18 March 2022: River Thames Flood Alleviation Scheme accounting officer assessment
Updated 5 October 2023
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Background and context
The Lower Thames floodplain is undefended between Datchet and Teddington. More than 15,000 properties are at risk from a 1% annual exceedance probability (AEP) flood and 10,000 from a 2% AEP flood, placing communities in Datchet, Wraysbury, Staines, Egham, Hythe, Chertsey, Laleham and Shepperton at risk. Junction 13 of the M25 is at risk of closure for several days and over 300 kilometres of other roads are at risk of flooding.
The economic optimum option identified in the strategic outline case comprised 3 flood alleviation channels alongside the River Thames and improvements to 3 weirs at a present value (PV) cost of £461 million and a benefit-cost ratio (BCR) of 5. The Outline Business Case (OBC) confirms a 2-channel variation of the option choice. The PV cost is now £346 million including a 48% contingency and the BCR is 7.97. The scheme will reduce flood risk to 11,000 properties and infrastructure and avoid £2.7 billion of PV damage over 100 years.
Construction of the new flood channels will involve the excavation and reuse or disposal of 700,000mᶾ of material including landfill waste. The design and construction of the scheme will be procured via Public Contract Regulations 2015 using the Competitive Procedure with Negotiation.
The OBC seeks approval to a cumulative Full Business Case (FBC) development cost of £104 million which includes the advanced delivery of compensation habitat.
The project will be delivered in partnership by the Environment Agency (EA) and Surrey County Council.
This assessment accompanied the OBC was approved by HM Treasury in June 2021.
Assessment against the Accounting Officer tests
Regularity
The scheme cost and the OBC interim cost both exceed the EA/Defra delegated authority from HM Treasury (above £100 million whole life costs). Investment requires business case approval from HM Treasury to ensure compliance with Managing Public Money.
In promoting the project, the EA has responsibilities under the Flood and Water Management Act 2010 (FWMA) and Water Resources Act. Section 165 of the Water Resources Act gives the EA the power to carry out “flood risk management work” if the EA considers the work desirable having regard to the national flood and coastal erosion risk management strategies under Section 7 and 8 of the FWMA and that the purpose of the work is to manage a flood risk (within the meaning of the Act) from the sea or a main river.
Planning permissions will be obtained via the Development Consent Order Process. The scheme is to be constructed within green belt so must comply with green belt policy. The scheme boundary contains high archaeological interest.
Access to land is subject to negotiation with individual landowners and a parallel process of compulsory purchase to avoid delay to the schedule. The inquiry process is built into the Development Consent Order process.
The scheme will impact the South West London Waterbodies SPA (Special Protection Area) and an Appropriate Assessment will accompany the planning applications. No Adverse Effect is the expected outcome. A number of Water Framework Directives water bodies are affected. The outline Water Framework Directives assessment indicates that an Article 4.7 derogation will not be required.
Large amounts of historic landfill must be relocated. Excavation is proposed within Minerals Safeguarding Areas requiring approval from Surrey County Council. A Marine Licence from the Marine Management Organisation under the Marine and Coastal Access Act 2009 will be needed for works below Teddington.
Overall assessment
The test is met for this OBC stage.
Propriety
There are no specific concerns that the project is outside of Parliament’s intentions. The business case demonstrates alignment with the Defra policy statement ‘Appraisal of flood and coastal erosion risk management, 2009’. Public funding from grant in aid follows the principles in the Defra policy statement ‘Flood and coastal resilience partnership funding: 2011’.
The capital funding required to commence but not complete the full business case is included in the EA Flood and Coastal Erosion Risk Management Investment Programme 2015 to 2021. The balance of grant in aid element of the capital funding required to complete the design and procurement and construct the works is included in the indicative 2021 to 2027 programme.
The OBC identifies that the FBC approval will be in the order of £501 million. Two-thirds will be funded from government with the remainder from local authorities and in particular Surrey County Council who have confirmed the availability of contributions up to £237 million. Additional funding opportunities continue to be investigated.
Overall assessment
The test is met for this OBC stage.
Value for money
Economic appraisal was undertaken in accordance with the Flood and Coastal Erosion Risk Management Appraisal Guidance (EA 2010) including supplementary guidance notes. The guidance follows the provisions of the HM Treasury Green Book.
The Business Case is derived from the extensive appraisal carried out in the 2009 Lower Thames Strategy. The strategic appraisal was updated, and the options short list drawn up at the Strategic Outline Case stage. The subsequent OBC retains the same short list of 5 options, do-nothing, do minimum, maintain, local scale defences and the by-pass channels. The channel cross section was optimised by evaluating small, medium and large alternatives.
The level of funding available from partners led the analysis for the OBC Economic Case confirming a reduced scope to deliver 2 of the 3 proposed flood channels. This has strengthened the economic justification and as a by-product this revised option provides better value for money.
The economic cost of the selected option is £346 million and includes optimism bias to reflect uncertainty and a risk contingency based on a statistical evaluation of the risk register. The combined allowance for risk and uncertainty is 48% of the base cost.
The refinement of the economic appraisal demonstrates that the BCR of the selected option has increased from 5 to 7.97, whereas the incremental BCR has fallen from 1.9 at SOBC to 1.32 at OBC. Sensitivity tests indicate that even with variability in cost or benefit outcomes the option choice remains the same and can be considered robust.
The project is committed to making efficiency savings that support the overall 6-year investment programme target of 10%.
Overall assessment
The test is met for this OBC stage.
Feasibility
A full review of the commercial options is required for large projects such as the River Thames Scheme. A number of procurement models were reviewed including conventional design then tender, one stage design and build and Public Private Partnerships were tested and found to increase the overall programme and cost and not to offer best value. This analysis and market soundings have led us to recommend a bespoke two-stage design and build procurement strategy. The intention is to conduct a tendering exercise in the open market for this requirement in order to secure an optimum value for money outcome. The design stage supported by early contractor involvement will be awarded following OBC approval in order to inform the production of the FBC. There will be no contractual commitment to progress beyond the design stage. It is recognised that we will be competing for resources with other large infrastructure programmes but this approach provides the optimal commitment to the supply chain. The commercial model is focused on delivering cost certainty, managing risk and benefits delivery whilst encouraging innovation and efficiencies.
The technical challenge is understood well, and we have learnt from other projects in the EA’s Capital Programme. The outline design of the scheme has been informed by extensive site investigations and advice from constructors and other professional disciplines giving high confidence that the scheme can be delivered successfully to time, cost and programme (whilst recognising the risks shown below). The scheme is large in scale for a flood defence project, but the construction methods that will be used are standard industry practice.
The commercial case has benefitted from the support of the Infrastructure and Projects Authority route map process.
The main risks to delivery of the FBC are the planning process and the time needed to acquire sufficient environmental survey data, challenges to the Development Consent Order to secure planning permission with the necessary land and delivering the bespoke procurement exercise necessary for a project of this scale.
[March 2022 update – the increasing cost of materials and general inflationary pressures are also now recognised as a risk and is being closely monitored.]
Overall assessment
The test is met for this OBC stage.
Affordability
Current estimates show that 60% of the capital cost of the scheme qualifies for government funding through grant in aid. The balance of funding will come from contributions from Surrey County Council, government and other sources. Based on these contributions, the adjusted partnership funding score stands at 183%.
The current approval granted is £42.8 million and the OBC seeks a further £61.1 million to deliver the FBC and advanced works. The grant element of the FBC development cost in the current capital programme has been confirmed however the £4 million of grant needed in the next spending review period is unconfirmed. Delivery of the full scheme will extend into the next 2 spending review periods, and therefore government funding cannot be confirmed but can be reasonably expected to be committed in any future EA capital investment programme.
Overall assessment
The test is met for this OBC stage.
Conclusion
The Defra Investment Committee have authority for recommending the submission of major project business cases for final approval by HM Treasury. This authority is delegated from the Defra Accounting Officer. The Defra Investment Committee recommended this Accounting Officer Assessment on 16 September 2020. This summary will be published on the government’s website (GOV.UK). Copies will be deposited in the Library of the House of Commons and sent to the Comptroller and Auditor General and Treasury Officer of Accounts.
Tamara Finkelstein