Council mismanagement of Perry Barr scheme leaves £150m of debt

Commissioners of Birmingham City Council have said it’s still finding ‘significant elements of poor professional practice’ in a report on the failings of the Perry Barr residential scheme. 

TheBusinessDesk.com revealed in August that the council was set to become £150m in the red, as planned disposals didn’t match up to total spending.

The development, located on the former Birmingham City University campus, was initially intended to serve as the athletes’ village for the 2022 Commonwealth Games. However, the plans were abandoned when it became clear the village would not be completed in time.

Plots 6, 7, and 8, built but never occupied, were recently sold to Legal & General, leaving a £150m deficit. 

The disposals however fall far short of the £496.9m spent on the project by the end of the 2023/24 financial year, of which £325.7m came from council funding, including £291.8m in borrowed funds.

Council estimates reveal that disposals will generate £140-£150m, leaving £142-£152m of borrowing unpaid. Not all plots (phases 1-5 and 10-11) are currently being marketed. Servicing this debt over 40 years will add £8-9m annually to the council’s already strained budget.

Commissioners have delved into the failings at the Perry Barr site and the challenges new managing director Joanne Rooney is facing in “rebuilding BCC’s officer team to provide accurate, professional technical advice based on best practice and then deliver appropriate outcomes based on Member decisions”.

A scathing report to the council’s cabinet said that commissioners are still encountering “significant elements of poor professional practice and noncompliance with basic elements of constitutional requirements”. 

Failings uncovered at the Perry Barr scheme include the council’s approach, which underestimated the time needed to dispose of individual units, overlooked holding costs, and ignored potential impacts on the local market, leading to a likely decrease in value. The reporting was driven by desired outcomes rather than factual analysis, raising concerns about senior officers’ oversight and decision-making.

The scheme relied on pricing assumptions based on individual home sales that were unrealistic for the Perry Barr location and the timeline required to sell more than 1,000 homes. A speculative large-scale development in one phase was misaligned with market realities.

The valuation process did not follow RICS professional guidance, revealing a lack of understanding of the distinction between the RICS Red Book and a development surveyor’s appraisal. This confusion persists within the organisation, requiring recent interventions by commissioners to ensure accurate reporting.

Birmingham was selected as the host city to deliver the 2022 Commonwealth Games after Durban was stripped of the Games due to failing to meet a number of its obligations. The framework agreement was a single source with Lendlease who acted as a managing contractor. 

Due to rising costs of future Commonwealth Games, the state of Victoria has withdrawn as host for the 2026 Games and has had to make a compensatory payment of around £190m to the Commonwealth Games Federation (CGF). Glasgow has been confirmed as the 2026 Games host city and it will not build an athletes’ village but instead use existing city accommodation.

Given the shortened timeframe available for delivering the 2022 Games, the report says the council should have sought to remove this requirement, noting that the risks of delivering it on time (and budget) were not being underwritten by the principal contractor (who would be familiar to pricing such risks).

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