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Optimism bias and a culture of limited
transparency led to an £11.7m overspend on a new academy school in
Northamptonshire, according to an internal investigation.
A report presented to Northamptonshire County Council (NCC)
last week found poor budget management and a lack of transparency led to the
project to build Northampton International Academy to go over its £34.7m budget.
The final cost was £46.4m.
The school finally opened in September 2018 – two years
later than planned – after a series of oversight failures led to costs
spiralling.
Delays, including changes to a mezzanine floor, added £750,000 to the budget
and generated £480,000 in additional fees to the school which was built on the
site of a former Royal Mail sorting office.
The audit was launched by the council’s then-new chief
executive after a resident complained in November 2018 having failed to get
answers on the project despite submitting Freedom of Information requests.
The requests had been turned down, citing commercial
sensitivity.
Auditors concluded that the causes of the
overspend could be traced to initial time pressures that led to an inadequate
budget being set.
This was then compounded by ‘optimism
bias’ within the council that overspending would be covered by the Education
Funding Agency (EFA), and a lack of transparency in reporting to cabinet
members.
The project began in 2014 to meet rising
demand for school places and the budget was finally fixed in April 2018 – by
which point the overspend had reached £11.7m.
The council concluded the extra costs were
due to under-budgeting not mismanagement and there was no evidence of fraud.
The report to councillors said: “The
project was always likely to overspend its original budget.
“A project approved with an incorrect
budget and/or insufficient provision for ‘unknowns’ cannot support effective
financial management and in this case required funding from other NCC sources
that could have been spent on other services.
“Evidence does however support a
conclusion that the project was always likely to cost its eventual cost ie.
£45+m.”
The audit concluded the extra costs arose
because:
- Issues with the procurement route choice (required by EFA)
which meant a build-only contract tender, with minimal risks to the contractor
and all additional costs the liability of the council; - Shortcomings in the design and specification of works
tendered which required extensive value engineering of bids received, with
savings identified not being achieved and resulting in delays, with associated
costs; - Failure to retain sufficient contingency provision, meaning
extra funding would be needed for any unforeseen costs outside of the build contract
price; - Unclear apportionment of risks between the council and the
funding body, with the council anticipating extra funds when none was
forthcoming.
A key factor in the problems not being discovered
earlier was that reports to cabinet members did not highlight issues of concern
properly, according to the investigation
The audit report said: “With
the benefit of hindsight reports focused on reassuring members rather than an
objective evaluation of the risks and costs arising.
“Detailed information was included, but not in narrative
that would have drawn members attention to the need for their greater
scrutiny.”
However, officers were not criticised for
their handling of the project once the budget problems were discovered.
It said: “There is evidence to conclude,
given some of the issues uncertain at the start of the project, that project
management was effective in managing those issues to completion.”
The final cost overspends are currently funded from £9m
Basic Needs Grant and £2.7m s106, which will put a pressure on funding new
schools.
A bid for extra cash to fund the overspend was submitted to
the Department for Education in July 2018 which has been unsuccessful. A final
appeal against the DfE decision is being planned
by NCC.
Auditors called for improvements including the creation of
project milestones at the start of projects where affordability can be and
reported on regularly.
The council will also assess the way its reports to cabinet
members are written to ensure the right level of details being included.
A council spokesman said the
overspend was approved by cabinet in April 2018 and there were no changes after
that point.
The report said the way in which the council was run at the
time was a key factor: “Given the high-profile
nature and value of the project overspend, early / any involvement with the monitoring
officer / senior information risk owner should have been undertaken and formal
approval sought from the leadership team, to confirm not to release the
information being requested.
“Neither consultation nor approval was sought by the relevant officers. It is
difficult to avoid the conclusion that this refusal was indicative of a culture
of limited transparency across the council at the time.”
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