Public procurement notice: Voluntary Ex Ante Transparency Notice
Published: 2017-02-18
Buyer: Homes and Communities Agency
Country: UK
Region: Leeds
Contract type: Works
Procedure: Contract award without prior publication
CPV classification: 45210000: Building construction work | 45211100 | 45211300 | 45211340 | 45211350
Estimated value: 70000000 GBP

Technical requirements: Following a competitive dialogue pursuant to the Public Contracts Regulations 2006, the Homes and Communities Agency (the ‘Agency’) entered into an Agreement for Lease (‘AfL’) with Carillion (Maple Oak) Limited (‘Carillion’) on 16.10.2015. The original procurement exercise was split into 2 separate lots (Lot 1 — acquisition and development of Tower Works (procured by the Agency) and Lot 2 — the redevelopment/refurbishment of the former Engine House (which sits within the wider Tower Works site and procured on behalf of Leeds City Council)). Carillion was awarded Lot 1, and will be providing works and services connected to the acquisition and development of Tower Works. Due to circumstances which the Agency could not have foreseen at the time of the original procurement and upon execution of the AfL, the contractual documents in respect of Lot 1 must be varied as further described within this notice. The Agency believes these changes are consistent with regulation 72(1)(c) PCR 15.
The original project comprised mixed commercial and private/affordable dwellings (the private element consisting of a ‘private sale’ scheme). The original intention was that one headlease would be granted to Carillion in respect of both the residential and commercial elements. Following execution of the AfL, the Agency has found that due to unforeseeable circumstances, the original structure for the scheme had to be adjusted, primarily due to the withdrawal of external equity in respect of schemes targeted at the sale market. The Agency has been advised that a private-rented scheme (‘PRS’) is now the only way to progress the development. In addition, external funders of PRS schemes would require a headlease of the development as security for their investment (i.e. rather than an underlease or the provision of a charge over all or part of the scheme). In light of this, the Agency intends to amend the contract documents to facilitate this.
At the start of the procurement process, there was an emergence in demand in Leeds city centre for private residential sales following a significant period of inactivity following the 2008 financial crisis. By 2014, market expectation was that demand for private sales would be strong over the following years. This drove the design of the procurement for Tower Works on the basis of a private open market led residential scheme. However, since entering into the AfL, unforeseeable developments (including, but not limited to, the recent Brexit result) have led to uncertainties and changes in the market, with the result that the risks for both developers and funders associated with taking forward a scheme of this nature are now significantly greater. In particular, PRS has taken over from private open market sales as the most active form of city centre residential development. During the procurement process, the emerging PRS market was led by a limited number of institutions focussing on existing built product in London and the South East. However over time, the emergence of the PRS sector, together with a lack of institutional grade product has focussed expansion of PRS into other regions (initially focused in Manchester, and only more recently into cities such as Liverpool, Birmingham and Leeds). The changing market circumstances over the last year have now dictated that PRS is the only commercially prudent route for development. A market sale led residential scheme now represents both unacceptably high risk and questionable commercial viability. In light of this, the Agency considers that the contract documents need to be modified to facilitate a PRS scheme (circumstances which it could not have foreseen at the time of commencing the procurement or entering into the AfL). The Agency also considers that the amendments required to the contract documents do not alter the overall nature of the contract (the commercial terms will remain identical to the original lease structure and in particular, all development obligations will remain with Carillion). The scope and nature of the development has not changed (there remains a split of residential and commercial across the site in the same footprint proportions as the original design) and there will be no change to the price payable to Carillion. To that end, the Agency is of the opinion that permitting the above-mentioned changes would meet the requirements of regulation 72(1)(c) of the PCR 2015.
As a separate issue, a copy of the base form lease (attached to the AfL) included an obligation on Carillion to ‘start on site’ within 3 months of the date of the lease. However, due to the fact that the project has had to be varied due to unforeseeable external market factors as described above, this means that (a) a new planning permission needs to be obtained and (b) that time-frame is no longer practical. To that end, the Agency intends to adjust the ‘start on site’ date to 6 months. The Agency does not consider that such an amendment to the contract documents is substantial as defined within regulation 72(8) of the Public Contracts Regulations 2015.


Winner: Carillion (Maple Oak) Limited
Award value: 70000000