Auditors question college PPP deal
Belfast Metropolitan College's ongoing failure to sell two former teaching buildings in Belfast city centre has thrown into question the value for money of its new £211 million campus at the Titanic Quarter, auditors have found.
The decision to take responsibility for selling the Brunswick Street and College Square East properties rather than transferring the assets to a contractor, as originally envisaged, was undermined by the property market crash and has left the college facing a multimillion-pound shortfall, the critical report by the NI Audit Office concluded.
The modern Titanic Quarter campus in east Belfast, which opened in 2011, was delivered through a so-called Public Private Partnership (PPP) agreement - whereby a company builds and then operates a facility for a public sector organisation in return for an annual fee over a set contract period.
Auditors found many failings in how the college negotiated its PPP agreement with preferred bidder Ivywood Colleges Limited (ICL) to pay it £5.6 million a year for 25 years.
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.
But with negotiations taking place at a time when property prices were still rising, college bosses decided to change this clause, instead choosing to retain ownership of the buildings and pay a capital contribution to ICL - a sum that ended up at £15 million.
Having obtained valuations for the two buildings in 2008 totalling £22.5 million, the college decided that selling them itself and paying £15 million to ICL represented better value for money. It also intended to use the money obtained from selling the buildings to cover a £5 million upfront outlay for subleasing the land at the Titanic Quarter.
But by the time the college was in a position to put the 'for sale' signs up - when the campuses were no longer needed after students were transferred to the new site in 2011 - the property market was in dramatically poorer health.
The buildings still remain unsold, with the college having spent in excess of £1 million in securing and maintaining them in the interim.
The college is primarily funded by Stormont's Department of Employment and Learning (DEL).
Kieran Donnelly, comptroller and auditor general at the NI Audit Office, said: "The college injected £20 million into the project which it expected to recoup from the sale of its Brunswick Street and College Square East properties,
"However, the value of these properties has fallen significantly and a large shortfall in the expected receipts is now likely.
"The college has also had to meet the cost of maintaining and securing the properties until they are sold. These costs must be factored into any meaningful assessment of the project's overall value for money."
This decision to transfer the risk associated with fluctuating property prices to the public sector was one of a number of issues of concern flagged up in the report.
It also noted that the original timetable for negotiating the contract was set at 12 months, but actually lasted for two-and-a-half years.
Auditors said this was "too long" and resulted in "significant changes" being made to the terms of the PPP which reduced its value for money.
"When the contract was signed in April 2009 the value for money benefit of using PPP as opposed to a conventional procurement route was marginal," said Mr Donnelly.
"According to today's report, the value for money of the deal has further reduced since the contract was signed."
The report highlighted weakness in senior management and financial control in the period before the agreement was finalised.
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 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".
"Given the significant capital payments made by the department and the additional costs associated with PPP procurement, there was no clear advantage of going down the PPP route for this project," it stated.
"On that basis and because of other additional costs, we cannot conclude that the overall project has delivered value for money.
"The wider lessons emerging from this project are not new. However, they serve as a useful reminder and their application should help ensure that value for money is achieved in other public sector projects."
The report stated 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.
However, the department declined to make an official comment on the findings, claiming it would be inappropriate to do so before the matter was discussed by members of Stormont's Public Accounts Committee in June.
A spokeswoman from Belfast Met gave the same rationale in also not commenting on the report.