probability/ likelihood of a risk occurring, the risk register allows the project manager the flexibility to use theirs and their quantity surveyors’ collective experience to determine the financial value of the risk. The risk register is a live document throughout the project and is regularly reviewed and updated, but as a minimum is updated for each Stage Gate. The financial value generated by the risk register should justify the financial risk associated with each project, and should in normal circumstances be the value included in each Stage Gate estimate as the value.

3.7.3 The formation of the risks and associated actions will be compiled through a project risk workshop, which includes all related stakeholders contributing to the

identification and management of the risks. The risk register will then be reviewed and challenged as part of the Stage Gate approval. The project manager is responsible for ensuring that the document accurately reflects the live risks and associated financial risk to the project.

3.7.4 A risk register summarising the risks which have been identified at this stage is included as Appendix A to this business case.

3.7.5 Financial and delivery risks will lie with the principal contractor. The risk contingency allowed for within the budget is at 5% of the overall budget as this is the Nexus element of risk for the project. There is an element of contractor risk included within the design and build cost estimate. The contract will be let on a design and build basis and Nexus has supplied all the data and information necessary for the contractor to calculate their own risks within their tender price.

3.8 Communications and Stakeholder Management

3.8.1 Nexus will implement a stakeholder communication plan to ensure successful communications with stakeholders before, during and after the project.

3.8.2 A thorough and well-executed communications plan can support the project by making sure that:

• stakeholder expectations are understood and addressed in the design stage; • there is effective engagement and communication with affected stakeholders during delivery and, • the benefits of the finished project are ‘sold’ as a successful and value-for- money outcome, satisfying all funding partners.

3.8.3 The objectives of a communication plan are to:

• deliver industry ‘Best Practice’ standards in engagement and communication around major works; • identify stakeholders who should be consulted during the design stage and ensure sufficient engagement takes place – this includes consultation on both the final appearance of the building and methods for project delivery (e.g. access and closure times, siting of compounds, delivery of materials); • ensure all relevant stakeholders are aware of forthcoming works, potential impacts on them and their customers/clients, and contingencies in place; • ensure that all relevant stakeholders are kept updated of progress during the project and of changing arrangements and contingencies as they arise; • identify and exploit the best channels to provide communications, and • provide briefings to local and social media, monitor reaction and deal with issues as they emerge through these channels.

3.8.4 Nexus will:

• Involve – Engage at an early stage to understand expectations and limitations which may impact on scheme design and project delivery • Consult – Engage during design to ensure project meets statutory requirements. • Engage – Engage prior to work on site commencing to ensure concerns are addressed during works • Inform – Communicate with before and during works.

3.8.5 The degree of engagement is intended to be cumulative, so every stakeholder in the ‘Involve’ category would also be included in ‘Engage’ and ‘Inform’ activities as the project continues.

CONSULT INVOLVE

South Tyneside Council - (planning, South Tyneside Council – Leader and transport, heritage) Cabinet

Neighbours Local Enterprise Partnership

NE Combined Authority members

INFORM ENGAGE

Local Media Local businesses

Local residents

3.8.6 In general ‘Involve’ and ‘Consult’ activities will be led by the Project Team. The Nexus Communications section will lead ‘Engage’ and ‘Inform’ activities with wider stakeholders as set out below.

3.8.7 The main stakeholders in the project have been identified as Nexus, South Tyneside Council as local planning authority and co-ordinator of South Shields town centre regeneration, the North East Combined Authority and the North East Local Enterprise Partnership.

Engagement

3.8.8 Three months prior to work commencing, Nexus Communications will begin an engagement programme contacting all identified stakeholders and inviting them to

attend a drop-in session or otherwise ask questions online. This will be carried out in conjunction with the Project Manager and Principal Contractor. The aim is:

• To consult on how work will be carried out and invite feedback which could assist in the smooth delivery of the project, including aspects like compound siting, delivery times, information points etc. • Establish direct contact routes through which any complaints/concerns can be addressed quickly. • Provide information on the final appearance of the facility – though this will not by this stage open to change. • Direct contact will continue at landmark points through the project to keep this group informed and maintain confidence.

3.8.9 When detailed planning permission is sought from the local planning authority there will also be targeted consultation by the scheme’s principal designers. This has already been set in train with the holding of an initial consultation event for local stakeholders prior to the submission of the application for outline planning permission.

3.9 Benefits Realisation

3.9.1 The addition of the South Shields facility will result in beneficial changes to training and operations practices at Nexus. To ensure the centre delivers benefits to justify the investment, a benefits realisation plan ensures that the centre as a whole delivers more than the sum of the parts, and that the benefits of cross-disciplinary training and skills are captured fully in the operation of the facility from Day One. A Benefits Realisation Plan is attached as Appendix E.

3.9.2 Changes in processes will be accompanied by a staff awareness campaign to provide information on how to access the centre, its facilities and benefits, and the opportunities it will deliver in terms of new training opportunities – in subject areas such as lift and escalator maintenance for instance, where public facilities would otherwise need to be taken off-line. The centre will provide opportunities for the various functional arms of Nexus to better understand each other’s contributions towards customer service and system safety. This will be encouraged by regular staff briefings highlighting activities taking place at the centre.

3.9.3 In terms of the operational aspects of centre activities, the reliable delivery of early morning and late evening services that the centre will facilitate are clearly of importance to existing and future customers. Service changes will be widely publicised and robust operating arrangements put in place to ensure the delivery of a resilient Metro service.

3.10 Monitoring and Evaluation

3.10.1 A draft Monitoring and Evaluation Plan is included as Appendix F. It covers the following aspects and will be completed quarterly as the scheme progresses:

• main project milestones; • description of scheme elements against which progress will be monitored on a quarterly basis; • summary of actual versus projected scheme expenditure and scheme funding; • summary of progress on key performance indicators including outputs and outcomes such as the construction of the facility.

3.10.2 Alongside the updating of this Plan, the scheme risk register will also be updated on a quarterly basis.

3.11 Programme and Project Dependencies and Constraints

3.11.1 The main dependencies identified at this stage are as follows:

i. Granting of full planning permission. Outline planning consent has been granted by the local planning authority however full permission will be required for the scheme to progress. Outline planning permission indicates that the planning authority is supportive of the concept; full planning permission will require the details of the scheme to be in accordance with architectural, constructional, environmental and neighbourhood considerations. Full planning consent will be sought by the appointed design and build contractor. ii. Construction of Metro-related infrastructure dependent on the availability of Nexus resources. The new-build element of the scheme will be delivered via a design and build contract including changes to track-work, signalling and railway power supply. Such works will be planned into the construction process and Nexus supervisory resources allocated. iii. Construction of the facility dependent upon the site being clear of unexpected problems. Ground investigation works have already been undertaken and no significant issues were apparent. The site is within a zone where unexploded ordnance could be found and mitigation will be carried out if necessary. iv. Dependencies with adjacent scheme. Construction of a new transport interchange 200 metres away in South Shields town centre is expected to take place over similar timescales. The interchange scheme will require changes to signalling and track which could affect rail access to the training and maintenance centre. These changes will be made by the design and build contractor appointed to that scheme, with Nexus undertaking a supervisory

and co-ordination role. Nexus will maintain close contact between the two work sites.

3.11.2 The only constraint which has been identified at this stage is that the facility will be located within a partly residential area. Metro’s main depot at South Gosforth is also close to local housing, where no significant neighbour issues have arisen. Any issues arising at South Shields will be dealt with pro-actively and sympathetically by Nexus.

4 The Commercial Case

4.1 Introduction

4.1.1 The Commercial Case provides evidence on the commercial viability of the South Shields Metro Training and Maintenance Skills Centre scheme and the procurement strategy that will be used to engage the market.

4.2 Procurement Strategy

4.2.1 Procurement will be aligned with the proven Procurement and Contracting Strategies used consistently by Nexus in the Nexus Asset Renewal Programme. This programme has delivered a programme of multi-disciplinary rail infrastructure projects since March 2010 of more than £100 million within tightly-defined grant funding profiles defined by DfT. The Procurement and Contract Strategy for individual schemes is confirmed at Stage Gate 3 (see Management Case) and forms the output from a workshop involving the Project Manager, Procurement Officer, Quantity Surveyor and Commercial Manager. Control and governance of the procurement process will be undertaken by the Nexus Corporate Procurement team, reporting to the Head of Legal Services. The scheme achieved Stage Gate 3 status following Nexus management team approval on 8 November 2016 and the procurement strategy was also agreed at this time.

4.2.2 The scheme will be delivered by means of a design and build contract. The Principal Contractor shall design and build the building, the rail infrastructure (track-work and associated works) and obtain full planning permission at the appropriate point as explained in section 4.4 below.

4.3 Project Management, Cost Management and Planning

4.3.1 These skills will be provided by Nexus Project Management, Cost Management and Quantity Surveyor teams within the Nexus Programme Management Assurance Framework (PMA). Planning support is provided by the PMAO Programme. Nexus also has a Commercial Manager who oversees the development of Contract Packages Controls team. Use of internal Project Management and Support resources has proven both cost effective and ensures continuity throughout the Project lifecycle.

4.4 Design Services

4.4.1 Outline design for outline planning permission and tendering purposes was undertaken by the scheme’s principal designer. Detailed designs will be completed

by the appointed design and build contractor who will also apply to South Tyneside Council for detailed planning consent.

4.5 Main Contract

4.5.1 Full 2-stage OJEU procurement has been followed for the Main Construction Contract. (PQQ followed by Invitation to Tender). Evaluation to be based on 60:40 price/quality split.

4.5.2 Timescales for the Main Works Contract are as follows:

PQQ Issued 25 November 2016

PQQ Returned 13 January 2017

ITT Re-issued 3 July 2017

ITT Returned 11 August 2017

Contract Award 17 October 2017

Contractor Start 20 October 2017

Contractor Completion 20 March 2019

4.5.3 A ‘market awareness’ event to promote the project to potential contractors capable of carrying out the design and build of the new centre was held in October 2016. It was attended by 21 companies suggesting substantial potential interest in tendering for the proposed works.

4.6 Contract Management Strategy

4.6.1 The management and governance of procurement activities is set out in the Nexus Corporate Procurement Manual. This covers all corporate activities across Nexus. Project delivery of this scheme will be based upon the NEC3 suite of contracts, employing option A. NEC3 is a family of contracts that facilitates the implementation of sound project management principles and practices as well as defining legal relationships. It is suitable for procuring a diverse range of works, services and supply, spanning major framework projects through to minor works and purchasing of supplies and goods. NEC3 comes with full endorsement from the Construction Clients' Board of the UK Cabinet Office. This recommends NEC3 for use on all public sector construction projects. Nexus currently contracts under the NEC3 April 2015 revision. In addition to Civil and Rail engineering projects all Nexus Asset Renewal Programme Station refurbishment schemes have employed NEC3.

4.6.2 The implementation of NEC3 contracts has resulted in major benefits for projects both nationally and internationally in terms of time, cost savings and improved

quality. Since inception of the Metro Asset Renewal Programme, over 50 schemes have been delivered using NEC3 by an in-house Project and Commercial Management Team. A strong culture of continuous improvement is in place, ensuring both technical and commercial lessons learned are quickly assimilated into the project delivery process.

4.6.3 Work will be undertaken by the Design and Build Principal Contractor who may sub-contract specialist parts of the project. The use of Nexus staff is not envisaged at this stage during the construction phase other than for engineering checks and possibly in the role of worksite controller at the beginning of the project where it interfaces with the running lines.

4.6.4 Summary of Procurement and Contract Strategy

Item Procurement Contract Strategy Approach Engineering Design Services Multi-Supplier NEC3 Professional Services Engineering Design Contract Framework - Award Project Management Nexus Internal Not Applicable Resources Programme Management Nexus Internal Not Applicable Office - Controls and Resources Governance Programme Management Nexus Internal Not Applicable Office - Cost Management Resources and Contract Administration Main Construction Contract 2 Stage OJEU (PQQ - NEC3 Engineering & ITT) Construction Contract – Option A

4.6.5 The procurement process chart below sets out the main principles which will be used throughout the selection of contractors to deliver this scheme.

Figure 15: Procurement Process Chart

4.7 Payment Mechanisms

4.7.1 Payment Certification

This will be made in accordance with NEC3 Option A. Four-weekly payments certified on full completion of contracted ‘activities’.

4.7.2 Payment terms

Payment will be made within 30 days of the date upon which a correctly rendered invoice is received, to a bank account nominated in writing by the Supplier.

4.7.3 Late payment

On failure to pay any amount properly due and payable under the Contract, the Supplier shall have the right to charge interest on the overdue amount at the rate of 8 per cent per annum above the Bank of England reference rate, accruing on a daily basis from the due date up to the date of actual payment.

4.8 HR Issues

4.8.1 It is envisaged that this scheme will be delivered using existing experienced Nexus Project Managers and Quantity Surveyors and it is planned to maintain continuity of resources throughout the remaining lifecycle of this project. Peaks in workload may be supported using Project Management, Commercial or Planning support procured under a Professional Services Framework Contract. Other HR issues may arise in respect of the relocation of existing training staff and these will be dealt with via full consultation with staff potentially affected.

4.8.2 Training

Construction Skills Certification Scheme training may be required, also the Institution of Occupational Safety and Health course in ‘Managing Safety’. Nexus has extensive NEC3 Contract Administration experience in delivering Station Refurbishment Projects. Formal Project Management training was undertaken during the inception of the Asset Renewals Programme and work is progressing to align individual’s development plans with the Association for Project Management (APM) competency framework.

5 The Financial Case

5.1 Introduction

5.1.1 The financial case concentrates on the affordability of the proposal, its funding arrangements and technical accounting issues and presents the financial profile of the different options. An up-to-date cost profile is supplied as an appendix to this business case.

5.1.2 This business case seeks to gain approval for £7.000 million of Single Local Growth Fund, to be spent on the construction of the South Shields Metro Training and Maintenance Skills Centre, with the facility open for business in 2019.

5.2 Project cost profile

5.2.1 Nexus will allocate £2.459 million of match funding to the project, equating to 26% of the overall financial requirement.

5.2.2 The expected costs for the project are summarised below, by budget stream and the year in which they are expected to occur.

Activity Total 2015/16 2016/17 2017/18 2018/19 £m

Preliminaries £0.117 - - - £0.117

Construction - - £1.642 £6.764 £8.406 Costs

Project Management - £0.064 £0.056 £0.035 £0.155 Costs

Professional - £0.219 £0.030 £0.007 £0.256 Costs

Contingency - - £0.210 £0.315 £0.525

TOTAL £0.117 £0.283 £1.938 £7.121 £9.459

5.2.3 The table below provides more detail of the elements which make up the anticipated construction costs:

TOTAL Activity 2015/16 2016/17 2017/18 2018/19 £m

Preliminaries £ 0.117 - - - £0.117

Construction costs £ 1.642 £ 6.764 £ 8.406

-Preliminaries £1.273 £0.637 £1.910

-Detailed Design £0.143 £0.569 £0.712

Light Maintenance £0.226 £2.033 £2.259

-Training Centre £2.654 £2.654

-Infrastructure £0.641 £0.641

-External Training Area £0.230 £0.230

Project management costs - £0.064 £0.056 £ 0.035 £0.155

Professional costs - £0.219 £0.030 £0.007 £0.256

Contingency - - £0.210 £0.315 £0.525

TOTAL £0.117 £0.283 £1.938 £7.121 £9.459

5.2.4 The proposed draw-down of funding for the scheme is as follows.

Funding Source 2015/16 2016/17 2017/18 2018/19 Total £m

Local Growth Fund - - £1.000 £6.000 £7.000

Match Funding £0.117 £0.283 £0.938 £1.121 £2.459

Total £0.283 £1.938 £7.121 £9.459

5.3 Contingency plan

5.3.1 A risk management strategy for the project is detailed in the Management Case. The current risk register is also attached as an appendix to this business case. The risk contingency allowed for within the budget is at 5% of the overall budget as this is the Nexus element of risk for the project. There is an element of contractor risk included within the design and build cost estimate. The contract will be let on a design and build basis and Nexus are supplying all the data and information necessary for the contractor to calculate their own risks within their tender price.

5.3.2 No state aid issues have been identified at this stage which could constrain or limit the support to the organisation or project.

5.4 Revenue implications

5.4.1 Implementation of the project is not expected to have any material implications upon the day-to-day operations of Metro as the location of the project is at the terminus of the South Shields Metro line and is essentially self-contained.

5.4.2 All on-going revenue expenditure will be funded from within Nexus’ revenue budget, although there will be additional revenue implications assessed at up to £0.200m per annum with regards to an increase in life cycle costs for the new training centre compared to the existing facility. Income which may help to defray these costs may include the re-use of the existing ‘Eden’ site, and the hiring-out of facilities or space within the training building when not required for Nexus activities.

6 The Economic Case

6.1 Introduction

6.1.1 Independent economic appraisal work has been undertaken to assess the potential economic costs and benefits of the project, in order to develop a robust economic case in support of the scheme.

6.1.2 The analysis has been prepared in accordance with the principles of HM Treasury’s Green Book. Accordingly, the analysis has included consideration of:

1. The justification for action 2. Key objectives of the project 3. Options 4. Economic impacts (costs and benefits) 5. Risks and sensitivities

6.1.3 All assumptions are based on the best available evidence on the project from project partners and accepted benchmark metrics. The Strategic Case details the problems and opportunities to be addressed by the proposed project and the need for the new facility. The Strategic Case demonstrates the case for the facility and the strategic fit with the aims of the North East Combined Authority (NECA), Nexus, South Tyneside Council and the NELEP. The key problems/opportunities that need to be addressed are: • Improved maintenance facilities for the existing Metro fleet, and the new train fleet which is currently at the planning stage. • A better Metro service for South Tyneside, resulting from the ability to start services earlier and finish later by housing trains at the centre overnight. • More comprehensive training, apprenticeships and skills opportunities for all Nexus and Metro staff within a dedicated environment, with everything located on a single accessible site.

6.1.4 In summary, the current Metro training facilities restrict the depth and variety of courses that can be delivered and offer little opportunity for the Nexus workforce to train and up-skill in a collaborative and cross-functional way. The rapidly changing landscape of skills training also has significant implications for Nexus and for the success of the wider region. The proposed MTMSC addresses these problems/opportunities by centralising training, light maintenance and Metro out- stabling facilities at a town centre, rail-connected site.

6.2 Rationale for Intervention

6.2.1 The rationale for government intervention, whether via a new or changed policy project is essentially twofold:

• The achievement of economic objectives by addressing inefficiencies in the operation of markets and institutions; and • The achievement of an equity objective, such as local or regional regeneration.

6.2.2 The proposed MTMSC will provide vocational training. There is evidence that skilled workforces have positive impacts on high-level economic aims, such as productivity and gross domestic product (GDP) growth. At the same time, there is evidence of a major skills deficiency in the UK, which is reflected in the low numbers holding intermediate level vocational qualifications, compared to Germany and other European countries. There is further evidence that there are three forms of market failure that continue to cause this skills gap:

• Externalities leading to under-investment in training by employers. Firms are concerned that once trained, an employee will leave the firm before the firm has recouped its investment. Unless training pays off very quickly, firms are therefore reluctant to provide training to their workers.

• Imperfect information leading to employees being unable to judge the quality of their training or appreciate the benefits. This reduces their willingness to accept lower wages during the training period or to receive any training at all.

• Credit market imperfections. Training is costly, but individuals expect to obtain higher wages from training. Some individuals may wish to borrow to fund training in the expectation that they will be able to pay back the loan through higher future wages. However, low-paid employees in particular are likely to be credit constrained and unable to obtain loans to pay for training.

6.2.3 These market failures mean that the level of training provided by the market is likely to be inefficiently low from society’s point of view. The proposed MTMSC will, in particular, address market failures in the form of externalities and imperfect information. The proposed range of training is aligned with the needs of an industry for which a skills shortage has been identified.

6.2.4 In addition, there is an equity case for government intervention. The MTMSC will be located in South Shields that is characterised by significant areas of deprivation and unemployment. The proposed training provision will benefit individuals in these areas by providing access to training that assists them in securing the job opportunities arising in the rail industry.

6.3 Options Analysis

6.3.1 Nexus has undertaken an options identification and appraisal process. It has considered four potential options for the MTMSC at the options feasibility stage. The selection rationale is described in more detail in the Strategic Case.

These are:

1. Do nothing – do not build a facility at South Shields, and continue maintenance and restricted training as is currently practiced at locations in the Newcastle area, or rent additional space short-term in locations away from the Metro network. 2. Do minimum - development of additional training facilities either at the South Shields site or elsewhere, with no scope for an associated additional maintenance facility; 3. Full development at South Shields (preferred option) – achieved with Local Growth Fund investment and additional Nexus funding, providing a centralised high quality training centre and maintenance facility combined on a single site at South Shields; and 4. Full development in alternative location - as described above, at an alternative location to South Shields.

Further detail of these options and the appraisal process undertaken is provided in the Strategic Case.

6.3.2 The location of the preferred option, on a site north of the existing South Shields Metro Station, offers a combination of strategic advantages including excellent communication links, a central location and the ability to be both connected to and separate from the rest of the Metro network. This is critical in enabling the proposed range of operational, training and maintenance activities to be undertaken. Whilst Option 2 (the ‘do minimum’) would deliver training benefits, it would not provide any additional maintenance facilities benefiting service delivery. Accordingly, Option 2 only partially meets the objectives of the project. Option 4 has been discounted since, whilst other potential locations met some of the required criteria, no other locations assessed could also offer the opportunity to

upgrade the quality of service for passengers across South Tyneside because of their location on the network.

6.4 Economic Analysis of Options

6.4.1 The economic appraisal of the project focuses on the ‘additionality’ of the preferred option (Option 3) and ‘do minimum’ (Option 2) over the ‘do nothing’ case (Option 1). Option 4 is not subject to the quantitative economic appraisal.

6.5. Approach to Cost Benefit Analysis

6.5.1 The establishment of the MTMSC will potentially generate a wide range of outcomes and impacts. The primary economic impact of the MTMSC under the preferred option (Option 3) will be through improvements to the performance of the transport network. The facility will provide improved maintenance facilities for the existing Metro fleet and the new train fleet that is currently at the planning stage. It will also allow the provision of a better Metro service for South Tyneside, resulting from the ability to start services earlier and finish later by housing trains at the facility overnight. In addition to transport benefits, the MTMSC under the preferred option (Option 3) is also expected to generate regeneration benefits through several economic impact channels. These benefits strongly support the objectives of strategic policy for both South Shields and the wider North East region.

6.5.2 Accordingly, the economic benefits of the MTMSC under the preferred option (Option 3) are considered in terms of:

• Transport benefits; and • Regeneration benefits.

6.5.3 Under the ‘do minimum’ option (Option 2), the MTMSC would generate regeneration benefits only (since the scheme would not deliver any additional maintenance facilities benefiting service delivery).

6.5.4 The remainder of this section sets out the approach to the cost benefit analysis.

6.6 Costs

6.6.1 The cost estimates applied in the cost benefit analysis under the preferred option (Option 3) comprise both capital and revenue costs. As per the Financial Case, the Local Growth Fund investment requirement for the project is estimated to be approximately £7 million (undiscounted). This investment will be used alongside approximately £2.5 million (undiscounted) of Nexus funding to finance the construction and fit out of the facility. These costs relate to the period to 2018/19. The revenue element of the costs relates to operating costs and will be funded by

Nexus and partners. Project partners have undertaken work to assess the demand for the MTMSC. This exercise has provided project partners with confidence in the level of demand for the facilities and funding to support continued operation.

6.6.2 The cost estimates applied in the cost benefit analysis under the ‘do minimum’ option (Option 2), comprise capital costs only. This investment The Local Growth Fund investment requirement for the project is estimated to be approximately £3.5 million (undiscounted). This investment will be used alongside approximately £0.5 million (undiscounted) of Nexus funding to finance the construction and fit out of the facility. These costs relate to the period to 2018/19.

6.6.3 The project costs have been treated as per the advice in WebTAG Unit A1-2 and have been amended to account for optimism bias14 and then discounted and adjusted for the impact of indirect tax revenues as shown below. As the prices are based on received tender prices no allowance has been included for inflation between the current cost estimates and the year of spend.

2015-16 2016-17 2017-18 2018-19 Total Tender Cost (2016 prices) £0.12 £0.28 £1.94 £7.12 £9.46 Cost including Optimism Bias £0.12 £0.30 £2.04 £7.53 £10.00 Rebase to Department's Base Year (2010) £0.12 £0.28 £1.90 £6.99 £9.28 Discount to Department's Base Year (2010) £0.09 £0.22 £1.44 £5.13 £6.89 Convert to Market Prices (2010) £0.11 £0.26 £1.71 £6.11 £8.19 Total (2010) £0.11 £0.26 £1.71 £6.11 £8.19

6.6.4 The full scheme capital cost for the appraisal is therefore £8.19m in 2010 prices with the funding spent between 2015-16 and 2018-19. 6.6.5 The additional operating costs for Metro service operations have been estimated by taking the total cost of Metro operating costs and power costs and dividing by the total number of vehicle kms. This is then multiplied by the new total annual number of vehicle kms to get an estimate of the new operating costs. This has been added to the operating costs for the facility, as per the financial case, to get a total annual operating cost of around £0.47m which grows with inflation forecasts over the appraisal period. 6.7 Transport Benefits

6.7.1 The transport benefits of the MTMSC under the preferred option (Option 3) will arise from the following factors:

• The depot will provide improved maintenance facilities for the existing Metro fleet, and the new train fleet which is currently at the planning stage.

14 Optimism bias has been applied as per the WebTAG Unit A5.3 Stage 3 rate for Metro at 6%.

• The depot will allow the provision of a better Metro service for South Tyneside, resulting from the ability to start services earlier and finish later by housing trains at the facility overnight.

Assumed Service Specifications

6.7.2 Two Metro trains of the current length could be securely stabled in the proposed facility overnight, allowing for an earlier start of service from South Shields, possibly with through services to Newcastle Airport, and later evening services from Newcastle city centre. Based on the existing start and finish of services at South Shields (from 0542 to 2356 on weekdays), additional earlier trains could be timetabled to depart as early as network start-up of 0500 and arrive as late as system shutdown at 0030.

6.7.3 Therefore, the following service assumptions are made:

1. A new service will depart from South Shields at 0505. This service will run to the Airport arriving at 0556 which is 27 minutes before the current earliest arrival from stations between Pelaw and Regent Centre and 50 minutes before the first arrival from stations between South Shields and Pelaw. This could then form the 0604 from the Airport.

2. A new service will depart from South Shields at 0520; this service will also run to the Airport arriving at 0611.

3. The existing service that terminates at Pelaw at 2352 will be extended and terminate at South Shields at 0008.

4. The existing 2330 from the Airport, which currently terminates at Regent Centre will be extended, terminating at South Shields at 0020. This will offer a connection 33 minutes later than the current last service to stations between Pelaw and South Shields and 18 minutes later than the current last service to stations between Regent Centre and Pelaw.

6.7.4 It is assumed that the above will operate on Monday – Saturday and that the current timetable will remain unchanged on Sundays.

Airport Users

6.7.5 The proposed services would deliver a significantly improved service to Newcastle International Airport from areas between South Gosforth and South Shields. This is because many of the current early and late services to and from the Airport run only between the Airport and Regent Centre, not allowing interchange with Yellow Line services. The change in earliest arrival times and latest departure times and flights that could be accessed, assuming passengers want to arrive at least 45

minutes before a flight, and can reach the Metro station within half an hour of landing, are shown below.

Do Minimum Do Something Metro Time Flight Time Metro Time Flight Time Pelaw – 0646 0731 0556 0641 South Shields South 0623 0708 0556 0641 Gosforth - Flight Pelaw Departures Pelaw – 2354 0039 2354 0039 South Shields South 2354 0039 2354 0039 Gosforth - Pelaw

Pelaw - 0537 0507 0537 0507 South Shields South 0537 0507 0537 0507 Gosforth - Flight Pelaw Arrivals Pelaw – 2257 2227 2330 2300 South Shields South 2312 2242 2330 2300 Gosforth - Pelaw

6.7.6 If these assumptions are correct, a number of passengers on existing flights will be in-scope to use Metro services; these are shown below.

Pelaw to South Shields South Gosforth to Pelaw Departures Arrivals Departures Arrivals Faro 0645 Naples* 2235 Faro 0645 Alicante 2255 Cardiff 0645 Murcia 2240 Cardiff 0645 Barcelona 2300 Aberdeen 0650 Alicante 2255 Aberdeen 0650 Kefalonia 0650* Barcelona 2300 Kefalonia 0650* Palma 0655* Palma 0655* Tenerife 0700 Tenerife 0700 Malaga 0700 Malaga 0700 Nice 0700* Nice 0700* Lanzarote 0700 Lanzarote 0700

Pelaw to South Shields South Gosforth to Pelaw Departures Arrivals Departures Arrivals Bodrum 0700* Bodrum 0700* Tenerife 0705 Tenerife 0705 Mahon 0705* Mahon 0705* Fuerteventura 0705 Fuerteventura 0705 Rome 0715* Malaga 0715 Funchal 0715 Lanzarote 0720 Reus 0720* Faro 0720 Fuerteventura 0725 Ibiza 0730* Alicante 0730 *Summer timetable only

6.7.7 Assuming an average occupancy figure of 80% and the capacities shown below, the total number of new additional passengers in scope for Metro has been calculated as 2.1m per year15.

Operator Stock Type Capacity

Thomas Cook Airbus A321-200 220 British Airways Airbus A319 – 100 156 easy Jet Airbus A319 – 100 156 KLM Boeing 737- 700 132 Thomson Boeing 737 – 800 189 Air France Airbus A318 – 100 112 BMI Embraer ERJ -145 49 Jet 2 Boeing 737 -800 189 Eastern Airways BAe Jetstream 41 29 Aer Lingus Airbus A320-200 174 Flybe Bombardier Dash 8 78 Q400 Emirates – Boeing 777-300 299 Scandinavian Airlines Boeing 737 -300 141 Ryanair Boeing 737 -800 189

6.7.8 In 2013, 18% of airport users used the Metro system16 and therefore, if this figure holds, then there will be around 380,000 additional Metro users. Demand data

15 Values have been calculated separately for passengers who live between Pelaw and South Shields and South Gosforth and Pelaw as the first and last Metro times are different.

supplied to Arup shows that 71% of users to and from the Airport travel from a station between South Gosforth and Pelaw and 2% of passengers travel from a station between Pelaw and South Shields. This indicates that up to 99,50017 new passengers per year would use the Metro network.

6.7.9 The calculations have been based on the summer timetable. CAA Passenger monitoring data has been used to examine the profile of passengers throughout the year. This is shown in Figure 17 below. The data shows that there are approximately 40% fewer passengers between October and March versus April and September. The total annual benefit has been factored accordingly.

600,000

500,000

400,000

300,000

200,000

100,000

- Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Figure 17 Newcastle Airport Dec 15 - Nov 16 Monthly Passengers

6.7.10 The figure of 99,500 drops to around 79,300 after the seasonal adjustment. The additional revenue from these new passengers has been calculated based on existing fare yields and equates to around £116,000 or £3.44m over the appraisal period.

Mileage change for airport users

6.7.11 It has been assumed, due to the late night and early morning nature of services, it will not be possible for users to use bus services for these journeys. Therefore, it is assumed that all journeys will be via car trips (parked or drop-off) or taxi. Assuming the WebTAG car occupancy figure of 1.54, and that new Metro users are distributed as per the current distribution of Metro trips to and from the airport;

16 Source- Newcastle Airport Masterplan 2013. 17 5,000 passengers between Pelaw and South Shields and 94,500 passengers between South Gosforth and Pelaw.

this will result in around 537,000 car kilometres removed from the road each year. The calculated value of highway decongestion benefits is shown in below.

Total (60 Year present value) Congestion £3.60 m Infrastructure £0.02 m Accident £0.31 m Local Air Quality £0.00 m Noise £0.02 m Greenhouse Gases £0.11 m Indirect Taxation -£0.37 m Total £3.68 m

6.7.12 The demand for non-airport movements has not been quantified as this is not thought to be significant. There might, however be stronger demand for later services out of Newcastle city centre particularly on Friday and Saturday evenings. The benefit to airport staff has also not been assessed.

Reliability

6.7.13 Provision of a new Metro maintenance facility at South Shields will help to improve the reliability of the Metro service and will help the system to recover from perturbations more quickly. PDFH Unit 5.1 outlines a method for valuing the reduction in demand and hence revenue resulting from changes in service reliability/punctuality. This formula is as follows:

Ij = [ 1 + (wr(Lnew - Lbase))/GJTbase ] g

Where: • Lbase is the average lateness of trains in case ‘base’ or ‘new’. • wr is the weighting to convert one minute of lateness into equivalent journey time. • g is the elasticity of volume to generalised journey time.

The values of Wr are taken from PDFH and are shown in Table 4.

Commuting Non-commuting Non-London Inter-urban 3.9 3.4 Airports - 6.0 Table 1: Recommended Late Time Multipliers18

18 Source: PDFH v.5.1 Table B5.1

The values of g are also taken from PDFH and are shown in Table 5.

Commuting Non-commuting Non-London Inter-urban -1.1 -1.1 Airports - -1.5 Table 2: Recommended Journey Time Elasticities19

6.7.14 For the initial exercise an average figure of 80.37% Charter Punctuality is used (which is measured at 3 or more minutes late) as provided in a Parliamentary response for the 2014/15 year by the Rail Minister in June 2015. It has been further assumed that the average delay was 3 minutes and that delays were experienced across the network. For the do-something it has been assumed that the extra resilience that the depot will provide will allow this figure to be increased to 82%, with the average delay remaining at 3 minutes. This results in 351,000 additional journeys per year, which generates an additional £223,600 in annual revenue. This equates to about £6.62 million over the appraisal period. This will also result in journey time savings as passenger wait time is reduced. Based on the figures above this equates to around 30,000 hours per year which equates to a benefit of £23.2m over the appraisal period.

6.8 Regeneration Benefits

6.8.1 The analysis of regeneration benefits under both preferred option (Option 3) and ‘do minimum’ option (Option 2) explores the potential economic impact channels set out in the table below. These impacts are assessed quantitatively or qualitatively, depending on the nature of the impact and evidence base available. Only some outputs are suitable for generating a monetised benefit stream for inclusion within a BCR figure. Nonetheless, whilst many impacts sit outside of the BCR, they represent material considerations in the overall economic case for the investment.

Benefit Within BCR Contribution to delivery of strategic policy objectives No Employment opportunities Yes Training activity and apprenticeships No Supply chain product development No Town centre health No

19 Source: PDFH v.5.1 Tables B4.4 and B4.5

An outline of the approach and assumptions applied to each impact channel is outlined below.

Contribution to delivery of strategic policy objectives

6.8.2 The project’s contribution to the delivery of the strategic policy objectives, including those outlined in the Northern Powerhouse initiative, North East Strategic Economic Plan, NECA Metro and Local Rail Strategy and the South Shields 365 Masterplan is considered. This is assessed qualitatively only and is not included in the BCR.

Employment opportunities

6.8.3 The employment opportunities generated by the project have been examined. The net additional employment opportunities are assessed at the NELEP area level. The following assumptions are applied in estimating net ‘additionality’ (that is the impact of the ‘do minimum’ option (Option 2) and the preferred option (Option 3) over the ‘do nothing’ option).

Effect Metric Basis Leakage 5% That the majority of direct posts at the MTMSC will be occupied by individuals residing in the NELEP area.

Displacement 0% The direct gross jobs applied already take into account displacement and represent additional posts over the existing Gosforth facility only. Multiplier 1.44 Composite multiplier (including indirect and induced effects). Based on HCA Additionality Guide (4th Edition) evidence Base for B2/B8 uses at the regional level.

6.8.4 The analysis is based on gross direct employment in the MTMSC of 10 FTE jobs. This refers to additional staff over the 5 existing staff transferred from the current

Nexus training facility employed in delivering training content. New jobs will be created across a range of posts. Training professionals who train Metro operating staff, were employed by DB Regio Tyne and Wear Limited, however transferred to Nexus in April 2017.

The equivalent gross value added (GVA) contribution of net additional jobs is estimated by applying an average GVA per job of £42,000 (the 2014 average for the NELEP area 20). This benefit is included in the BCR.

Training activity and Apprenticeships

6.8.5 The analysis considers the additional training activity and apprenticeships generated by the project. Additional activity is estimated with reference to the 2015/16 baseline below.

Training Number per annum Training days (Nexus staff) 1,500 Training days (Metro staff) 3,000 External training days (facilitated by Nexus) 313 External training days (facilitated by Metro) 85

Training days delivered to contractors 832 Contractors attending training courses at 473 Nexus Total events (Nexus and Metro staff) 4,000 Apprenticeships Number per annum Apprenticeships 10

6.8.6 Additional activity is reported in terms of the number of training activities and apprenticeships. The economic contribution of these is considered in the context of local socio-economic characteristics, replacement demand and strategic policy objectives. This contribution is not included in the BCR.

Supply chain product development

6.8.7 The potential for the facility to provide supply chain firms with opportunities to develop new products is considered. This is assessed qualitatively only and is not included in the BCR.

Town Centre health

6.8.8 The proposed location of the facility in both the ‘do minimum’ (Option 2) and preferred option (Option 3) is South Shields Town Centre. The potential for

20 NELEP Strategic Economic Plan: Evidence Base 2016.

beneficial impacts upon town centre health are therefore explored. The approach considers the potential benefits in terms of: • Events; • Additional spending in the town centre; and • Synergies with longer-term investments.

This is assessed qualitatively only and is not included in the BCR.

6.9 Results of Cost Benefit Analysis

Overview

6.9.1 This section provides a summary of the results of an initial cost benefit analysis of the ‘do minimum’ option (Option 2) and preferred option (Option 3) for the MTMSC. The results are based on current information on the project. The results are provided for both standard transport and wider regeneration benefits of the project. The quantitative estimates of economic impact are used to provide a summary NPV and BCR figure.

Transport Benefits

6.9.2 Based on the assumptions outlined above, the following estimates of transport benefits are generated for the preferred option (Option 3). No transport benefits are generated by the ‘do minimum’ option (Option 2).

6.9.3 Airport users – the proposed services would deliver a significantly improved service to Newcastle International Airport from areas between South Shields and South Gosforth. Based on 79,300 new passengers per year using the Metro network, around £116,000 in additional revenue per year would be generated.

6.9.4 Mileage change for airport users - Based on around 537,000 car kilometres being removed from the road each year, around £3.7m of benefits are generated over the 60-year appraisal period. This may however, be an overestimation as most of this is congestion benefit which is unlikely to be realised in the early morning and late evening. Without this there is a small benefit over the 60-year period as the reduction of fuel duty to HMRC partly offsets the environmental benefits.

Source of Benefit Preferred Option (Option 3) Benefit (£, 60-year appraisal period) Congestion £3.60 m Infrastructure £0.02 m Accident £0.31 m Local Air Quality £0.00 m Noise £0.02 m Greenhouse Gases £0.11 m Indirect Taxation -£0.37 m Total £3.69 m

6.9.5 The depot will also offer benefits in terms of event planning, particularly for the Great North Run which finishes on the Coast Road in South Shields. This is a major event every year which places significant demand and pressures on the Metro system. This is particularly the case in the event of any service failure and the depot will provide the opportunity to recover more quickly were this to occur.

6.9.6 The proposal will help to improve the reliability of the Metro service and will help the system to recover from perturbations more quickly. The calculations show that there would be around 351,000 additional journeys per year. This would result in an additional £223,600 in annual revenue. This equates to about £6.62 million over the appraisal period.

Regeneration Benefits

6.9.7 The project is expected to generate a range of wider regeneration benefits. The following benefits are considered below:

1. Contribution to delivery of strategic policy objectives

2. Employment opportunities

3. Training activity and Apprenticeships

4. Supply chain product development

5. Town centre health

As outlined above, the nature of many of these regeneration benefits means that they can only be assessed qualitatively. Nonetheless, they remain material considerations to the overall economic contribution of the project.

Regeneration benefits are generated under both the ‘do minimum’ option (Option 2) and preferred option (Option 3). These are outlined below.

Contribution to delivery of strategic policy objectives

6.9.8 The project will contribute to the delivery of the strategic policy objectives, in particular those outlined in the Northern Powerhouse initiative, North East SEP and South Shields 365 Masterplan. A brief summary of the overarching objectives of these policies/initiatives is outlined below. The project’s contribution to these economic policy objectives is cross-cutting and its contribution to specific outcomes is identified in the following sub-sections on employment opportunities, training, supply chain and town centre health.

6.9.9 The Northern Powerhouse initiative seeks to rebalance and grow the UK economy by devolving political power and economic activity to the north of England. Building a Northern Powerhouse is about boosting the local economy by investing in skills,

innovation, transport and culture, as well as devolving significant powers and budgets to directly elected mayors to ensure decisions in the North are made by the North. The Government is committing substantial investment to the Northern Powerhouse initiative, including: • £3.4bn through Growth Deal allocations; • £70m for the Northern Powerhouse Schools Strategy; and • £13bn on transport.

Improving transport and skills is at the heart of the Northern Powerhouse initiative.

6.9.10 The North Eastern Local Enterprise Partnership’s latest Strategic Economic Plan was launched in March 2017, providing an update to the previous SEP published in March 2014. The SEP has two absolute targets: • To add 100,000 more jobs to the North East economy by 2024; and • To ensure that 70% of the jobs growth is in better jobs.

A better job is defined as being in the top three Standard Occupational Classification (SOC) categories, which are: managers and directors; professional occupations; and associate professional and technical occupations. This means higher skilled and more productive roles.

There are six programmes which provide actions underpinning the delivery of the SEP targets: • Innovation; • Business growth and access to finance; • Skills; • Employability and inclusion; • Economic assets and infrastructure; and • Transport and digital connectivity.

The SEP provides a blueprint for intervention and investment to ensure the North East delivers more for the UK economy and those that live, learn and do business in the region.

6.9.11 South Shields 365 is a multi-million pound redevelopment of South Shields town centre, with the sustainable economic vision to breathe new life into the community. The first stage includes:

1. A new Central Library and Digital Media Centre - The Word, The National Centre for the Written Word;

2. A new 40 space car park at Harton Quays; and

3. Improvements to the Market Place

The second phase in the regeneration of South Shields will see the enhancement of travel not only to and from South Shields, but also within the town with the 77

development of a new consolidated transport interchange which will include a new, relocated Metro station and bus facilities. The new transport interchange will make the town centre far more accessible and with greater connectivity with the Foreshore and Riverside areas enabling South Shields to develop as a visitor and tourist destination, further boosting the local economy. In May 2016, South Tyneside Council made a Compulsory Purchase Order (CPO) to acquire the outstanding land and properties it needs to deliver Phases 2 and 3 of the Masterplan. This affects land on Keppel Street, where the new Transport Interchange will be located, and Barrington Street, which is earmarked for retail and leisure development. The Secretary of State has confirmed the CPO and the next phase of the scheme is continuing. The Post Office has confirmed that, following a significant refurbishment of the former Officers Club unit, it will be relocating its branch from Keppel Street to King Street. Work on the Royal Mail’s new sorting office at Laygate is also progressing at a pace.

The Word, the state-of-the-art cultural venue that is the jewel in the crown of the regeneration masterplan, opened in October 2016. The venue has welcomed over 300,000 visitors and recently won the prestigious RIBA North East Building of the Year 2017 Award.

Full planning permission is in place for the new Transport Interchange and outline planning permission granted for other leisure and retail elements of the scheme.

The MTMSC will contribute to these strategic policy objectives under both the ‘do minimum’ option (Option 2) and preferred option (Option 3).

Employment opportunities

6.9.12 The project will contribute to the local economy through creation of employment opportunities. Taking into account economic multiplier effects, it is expected that 15 net additional FTE jobs will be created in the NELEP area. These employment opportunities will include a range of posts and skills requirements and will be open to the local population. Whilst the number of posts generated is relatively small, the opportunities are particularly valuable to the local economy given the high unemployment in the surrounding area. The South Tyneside area as whole exhibits higher than average levels of unemployment as set out in the Strategic Case. The jobs will be provided in an area with good transport accessibility, assisting access for disadvantaged groups.

6.9.13 In the longer term it is planned to change the framework by which a new fleet of Metro trains is maintained and thus to stipulate that all training activities related to the delivery of Metro must take place at the South Shields facility. This will assist in ensuring that job numbers remain stable and with potential enhancements to the Metro network and additional work linked to new fleet commissioning, the number of opportunities is expected to increase in the future. The equivalent GVA contribution of these jobs is in the order of £5.0 million (discounted) applying a 10- year persistence of benefit.

The MTMSC will generate these employment opportunities under both the ‘do minimum’ option (Option 2) and preferred option (Option 3).

Training activity and apprenticeships

6.9.14 The facility will become a training centre of excellence, offering high standards of training qualifications and apprenticeships. The MTMSC will become the hub for all Nexus training: management, safety, operational and technical. It will benefit Nexus and Metro by expanding the portfolio of training and operational activities across a range of specialisms including train and track maintenance, engineering, rail safety, management and other industry competencies.

6.9.15 Of particular significance is the simulation of all aspects of the working rail environment that would be offered by the facility under the preferred option (Option 3); including customer service, passenger evacuation procedures, conflict management, escalator refurbishment and lift maintenance. This makes the proposition unique in the North East. The industry is experiencing shortages of specialist skills and there is a need to ensure sufficient replacement labour supply as the current workforce ages. In addition, there is a need to respond to the skills requirements of technological changes occurring within the industry.

6.9.16 Two groups will benefit from the expansion of training:

1. Individuals already working within the rail industry; and 2. Individuals seeking to enter the industry.

The training offered will improve people’s access to employment opportunities within Nexus and other rail related companies. The following table sets out the additional training days delivered by the project. The data refers to a 11% predicted uplift in the total number of training days with the opening of the facility, over and above those that would be undertaken in the absence of the facility.

Course Duration (days) Number of Trainees Total days RTMS 10 10 100 NVQ Lifts/Escalators 8 8 64 NVQ Conflict management 2 50 100 NVQ Emergency training 1 150 150 NVQ Train dispatch 1 25 25 NVQ CCTV 1 20 20 Ticket/gating training (staff) 1 15 15 Ticket/gating training (apprentices) 1 15 15 489 Uplift over current 11%

6.9.17 As with the employment opportunities generated by the project, these training opportunities are particularly valuable to the local economy given the high unemployment in the surrounding area. The development of vocational skills and training is a key objective of the SEP. The following key opportunities and priorities are identified in the SEP under ‘skills’ and ‘employability and inclusion’:

Skills

Key opportunities are to: • Facilitate and coordinate strengthened interaction between employers, education and the wider skills system; • Strengthen dialogue and co-ordination across the education system from early years into employment; • Be responsive to opportunities emerging from new skills funding and structures; • Develop and articulate a strategy for those aged 50+ both to address labour market change and to create new markets for education providers; and • To develop a strategy to ensure that people with higher level skills can be recruited into the North East through effective place marketing and a spousal support system.

Employability and inclusion

Priorities are: • To provide support to those most distant from the labour market, where necessary assisting people to overcome disadvantage, poverty, and poor health; and • To provide tailored support to meet the specific needs and circumstances of those individuals who are under-represented in the workplace by gender, race, age, or culture.

The MTMSC will contribute toward realising these opportunities and priorities.

6.9.18 The provision of training opportunities will contribute directly to the key objectives of this business case by providing re-skilling and up-skilling individuals to work in the wider rail industry.

6.9.19 The MTMSC will deliver additional apprenticeship opportunities that will be open to the local population. It is projected that three additional apprenticeships per annum will be created (a 33% increase over the current figure of 10). As with the employment and training opportunities generated by the project, these apprenticeships are particularly valuable to the local economy given the high unemployment in the surrounding area.

6.9.20 These training activity and skills benefits would be generated under both the ‘do minimum’ option (Option 2) and preferred option (Option 3). The key difference however is that Option 2 would not deliver the advantages of having an integrated training and maintenance facility with better liaison and communications between

all areas of Metro operation. Accordingly, it would not provide the benefits of additional hands-on training techniques such as lift and escalator maintenance, and the proposed mock control room.

Supply chain product development

6.9.21 It is expected that the MTMSC will provide opportunities for supply chain firms in the industry to test and develop new products. The scale and nature of this access is to be determined as part of further development of the project. Accordingly, at this FBC stage, this is identified as a potential economic benefit that could assist firms in bringing new products to market.

Town centre vitality

6.9.22 The location is in the heart of South Shields and will help to improve the economic vitality of South Shields town centre. This will contribute to the regeneration objectives of the South Shields 365 Masterplan. There are several aspects to the benefits generated.

6.9.23 Facilitation of events – Under the preferred option (Option 3), the project will facilitate an improved Metro service that can better manage the demands of events. The MTMSC would enable trains to be positioned on standby on site for events such as the Great North Run. A report commissioned by Nova21 estimates the direct economic impact of the Great North Run at £15.7 million, rising to a total impact of over £22 million when the wider subsequent economic benefits are factored in. This impact is driven by the scale of visitors, runners and spectators, which the event attracts and their rates of expenditure. The inclusion of the value of media exposure (live BBC coverage) raises the overall benefit to over £30 million. These figures are based on 2010 run statistics, when 36,671 runners competed. It is noted that the event has grown considerably since this time implying greater economic gains.

6.9.24 Additional spending of staff and trainees in the town centre – Under both the ‘do minimum’ (Option 2) and preferred option (Option 3), the project will support increased economic activity and spending in South Shields town centre. The operation of the facility will involve the siting of staff and training recipients being located centrally in the town centre. As a consequence, it is likely that these individuals will spend some of their income in the local area, for example, in local retail outlets. This spending could provide a significant boost to South Shields town centre. It is estimated that in the order of 1,000 staff would use the MTMSC for 2 days training per year. This implies 2,000 additional person trips into the town with associated visitor spend. In assessing the economic impact at the NELEP area level

21 Social economy of sport: Sport’s impact on the economy. Nova

however, only some of the visitor spend would be additional, i.e. that associated with activity over that currently taking place in Gosforth. The scale of the impact will also be influenced by where trainees come from geographically (as this may determine the level of requirement for any overnight stays and associated expenditure). The potential scale of this contribution will be considered further as the project is developed. Retaining a conservative approach, a figure at this stage is not produced for inclusion in the BCR.

6.9.25 Synergies with longer-term investments – Under the preferred option (Option 3), the project has potential beneficial synergies with other longer-term investments in South Shields. Nexus has longer term plans to invest further in the South Shields Metro corridor by introducing twin-track operation to allow more frequent services, more stations and greater reliability. A new transport interchange is also to be built on a neighbouring site to the MTMSC, improving transport access. The project will offer beneficial synergies with these developments, in particular by facilitating a more resilient and reliable Metro service.

6.10 Summary of NPV and BCR

6.10.1 The economic appraisal of the scheme is shown in the table below, demonstrating that under the preferred option (Option 3) the scheme offers high value for money, with a BCR value of 2.51. Under the ‘do minimum’ option (Option 2), the scheme has a BCR value of 0.52 which offers poor value for money.

Standard Transport Benefits Central Central Preferred option Do minimum (Option 3) (Option 2) Costs and Revenues £m in 2010 prices £m in 2010 prices Capital expenditure £8.19 £3.98 Operating expenditure £14.82 £6.87 Total cost £23.01 £10.85 Revenue -£10.06 £0.00 Present Value of Costs £12.96 £10.85 Benefits Consumers’ travel time (Commute) £8.97 £0.00 Consumers’ travel time (Business) £1.59 £0.00 Consumers’ travel time (Leisure) £12.63 £0.00 Decongestion Benefit £4.06 £0.00 Indirect Tax Revenues -£0.37 £0.00 Present Value of Benefits £26.89 £0.00 Results Net Present Value NPV = B+R –C £13.93 -£10.85 Benefit Cost Ratio BCR = B/(C-R) 2.08 -

Adjusted Transport Benefits Preferred option Do minimum (Option 3) (Option 2) Costs and Revenues Capital £8.19 £3.98 Operating expenditure £14.82 £6.87 Total cost £23.01 £10.85 Revenue -£10.06 £0.00 Present Value of Costs £12.96 £10.85 Benefits Consumers’ travel time (Commute) £8.97 £0.00 Consumers’ travel time (Business) £1.59 £0.00 Consumers’ travel time (Leisure) £12.63 £0.00 Decongestion Benefit £4.06 £0.00 Indirect Tax Revenues -£0.37 £0.00 Wider Economic Revenues (output £5.65 £5.65 change/GVA) Present Value of Benefits £32.54 £5.65 Results Net Present Value NPV = B+R-C £19.58 -£5.20 Benefit Cost Ratio BCR = B/(C-R) 2.51 0.52

6.11 Sensitivity Tests

6.11.1 A sensitivity test has been undertaken showing a change in capital cost by +/-20%; this is shown in the table below and demonstrates that the BCR under the preferred option (Option 3) is robust, with a 20% increase in cost reducing the BCR to 2.23.

Preferred option (Option 3) Standard Transport Benefits Central Lower Upper Costs and Revenues £m in 2010 prices £m in 2010 prices £m in 2010 prices Capital expenditure £8.19 £6.55 £9.83 Operating expenditure £14.82 £14.82 £14.82 Total cost £23.01 £21.38 £24.65 Revenue -£10.06 -£10.06 -£10.06 Present Value of Costs £12.96 £11.32 £14.60 Benefits Consumers’ travel time (Commute) £8.97 £8.97 £8.97 Consumers’ travel time (Business) £1.59 £1.59 £1.59 Consumers’ travel time (Leisure) £12.63 £12.63 £12.63 Decongestion Benefit £4.06 £4.06 £4.06 Indirect Tax Revenues -£0.37 -£0.37 -£0.37 Present Value of Benefits £26.89 £26.89 £26.89 Results Net Present Value NPV = B+R –C £13.93 £15.57 £12.29

Benefit Cost Ratio BCR = B/(C-R) 2.08 2.38 1.84

Adjusted Transport Benefits Costs and Revenues Capital expenditure £8.19 £6.55 £9.83 Operating expenditure £14.82 £14.82 £14.82 Total cost £23.01 £21.38 £24.65 Revenue -£10.06 -£10.06 -£10.06 Present Value of Costs £12.96 £11.32 £14.60 Benefits Consumers’ travel time (Commute) £8.97 £8.97 £8.97 Consumers’ travel time (Business) £1.59 £1.59 £1.59 Consumers’ travel time (Leisure) £12.63 £12.63 £12.63 Decongestion Benefit £4.06 £4.06 £4.06 Indirect Tax Revenues -£0.37 -£0.37 -£0.37 Wider Economic Revenues £5.65 £5.65 £5.65 Present Value of Benefits £32.54 £32.54 £32.54 Results Net Present Value NPV = B+R-C £19.58 £21.22 £17.94 Benefit Cost Ratio BCR = B/(C-R) 2.51 2.87 2.23

6.11.2 Three sensitivity tests have been conducted to examine the impact on the scheme appraisal if the different demand forecasts are achieved, see below. The sensitivities are as follows: NELEP Strategic Economic Plan (SEP) – extra 100,000 jobs in the NELEP area by 2030; Rolling Stock – Impact of new Metrocar fleet; All – All of the above combined. This shows that under all scenarios the BCR increases over and above that in the core scenario. The largest increase is in the all scenario where the adjusted BCR rises to 3.18.

Preferred option (Option 3) Standard Transport Benefits Central SEP Rolling-Stock All Costs and Revenues £m in 2010 £m in 2010 £m in 2010 £m in 2010 prices prices prices prices Capital expenditure £8.19 £8.19 £8.19 £8.19 Operating expenditure £14.82 £14.82 £14.82 £14.82 Total cost £23.01 £23.01 £23.01 £23.01 Revenue -£10.06 -£10.44 -£10.20 -£11.19 Present Value of Costs £12.96 £12.58 £12.82 £11.82 Benefits Consumers’ travel time (Commute) £8.97 £10.04 £9.75 £10.91 Consumers’ travel time (Business) £1.59 £1.78 £1.73 £1.94 Consumers’ travel time (Leisure) £12.63 £14.13 £13.74 £15.37 Decongestion Benefit £4.06 £4.06 £4.06 £4.06 Indirect Tax Revenues -£0.37 -£0.37 -£0.37 -£0.37 Present Value of Benefits £26.89 £29.64 £28.91 £31.91 Results Net Present Value NPV = B+R –C £13.93 £17.06 £16.09 £20.09 Benefit Cost Ratio BCR = B/(C-R) 2.08 2.36 2.26 2.70

Adjusted Transport Benefits Costs and Revenues Capital expenditure £8.19 £8.19 £8.19 £8.19 Operating expenditure £14.82 £14.82 £14.82 £14.82 Total cost £23.01 £23.01 £23.01 £23.01 Revenue -£10.06 -£10.44 -£10.20 -£11.19 Present Value of Costs £12.96 £12.58 £12.82 £11.82 Benefits Consumers’ travel time (Commute) £8.97 £10.04 £9.75 £10.91 Consumers’ travel time (Business) £1.59 £1.78 £1.73 £1.94 Consumers’ travel time (Leisure) £12.63 £14.13 £13.74 £15.37 Decongestion Benefit £4.06 £4.06 £4.06 £4.06 Indirect Tax Revenues -£0.37 -£0.37 -£0.37 -£0.37 Wider Economic Revenues £5.65 £5.65 £5.65 £5.65 Present Value of Benefits £32.54 £35.29 £34.56 £37.56 Results Net Present Value NPV = B+R-C £19.58 £22.71 £21.74 £25.74 Benefit Cost Ratio BCR = B/(C-R) 2.51 2.81 2.70 3.18

6.11.3 Two sensitivity tests have been conducted to examine the impact on the scheme appraisal if the demand cap year is altered. As per WebTAG guidance a demand cap of 10 years after the current year and 30 years after the current year has been applied. The results shown below indicate that with the lower demand cap the BCR reduces to 2.08 and with the longer demand cap the BCR increases to 2.94.

Preferred option (Option 3) Standard Transport Benefits Central 10 Year Cap 30 Year Cap Costs and Revenues £m in 2010 prices £m in 2010 prices £m in 2010 prices Capital expenditure £8.19 £8.19 £8.19 Operating expenditure £14.82 £14.82 £14.82 Total cost £23.01 £23.01 £23.01 Revenue -£10.06 -£8.93 -£10.94 Present Value of Costs £12.96 £14.09 £12.07 Benefits Consumers’ travel time (Commute) £8.97 £7.81 £9.99 Consumers’ travel time (Business) £1.59 £1.39 £1.78 Consumers’ travel time (Leisure) £12.63 £11.00 £14.08 Decongestion Benefit £4.06 £3.88 £4.44 Indirect Tax Revenues -£0.37 -£0.37 -£0.37 Present Value of Benefits £26.89 £23.71 £29.91 Results Net Present Value NPV = B+R –C £13.93 £9.63 £17.83 Benefit Cost Ratio BCR = B/(C-R) 2.08 1.68 2.48

Adjusted Transport Benefits Costs and Revenues Capital expenditure £8.19 £8.19 £8.19 Operating expenditure £14.82 £14.82 £14.82 Total cost £23.01 £23.01 £23.01 Revenue -£10.06 -£8.93 -£10.94 Present Value of Costs £12.96 £14.09 £12.07 Benefits Consumers’ travel time (Commute) £8.97 £7.81 £9.99 Consumers’ travel time (Business) £1.59 £1.39 £1.78 Consumers’ travel time (Leisure) £12.63 £11.00 £14.08 Decongestion Benefit £4.06 £3.88 £4.44 Indirect Tax Revenues -£0.37 -£0.37 -£0.37 Wider Economic Revenues £5.65 £5.65 £5.65 Present Value of Benefits £32.54 £29.36 £35.56 Results Net Present Value NPV = B+R-C £19.58 £15.28 £23.48 Benefit Cost Ratio BCR = B/(C-R) 2.51 2.08 2.94 6.11.4 In November 2016 values of time for business users changed to be distance based. The new values of time have been used in the main analysis but this sensitivity shows what the results would have been had the old method been used. This shows that the new method reduces the BCR from 2.86 to 2.51, as although there are not large numbers of business journeys on the network, the short distance nature of many trips (15km average) has reduced the value of business travel savings from around £6.1m to £1.6m over the appraisal period. The value of time for business uses has reduced from £40.75 per hour in 2025 to £10.44 per hour under the new method.

Preferred option (Option 3) Standard Transport Benefits Central Previous VOT Costs and Revenues £m in 2010 prices £m in 2010 prices Capital expenditure £8.19 £8.19 Operating expenditure £14.82 £14.82 Total cost £23.01 £23.01 Revenue -£10.06 -£10.06 Present Value of Costs £12.96 £12.96 Benefits Consumers’ travel time (Commute) £8.97 £8.97 Consumers’ travel time (Business) £1.59 £6.12 Consumers’ travel time (Leisure) £12.63 £12.63 Decongestion Benefit £4.06 £4.06 Indirect Tax Revenues -£0.37 -£0.37 Present Value of Benefits £26.89 £31.42 Results Net Present Value NPV = B+R –C £13.93 £18.46 Benefit Cost Ratio BCR = B/(C-R) 2.08 2.42

Adjusted Transport Benefits Costs and Revenues Capital expenditure £8.19 £8.19 Operating expenditure £14.82 £14.82 Total cost £23.01 £23.01 Revenue -£10.06 -£10.06 Present Value of Costs £12.96 £12.96 Benefits Consumers’ travel time (Commute) £8.97 £8.97 Consumers’ travel time (Business) £1.59 £6.12 Consumers’ travel time (Leisure) £12.63 £12.63 Decongestion Benefit £4.06 £4.06 Indirect Tax Revenues -£0.37 -£0.37 Wider Economic Revenues £5.65 £5.65 Present Value of Benefits £32.54 £37.07 Results Net Present Value NPV = B+R-C £19.58 £24.11 Benefit Cost Ratio BCR = B/(C-R) 2.51 2.86

6.12 Summary

6.12.1 The results of the initial economic appraisal indicate that under the preferred option (Option 3), the MTMSC has the potential to create substantial economic benefits to the NELEP economy.

6.12.2 The analysis indicates that under the preferred option (Option 3), the project has the potential to generate in the order of £32.5 million of benefits. The project

offers high value for money with a BCR of 2.51 under the preferred option (Option 3). This reflects the potential for transport and employment benefits. By comparison, under the ‘do minimum’ option (Option 2), the scheme has a lower BCR value of 0.52. The result of sensitivity testing demonstrates that the BCR under the preferred option (Option 3) remains robust with all the sensitivities delivering high value for money with BCRs over 2.0.

6.12.3 The project is also expected to generate substantial regeneration benefits to the NELEP economy. Although these benefits are not monetised in the economic appraisal and BCR (with the exception of employment), they are material considerations in assessing the costs and benefits of the project, and hence Value for Money associated with investment by the public sector. These regeneration benefits comprise:

1. Contribution to the delivery of strategic policy objectives

2. Employment opportunities

3. Training activity and Apprenticeships

4. Supply chain product development

5. Town centre health

6.12.4 These regeneration benefits are particularly significant to the delivery of the North East SEP and provide a robust case for investment of Local Growth Fund. The MTMSC responds to the strong imperative to improve skills in the NELEP area and to address replacement demand requirements in the rail industry and related sectors.

6.12.5 The project will also support the continued regeneration of South Shields town centre, contributing to the objectives of the South Shields 365 masterplan. In particular, under the preferred option (Option 3), it will help to improve the economic vitality of South Shields town centre through facilitation of major events such as the Great North Run, additional spending of MTMSC staff/trainees and synergies with long term investments.

6.12.6 Training activity and skills benefits would be generated under both the ‘do minimum’ option (Option 2) and preferred option (Option 3). The key difference however is that Option 3 delivers an integrated training and maintenance facility with better liaison and communications between all areas of Metro operation. This would result in additional benefits through hands-on training techniques such as lift and escalator maintenance, and the proposed mock control room.

6.12.7 Overall, these regeneration benefits are considered to be highly significant and represent additional benefits over those reflected in the BCR.