Granville New Homes
The Minutes of the special
meeting of the Community and Wellbeing Scrutiny Committee of October 7th
that examined the scandal of the Granville New Homes, built by Higgins, that
will cost more in remediation (£18.5m) than the purchase price.
It was a very thorough
examination of the issues involved and members’ concern that Higgins was not
spoken to about the defects. no redress sought and that this poor build was not
taken account of in awarding them current contracts in South Kilburn and
Stonebridge, was very clear.
The Committee agreed a comprehensive
list of recommendations including that they and the audit committee should
receive copies of the independent Ridge Report on the defects. Observers were
astonished that such a key report had not been presented to the Committees. Two
weeks after the meeting in a twitter reply to Wembley Matters, Brent Council
said that that a response to Scrutiny Committee's recommendations was being
compiled. For the sake of transparency this should be put in the public domain
and include the Ridge Report before Scrutiny's next meeting on Monday.
The Minutes
Councillor Southwood (Lead Member
for Housing and Welfare Reform) introduced the item which provided the
Community and Wellbeing Scrutiny Committee with an update on the options
analysis that First Wave Housing (FWH) carried out with the Company’s
Guarantor, Brent Council, on finding a viable option to fund and deliver the
required remediation works at Granville New Homes. She advised that this was
about putting things right, and fixing a historic issue that was not of the
making of anyone attending the meeting that evening but which needed to be
responded to in the present, looking to the future.
The proposal related to Granville
New Homes which were built in 2009. The Committee heard that, following the
Grenfell tragedy, all Council blocks were inspected to check cladding materials
and also for wider fire safety issues. Granville New Homes was found to
potentially have cladding that was not fire safe, therefore FWH went through
the process of getting relevant inspections into the fire safety of the blocks.
A Waking Watch had been in place in the blocks since October 2020 as a result
of the concerns raised through those inspections.
After further intrusive works
were conducted, the total cost estimate needed to remediate the properties was
substantial at £18.5m, which had considerable financial implications.
Councillor Southwood advised that the proposal to Cabinet was to transfer 85
(84 social tenants and 1 leaseholder) Granville New
Homes properties from FWH into the HRA, and further to transfer 25 intermediate
rented homes into i4B stock. This recommendation was the option that met all
the priorities set out in the Cabinet report.
The Chair thanked Councillor Southwood for her introduction and invited the
Committee to raise comments and questions, with the following issues raised:
Further context on the history of Granville New Homes was sought, including
when the Board and Guarantor became aware of the defects. Peter Gadsdon
(Director of FWH) advised that FWH took over the stock from Brent Housing
Partnership (BHP) in 2017. He advised that effectively BHP had stock that was
unable to go into the HRA at the time which included Granville New Homes, which
FWH took on. He advised that the first time the Board and Guarantor were aware
of the full extent of the issues to the stock was in May 2021 when the Ridge
report was received. He advised the Committee that the Audit Committee had also
been sighted on the issues in the blocks, including the extent of the financial
implications, although they had not seen the Ridge report. This was part of the
Audit Committee’s Forward Plan who, on an annual basis, looked at the business
plan for FWH as a subsidiary to the Council. The issue had also been discussed
with FWH’s external auditors.
The Committee requested further details about how the report was commissioned
and who had oversight of the defects, and wanted further details on the
considerations given to legal due diligence and financial due diligence. Peter
Gadsdon advised that as a result of the government MHCLG asking for all properties
over 18 metres with any form of cladding to be reviewed, the Board took the
decision to review the Granville blocks at 17.5 metres, where the fire service
reviewed the fire safety arrangements and were the first to alert the Board in
October of 2020 of issues with the fire safety arrangements. The Waking Watch
had been implemented since October 2020 as a result of the advice received to
ensure the safety of residents in the event of a fire. Further intrusive works
were commissioned following this as there was a need to cut into walls, take
windows out and break through walls to understand what the composition was,
which Ridge conducted, including in a number of flats which were empty.
Following the fully intrusive works where Ridge could see the full extent of
the issues, the Board received the final Ridge report in May 2021 and made the
Guarantor aware. In response to what financial due diligence took place, Minesh
Patel (Director of Finance, Brent Council), representing the Guarantor, advised
that Ridge were appointed as independent specialists to work through the
surveys and provide an estimate, which internal Finance Officers and Officers
on behalf of FWH had checked to ensure was correct. He advised that it was an
estimate and they would not know the true cost until the work had been started.
Hakeem Osinaike added that Ridge had been commissioned to undertake the
intrusive works with a good quality specification and therefore he had
confidence in the report submitted by Ridge.
The Committee queried whether the Council, as Guarantor of FWH, had chosen to
challenge FWH on the issues. Minesh Patel advised that the Council’s role as a
Guarantor was to meet with the Board of FWH on a regular basis to go through
Key Performance Indicators and understand how the Company was running. The
Guarantor had not been made aware of any issues prior to the final Ridge
report.
Hakeem Osinaike (Operational Director Housing, Brent Council) advised that the
properties were managed by Brent Housing Management (BHM) on behalf of FWH, and
they had managed the repairs in those blocks up until the inspection. He
advised that it was in rectifying the fire safety issues a decision was taken
to rectify any other issues as well.
The Committee noted that Higgins had been appointed to design and build the
blocks in 2009, and had heard from residents and staff that there had been
problems with the blocks since they were built. They queried what legal action
against Higgins, as the contractor, had been pursued, considering the roofs had
been previously replaced when FWH took over the building. Peter Gadsdon
confirmed that BHP had replaced one of the roofs before FWH took over, and once
FWH had taken over they had done works on water ingress issues and had planned
to replace all roofs over time as part of previously published business plans
for the Company, with an original cost estimate of £2m – 2.5m. With regard to
any legal action taken, Peter Gadsdon advised that the records showed the
building had been signed off and handed to the Council, but he was unable to
comment on anything before 2017 when FWH took over the buildings. He advised
that FWH had not had any conversations with Higgins regarding the defects which
they were made aware of in May 2021. Legal advice was previously sought about
whether there was any chance of redress but due to the passage of time were
advised it was unlikely. The Board’s priority was to ensure the properties were
repaired back to safety.
Continuing to discuss the contract with Higgins, the Board queried why the
Council were not communicating with them on this considering they were current
contractors on other blocks being built. They queried whether there was a risk
of this happening in other blocks that had been built or were being built.
Minesh Patel advised that he did not have the details on the construction
contracts with Higgins as that was a procurement process, but nothing had been
brought to his attention that there were any concerns on any of the blocks
Higgins had worked on.
Councillor Southwood advised that the contractor had been awarded work by the
Council through a procurement process without prejudice, the specification of
which would have applied modern building control and expectations to whatever
they built, and which would include monitoring on the delivery of their
contracts. From a FWH perspective it was highly unlikely any other stock would
have these issues as Granville New Homes were the only medium rise buildings in
the assets. Peter Gadsdon added that, like the Council, FWH and i4B
commissioned stock condition surveys and had Fire Risk Assessments in place and
there were no issues in that regard. Councillor Southwood agreed to provide
written assurances to the Committee that there was no issues in any of the
blocks Higgins had worked on, and further information on the procurement
process such as whether past performance of a contractor was considered before
awarding a contract.
The Committee considered the financial implications of the proposals, and
Ravinder Jassar (Deputy Director of Finance, Brent Council) confirmed that no
funds were being written off to the Council’s general fund. FWH would refinance
the debt but still have a debt to the Council and service that debt over a 50
year period. The remaining stock in FWH remained with positive cashflow that
allowed the servicing of that debt.
The Committee queried what risk
assessments had been done considering the rise of inflation and high likelihood
of a rise in interest rates. Councillor Southwood advised that was why the paper
was being brought to Cabinet, as every penny borrowed against the HRA was
needed and the Council wanted to minimise the amount per year that tenant’s
rent was used to pay interest towards. It was in the Council’s interest to
secure the borrowing as soon as possible before interest rates changed. Further
considering financial implications, the Committee highlighted the labour
shortages, and increased labour and material costs as a result of the pandemic,
and queried whether that had been budgeted for in the contingency.
Peter Gadsdon advised that the
costings were estimated in May of the current year, post pandemic, with those
things taken into consideration as much as possible. In considering the
finances of FWH, Committee members highlighted that FWH’s most recently
published accounts showed a discrepancy in the valuation of the Company, and
asked about the justification and reasoning behind the valuation. Finance
Officers agreed to provide a written explanation to the Committee. In terms of
the financial implications to i4B, Ravinder Jassar advised that i4B would
acquire the units for £3.5m, with an average weekly rent of £324 per unit per
week, which made the purchase price per unit around £140,000. This was within
the overall affordability limits of i4B and was a reasonable deal for them.
The Committee queried the rationale behind the proposal and why the Council
were not able to lend FWH money to undertake the remediation. Ravinder Jassar
explained that FWH were not able to afford the remediation works required even
if they tried to refinance at a lower rate, and the business plan would no
longer be viable. The option to demolish and rebuild had also been considered
but was not financially viable. The Committee were advised that borrowing with the
HRA was cheaper than lending to FWH, and the Council could not lend money to
its subsidiary at the rate it could get as a Local Authority.
The Committee queried whether there was a risk to the business plan of a loss
in rental income should a large number of tenants exercise the right to buy
once they were brought in to a secure Council tenancy. Hakeem Osinaike advised
that the right to buy in itself did not affect the financing of the transfer,
and the income from any right to buy would be used to build New Council Homes.
Councillor Southwood gave assurance to the Committee that the Council knew how
many people exercised the right to buy on average per year, and she had
received assurance from officers that there was no reason to think the
proportion would be greater amongst this cohort. The financial assumptions were
modelled on the same as any right to buy across the HRA, and if a greater
proportion exercised that right there was contingency built in to the revenue
forecasting. Peter Gadsdon added that 72 of the 84 social tenants had right to
buy when the blocks originally transferred into BHP with only 1 tenant
exercising that right. The Committee highlighted that the refurbishment of the
blocks may change the numbers exercising their right to buy.
In considering the tenants within the block, the Committee queried what the
proposals would mean for them. Councillor Southwood advised that for the 85
residents transferring to the HRA, the tenants would become full secure social
tenants with the same rights as anyone else in the HRA, which she highlighted
was one of the most secure forms of housing. The one leaseholder would become a
Council leaseholder. The intention was for the Council to waive the charging of
the cost of refurbishment to the leaseholder. The rents for the 84 social
tenants would not change, and neither would the 25 intermediate rented
properties proposed to transfer to i4B. In addition, there would be no change
in their housing management services, which would continue to be delivered by
Brent Housing Management (BHM). The Ridge report predicted that the works could
be carried out without decanting residents.
With regard to whether tenants would get a rent waiver, reduction, or rent free
period, the Committee were advised that none of those issues had been
considered yet but would be as part of the consultation process. Hakeem
Osinaike advised that it was not usual for the Council to offer rent reductions
when carrying out major refurbishment.
The Committee asked how tenants would be engaged and how resident engagement had gone so far. BHM undertook engagement on behalf of FWH. At the
time of the fire survey all residents were written to with an explanation of
the issues, the Waking Watch and the work that was done to strip out flammable
portioning. An online Zoom meeting had also been set up for tenants to raise
concerns, however only a few people had joined. The Committee were advised that
up to the point of the Committee meeting there had not been much response from
residents. As such, BHM were engaging with residents individually when repairs
were carried out in their homes, and everyone was aware of the issues and the
way they were being taken forward. Further communications to residents would be
necessary with the next steps.
The Committee queried whether the Council had considered carrying out energy
efficiency and decarbonisation works in tandem with the remediation. Councillor
Southwood advised that any discussion about decarbonisation works for those
homes would be considered in the context of them being part of the HRA. The
£18.5m in costs referred only to structural and safety works required and not
any additional cosmetic work such as updating kitchens or bathrooms or
decarbonisation works. She advised that the cyclical maintenance schedule would
mean the properties under discussion would be due for new kitchens and
bathrooms around the time of the works being undertaken, so while builders were
in and tenants were disrupted it made sense to do as much work as possible.
Hakeem Osinaike added that as the internal and external walls had been stripped
back as part of the intrusive surveys, when they were reconstructed they would
meet the required energy efficiency targets. In terms of the Council’s
decarbonisation work they were currently looking to retrofit a street property.
No decarbonisation grants had been considered for the Granville New Homes
properties.
The Committee questioned the
delegated authority for the decision and Councillor Southwood advised that the
issues crossed portfolios, but because the issue was specifically a technical
financial recommendation it sat with the Deputy Leader, Councillor McLennan.
Councillor Southwood was presenting to the Scrutiny Committee as they had asked
to look specifically at the HRA, which was within her remit as the Cabinet Lead
for Housing and Welfare Reform.
The Chair thanked officers for
their responses. In considering their recommendations, the Committee discussed
concerns over the reputational risk to the Council, the relationship between
the Council and its subsidiaries, the engagement and communication between the
residents and the Council and its subsidiaries, the concerns over the building
handover process of the blocks, and concerns regarding the commissioning
process and contract monitoring of these types of contracts.
The Chair reopened the meeting to provide the recommendations agreed. The
Committee RESOLVED:
i) To
recommend that officers provide assurance that the Council has undertaken due diligence reviews of its subsidiary bodies, including governance, fitness for purpose, financial soundness and reputational risk.
ii) That officers ensure that the Ridge report is made available to the Community and Wellbeing Scrutiny Committee and audit committee.
iii) To recommend that officers review arrangements for entering contracts of
this kind, in particular to ensure adequate arrangements are made to ensure
appropriate design and build quality, and that the Council has appropriate
recourse where latent defects are later identified.
iv) To recommend that officers ensure all potential contractors are made aware
of the standards expected by the Council and to ensure these are met before
buildings are formally accepted by the Council.
v) To recommend that the Council provide written assurance that it has taken,
or will undertake, independent legal and financial advice (including tax)
regarding the proposals and next steps.
vi) To recommend that all contracts procured by the Council and its
subsidiaries include a review of past delivery of any potential contractors.
vii) To recommend that the Council ensures that where issues are evident in a
particular project, all remaining projects by the same contractor are reviewed
as a matter of urgency.
viii)To recommend that officers
review the steps that make up the procurement, commissioning and contract
monitoring system to identify any gaps, especially in relation to risk and
review. Where risks are identified to recommend that immediate action is taken.
ix) To recommend that the Council puts in place arrangements to ensure learning about this case and any others raising issues of similar significance is shared across the Council as well as with existing and potential future partners/contractors.
x) To recommend that officers
establish and publish a comprehensive plan for ongoing engagement with
residents.
