Belfast Met Titanic Quarter campus: The £211m college that should have cost £44m
Now taxpayer may have to pick up £20m bill as Audit Office raises serious concerns about the value of public-private deal
A failed bid to capitalise on the property boom could leave the taxpayer to cover a multi-million pound shortfall for Belfast Metropolitan College's new Titanic Quarter campus, it has emerged.
The flagship facility, which opened in 2011, was financed through a 25-year Public Private Partnership (PPP) agreement.
The PPP agreement means the project will cost £211m – compared to an initial bill of £44m.
A report from the Audit Office states that proceeds from the sale of two city centre buildings were expected to cover the public sector's £20m contribution to its initial cost.
But Belfast Met opted to pay £15m to take responsibility for the sites at Brunswick Street and College Square East – estimated to be worth £22.5m at the height of the boom – rather than transferring the assets to a contractor, as originally planned.
However, the crash meant the sites remain unsold, and will result in a likely shortfall in expected income. That deficit will ultimately be covered by the public purse.
The college has also spent over £1m securing and maintaining the sites in the interim.
The concerns are raised in a critical report by the Audit Office which questions whether the project has delivered value for money.
The report also identifies issues over procurement and project management.
Belfast Met entered into the 25-year Public Private Partnership (PPP) agreement with Ivywood Colleges Limited (ICL) in 2009 to design, build, finance and operate the new campus in the Titanic Quarter.
A PPP agreement involves a company building and then operating a facility for a public sector organisation in return for an annual fee over a contract period.
Auditors identified failings in how Belfast Met negotiated its PPP agreement with ICL to pay it £5.6m a year for 25 years.
One of its main criticisms is the expected shortfall in the £20m college contribution – a deficit the Department of Employment and Learning (DEL), the public purse – will have to fund.
In early drafts of the deal, the ownership of the Brunswick Street and College Square East properties would have been transferred to ICL when the Titanic site was completed.
However, negotiations took place at a time when property prices were rising and, with planning approvals also approved for developing the two sites, their value soared, surging from £8.8m in 2005 to £22.5m by 2008.
College bosses decided to change the deal and, two months after ICL was appointed the preferred bidder, it removed the transfer of the buildings, substituting them with a capital contribution of £15m.
The college felt removing them from the deal was the best way of achieving open market value.
However, the agreement meant the risk of movements in property values was transferred back to the public sector.
The college also agreed to pay £5m for the sub-lease of the Titanic Quarter site – £2.5m each to Belfast Harbour Commissioners and Titanic Quarter Limited – taking the public sector contribution to £20m.
It was intended the proceeds from the sale of the College Square East and Brunswick Street sites would fund this contribution.
DEL had agreed that, in the event of the sale not realising the full £20m, it would make up the shortfall.
However, the value of these properties has fallen significantly and a large shortfall in the expected income is now likely.
The Audit Office report said: "The sale of these assets will fall significantly short of covering the total £20m capital contributions made by the public sector."
Belfast Met must also foot the cost of maintaining and securing the properties until they are sold.
To date approximately £310,000 has been spent preparing the College Square East and Brunswick Street sites for disposal. The cost of maintaining and securing the sites since the Titanic Campus was opened in 2011 to last September was a further £770,000.
Today's report also refers to weak finances and governance arrangements at the time of the procurement of the new campus.
It says: "The college did not have a robust estate strategy in place; accordingly strategic objectives for the new city centre project were not clearly defined."
However, auditors noted that the college's management team has since changed and suggested the present incumbents have helped to turn around the project.
The report states that DEL officials do not share a number of the auditors' conclusions – for example, they claim the value of the Titanic project should not be linked to the market price of the former sites, as that was ultimately removed from the PPP agreement.
A DEL spokesperson said: "This report will be subject to a review by the Public Accounts Committee and a hearing is scheduled for June 18, 2014.
"It is not appropriate to comment in advance of that hearing."
Belfast Met also declined to comment further.
ICL did not respond to requests for comment.
No benefits from private sector tie-up
Belfast Met's Titanic Quarter project did not benefit from opting for a Public Private Partnership agreement, today's report states.
Auditors concluded there was "no clear advantage of going down the PPP route".
A Public Private Partnership is a long-term relationship between the public and private sectors to deliver services.
The initiative was championed by the Blair Government.
Today's report said a number of audit reports on public-private deals have highlighted a need for the public sector to "act as a more intelligent customer in the procurement and management of such projects".
It refers to a previous report in January, which examined Private Finance Initiative (PFI) projects. These are a type of PPP used to fund major capital investments.
There are currently 39 PFI contracts in Northern Ireland.
The Audit Office found these contracts will take almost a quarter-of-a-billion pounds a year out of Stormont budgets until 2030.
Among the current PFI projects is the Invest NI headquarters in Belfast city centre.
In June 2011 a total saving of 3% (£28,500) in the annual cost of running the service was agreed.
However, the project is one of the few in Northern Ireland where efficiencies have been sought.
Entering PFI partnerships with the private sector helps Stormont avoid large one-off bills. However, since the PFI method was adopted in 1992 it has built up significant spending commitments for future budgets, estimated at £7.3bn and averaging £245m a year until 2030.
Contracts may run for 30 years, but departments' budgets are set over terms of up to four years.
But as PFI repayments have to be kept up for decades even if budgets are slashed, there is a real risk that publicly-funded Government services will suffer.
Report highlights repeated failures to meet timetable
Plans for a new Belfast Met campus were first outlined in 1999 but it was 2011 – 12 years later – before the building was finally handed over.
Today's Audit Office report is critical of delays, particularly leading up to the signing of the Public Private Partnership agreement with Ivywood Colleges Limited (ICL).
The timetable was subject to constant change and there were significant and numerous failures to meet project milestones.
"The repeated failure to deliver to timetable is indicative of poor identification and assessment of risks and weaknesses in project management," it stated.
The need for a new campus was identified in June 1999, however delays meant ICL was not appointed as preferred bidder until October 2006.
An initial problem was the college's involvement in a joint venture with the University of Ulster scoping the potential development of the Springvale Educational Village in west Belfast, which fell through in 2002.
When ICL was eventually appointed preferred bidder, protracted negotiations with the college extended the timetable to contract signature from a planned 12 months to 30 months.
One factor was ICL's proposal to provide an underground car park that did not form part of the college's requirements or ICL's original bid, but was part of its planning application.
The issues were resolved by November 2008.
The report states Belfast Met and the Department for Employment and Learning sought, through negotiations with ICL, to protect the public sector's interest by ensuring leasing arrangements did not contain restrictive clauses on the use of the site for the campus.
It was agreed separately, and outside the PPP contract, that a company connected to ICL, Ivywood Car Parks Limited, would construct a sub-basement car park at its own cost (£5.3m).
Ivywood Car Parks is entitled to operate the car park for 40 years, after which it reverts to Belfast Met at no cost. The college is also entitled to income of £10,000 each year and a profit-share agreement once the car park company recoups its expenditure.
ICL did not respond to requests for comment.