Full Business Case
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- Why has the cost gone up from £165.2m to £207.3m?
- How long will construction take?
- When do you expect trams to be operational?
- Has the £20m extraordinary dividend been confirmed by Lothian Buses?
- What input has Lothian Buses had to the final business case in terms of the impact on their business?
- How supportive are the residents of Leith and Newhaven to the tram?
- How extensively did you consult with the local community and did their input have any effect on the project?
- How did the community respond to the changes made to the design during the second round of consultation?
- What Council services are being reduced to pay for Trams to Newhaven?
- What resources have been put in place to deliver the project now that it has been given the go ahead?
- What is happening with the Hardie Inquiry?
- What are projected passenger numbers for the Trams to Newhaven project?
- What is optimism bias?
- Why have you undertaken a review of the Final Business Case?
- Are you cancelling the project?
- Why aren't you cancelling the project?
- What is the financial impact for the Council in the long term?
- Why did you use these particular four scenarios?
- Which of the scenarios is most likely?
- Why don’t you stop construction now and wait to see what happens with COVID 19 and public transport patronage?
- The report details changes to Council’s financial rules – is this being done only for the Trams to Newhaven Project?
- In some of the scenarios there is a call on Council reserves – why is this?
- How is the project progressing?
Why has the cost gone up from £165.2m to £207.3m?
Total construction costs are now estimated in the Final Business Case (FBC) to be £196m. This includes a significant risk allowance to take account of any foreseen and unforeseen risks to the project.Over and above the risk allowance included in the £196m, a further uplift for optimism bias has been added in accordance with government guidelines, taking the total project cost to £207.3m.
The initial estimate of £165m in the Outline Business Case did not include the uplift for optimism bias and reflected the information available at that point in time. It was always the case that the Council would market test the pricing before making any final decision. As well as market testing there have been other changes which are set out below.
As it is approximately 18 months since the updated Outline Business Case was finalised, inflation has been added to the cost plan.
Since the Outline Business Case was published, we have seen the collapse of Carillion leading to changes in the way risk is analysed and priced by contractors tendering for major infrastructure projects. This is reflected in the tendered prices received. There have also been significant changes made to the design based on feedback received from the community during consultation. This has led to changes in the construction costs to reflect the outcome of the consultation.
In order to ensure the team hit the ground running when construction commences, a period of Early Contractor Involvement (ECI) will commence, at the end of March. The team, contractors, designers and utility providers will co-locate for a period of six months to plan the delivery methodology and phasing in finer detail. This is considered best practice in the industry and is consistent with all other major projects in the UK. This additional six month period is reflected in the cost plan.
Finally, following feedback from the public and business community in Leith, the Council has devised a comprehensive package of support measures to help business throughout the works. This includes a business continuity grant fund to help alleviate short-term cash flow issues, logistics hubs, customer service officers, extra help to keep the area clean and attractive and technological solutions to help local business connect more easily with each other and their customers. The total value of this package is approximately £2.4m (including contractor contributions) and is included in the updated costings for the project. Details on how we intend to support business during the works will be communicated later this Spring.
Taking account of the above, the Council is confident that the project will be delivered within the updated project cost of £207.3m. The FBC outlines that the project is both affordable and deliverable. This has takes account of various economic, social and environmental factors, with the city set to benefit in all these areas following completion of the line to Newhaven via Leith.
How long will construction take?
The ECI process was completed in October 2019 and construction started on 18 November 2019 on Constitution Street.
Construction will be split into distinct geographical areas with works lasting anything up 18 months per area. A number of work sites will be open at any one time
Once construction in a work area is complete the temporary traffic management will be removed and the street will be handed back for operational use. Any further work to complete an area will be done under localised traffic management with no need to close the entire area again
When do you expect trams to be operational?
Passenger services are projected to begin in early 2023.
Has the £20m extraordinary dividend been confirmed by Lothian Buses?
COVID-19 is also having a significant impact on the financial position of Lothian Buses. Lothian has indicated that further payments of the extraordinary dividend assumed in the FBC will not be available for the foreseeable future. To date the project has received £1.2m of the extraordinary dividend from Lothian. However it should be noted that additional developer contributions along with a more advantageous interest rate secured by the project now means that the business case is less reliant on further extraordinary dividend payments. You can read further details on this in the updated Final Business Case (pages 12 – 13).
What input has Lothian Buses had to the final business case in terms of the impact on their business?
The Council has worked closely with Lothian Buses during the development of the final business case and continues to work with Lothian Buses closely in developing traffic management arrangements, including the implementation of bus priority measures to speed up journey times to minimise the impact on Lothian buses and its customers by keeping the city moving and placing the provision of public transport high on the agenda.
How supportive are the residents of Leith and Newhaven to the tram?
Early in 2018, the Council commissioned Progressive Partnership – an independent polling company based in Edinburgh – to carry out an on-street survey on attitudes towards tram. The methodology used ensured that the 370 people who were interviewed were a fair reflection of the demographics of the local area.
The outcomes of the survey were very encouraging, especially considering that this research exercise was carried out ahead of the extensive public consultation and engagement with the local community.
When asked, unprompted, to suggest what form of transport improvements could be made to the street, the largest number said tram (37%), followed by an improved bus service (28%) and a further 23% who would like to see an improvement in cycling/walking infrastructure.
Respondents were also asked whether they believed that the tram would benefit the local area with 59% agreeing (41% strongly agreed) versus 30% who said it would not. Stripping out those who answered ‘neither agree nor disagree’, 66% agree that the area will benefit vs 34% who said it would not.
On how likely respondents were to use the tram, 56% said they were likely to use the service, with 25% of all respondents saying they would definitely use the service.
How extensively did you consult with the local community and did their input have any effect on the project?
During our consultation exercise throughout 2018 with the community, we spoke to thousands of people at our many public information events. As well as this the Council hosted a number of community design workshops which were well attended by a cross section of stakeholders.
In doing so the Council have been able to produce an updated set of plans that better reflect the aspirations of the local community. In autumn 2018 the Council presented the updated plans to the public via a series of information events and an online consultation. The results were encouraging, with the majority of people agreeing that they were an improvement on the plans we published earlier in 2018.
How did the community respond to the changes made to the design during the second round of consultation?
When asked “to what extent do you agree that the updated plans have given better consideration to active travel provision?”, 80.8% of those expressed a preference agreed.
On the updated designs for Elm Row, 76.3% who expressed a preference agreed that the new plans have created a better public space for all.
Access to and from side streets for motor vehicles was highlighted as a concern during the early stages of consultation. When asked if the new plans had improved access to and from side streets 80.5% who expresses a preference agreed.
The permeability of Leith Walk or, in simpler terms, the ability to cross the street easily and safely was improved upon following feedback received. This is demonstrated by 85.1% of all respondents who expressed a preference agreeing that permeability and crossing points had improved versus previous proposals.
The final question focused on a new location for the Balfour Street stop. In all, 86.1% who expressed a preference agreed that moving the stop 60m towards the city and introducing a signalised junction has remedied previous concerns.
What Council services are being reduced to pay for Tram to Newhaven?
The tram project will not put additional pressure on existing Council services
The Trams to Newhaven project will be paid for through future tram fares and a £20m extraordinary dividend from Lothian Buses.
What resources have been put in place to deliver the project now that it has been given the go ahead?
The cost plan allows for a project team reporting directly to the Council’s Senior Responsible Officer for the Trams to Newhaven project. This team will provide all required project, contract, commercial, risk, technical and communications management.
The contractors will also be mobilising project teams and working in collaboration with the Council’s project team throughout ECI, construction and handover.
What is happening with the Hardie Inquiry?
The Council continues to support the Hardie Inquiry
The Council has adopted a robust and thorough process in developing the FBC and has incorporated a number of lessons learned from the first phase of tram, including:
The use of industry standard contracts to govern the project
Rigorous project governance with highly qualified key personnel with experience of delivering light rail projects in the UK and abroad. A number of the project team members successfully completed phase 1 of the trams after mediation
Setting up cross-industry networks with other cities including Manchester, Birmingham and Dublin to ensure best practice is being adopted at each stage of project development
Adopting traffic management plans that provide the contractor with expanded sites to ensure that works can continue in the event that problems are encountered during construction, as well as adopting a “one-dig approach”, ie: only opening up roads once and completing all works prior to reinstatement - no double-dig
Carrying out robust quantitative risk analysis and ensuring substantialcontingency is set aside in the budget for unforeseen events
Ensuring robust measures are incorporated into the construction contracts to ensure build quality, with a strong client team present on site to monitor build quality
Carrying out comprehensive formal consultation with the market to road-test the overall delivery strategy for the project and encourage strong competition
Developing a Support for Business scheme to maintain the vibrancy, desirability and accessibility of the streets affected by the project during construction. Measures include logistics hubs, open for business campaign, on street customer service officers, business skills development and a business continuity fund
Ensuring all works are carried out in accordance with the Code of Construction Practice
Ensuring that the work underpinning the analysis set out in this report has been robustly scrutinised
What are projected passenger numbers for the Trams to Newhaven project?
Expected passenger numbers for the first year of operation is 15.7m. This is almost double the projected number of passengers on the line if the Newhaven section is not completed
What is optimism bias?
Optimism bias is a percentage added to an overall project cost in order to mitigate potential under-estimation of risk by a project team.
In line with government guidance the £207.3m project cost includes an uplift for optimism bias on top of the other risk allowances.
Why have you undertaken a review of the Final Business Case?
As you would expect for a project of this scale, a comprehensive and robust process was followed in the development of the Final Business Case that was approved by Council in March 2019. In light of the COVID-19 pandemic and the impact this has had on public transport patronage, it was right that we re-examined the economic and financial case to ensure the project delivers the expected economic benefit and remains self-financing given that the financial model for building the Trams to Newhaven is largely based on paying back monies borrowed through tram patronage. Download the full Trams to Newhaven COVID-19 Full Business Case Refresh report (PDF)
Are you cancelling the project?
The review of the Final Business Case (FBC) using scenarios developed by the Council’s economic advisers, shows that the Trams to Newhaven Project is self-financing and delivers a positive economic impact so the report is recommending the project continues.
Why aren’t you cancelling the project?
The review of the Final Business Case, using scenarios developed by the Council’s economic advisers, shows that the Trams to Newhaven remains self-financing and delivers a positive economic impact. The project continues to support wider policy and strategy goals at a national (National Transport Strategy 2) and city (City Vision 2050, City Plan 2030, City Mobility Plan) level. The total cost of cancellation is calculated at £107.4m compared with £207.3 to build the line and that this £107.4m would be incurred with none of the benefits set out in the FBC being realised. In addition, £32m of the £107.4m would need to be found in the 2020/21 financial year due to accounting rules which would impact on other Council capital projects. The project continues to work towards a Spring 2023 completion date and is forecast to be delivered within the agreed £207.3m budget.
What is the financial impact for the Council in the long term?
The financial impact on the Council is outlined in the report at section 4.22 and is dependent on the scenarios that have been developed by the our economic consultants based on data on public transport patronage from around the world. In all scenarios the Trams to Newhaven Project remains self-financing albeit there are scenarios where it may take longer to pay back the borrowed monies that originally outlined in the Final Business Case agreed by Council in March 2019.
Why did you use these particular four scenarios?
The scenarios that were analysed were as a result of advice from the Council’s economic advisers, an infrastructure specialist consultancy, that used data from around the world to predict what the most likely scenarios would be for Edinburgh.
Which of the scenarios is most likely?
Due to the uncertainty surrounding future recovery it is not possible to single out a most likely scenario. The Council’s economic advisers’ view is that they will not be in a position to advise on likely recovery scenarios until more data becomes available. The Council’s economic advisers are collating data from a number of cities around the world but at present the information they have is sufficiently robust to draw any definite conclusions. This is why we asked them to look at a number of scenarios.
Why don’t you stop construction now and wait to see what happens with COVID 19 and public transport patronage?
Stopping construction and waiting to see what happens isn’t the answer. The project would need to maintain the constructions sites and continue to pay the contractors which would add significant cost increases to the project. Construction is continuing and good progress is being made despite the impact of COVID 19.
The report details changes to Council’s financial rules – is this being done only for the Trams to Newhaven Project?
No, this relates to all Council capital projects and is not only for the Trams to Newhaven Project. A review has been undertaken on the suitability of the Council’s current accounting policy for interest in light of the advent of large-scale projects, spanning more than one year of construction, and funded from future revenue streams. The Council currently accounts for interest costs in the year in which they arise, unlike the private sector, where the opportunity to capitalise interest costs is adopted more widely. The Council is considering changing its policy to allow for the capitalisation of interest during the construction phase which would reduce the project’s impact on revenue budgets, saving £12m (£20m when compared to FBC interest rates) during the construction period at a time when the Council has numerous budgetary challenges associated with COVID- 19.
In some of the scenarios there is a call on Council reserves – why is this?
The key component of the financial model for the Trams to Newhaven project is borrowing against future patronage over a thirty-year period. As a result of projected income and projected spend in certain years, there are some scenarios that require using Council reserves for cash flow purposes. In all scenarios the project is self-financing although there are certain scenarios where it would take longer to pay back the borrowed monies.
How is the project progressing?
The project continues to work towards Spring 2023 for completion and carrying passengers, and can be delivered within the £207.3m budget agreed by Council in March 2019. There are challenges on key parts of the route given the volume and complexity of the utilities that need to be moved in order to accommodate the tram infrastructure. An updated programme showing completion dates for each section is available here.