Written - Review of ‘harbour authority’ agreement with Cardiff County Council – Notifiable Transactions and Standing Order 21

I make this statement under Standing Order 21.20 regarding a Notifiable Transaction that I intend to authorise in relation to Cardiff Bay funding.

Assembly Members will be aware that, in March 2000, Cardiff County Council (“the Council”) assumed responsibility from the former Cardiff Bay Development Corporation (“CBDC”) for discharging certain functions in or under the Cardiff Bay Barrage Act 1993.  The Council also assumed the responsibility for managing and maintaining certain related properties and contractual liabilities.  The arrangements were set out in an agreement made between them under section 165 of the Local Government Planning and Land Act 1980 (as amended) (“the Agreement”).

Days later an Order (SI 2000 No.996 (W.53)) made under section 165A of the 1980 Act transferred any rights and liabilities arising under the Agreement and which were vested in CBDC to the National Assembly.  This included the liability to provide the Council with funding to carry out its functions, maintain and manage properties and discharge associated contractual obligations under the Agreement.  

The Agreement set out the arrangements for funding which are essentially based upon providing an annual fixed amount for quantifiable liabilities (subject to some qualifications and limitations).  For liabilities which are identifiable but not reasonably quantifiable, funding is on an actual cost basis (provided they are not improper and/or unreasonable).  These are the actual liabilities.  There is also a contingent liability to fund costs (provided they are not improper and/or unreasonable) associated with unquantified risks and unforeseen events.  

Assembly Members will be aware that the proposed arrangements with Cardiff Council were extensively examined by the then Economic Development Committee in 1999 and 2000 and have been considered by that and successor Committees from time to time since.   The Auditor General for Wales also published three reports related to the wind up of CBDC which were considered by the Audit Committee between 2000 and 2003.  From time to time, for example via responses to Assembly Questions and reports to the Committees, additional information has been provided.   The obligation for payment of a number of unquantifiable contingent liabilities inherited by the National Assembly as a result of the wind up of CBDC features in the National Assembly’s accounts as a contingent liability.  

Assembly Members will also be aware that: (i) the liabilities associated with the performance of the functions under the Cardiff Bay Barrage Act 1993 are permanent and on-going (regardless of whether the Agreement is varied, continues on the current terms or is terminated); (ii) that the Agreement contained provision for the arrangements in it to be reviewed and, if appropriate, amended or notice to terminate given by either party after an initial period; and (iii), from previous Cabinet Statements and reports to the Economic Development and Transport Committee, that the review of the Agreement is currently underway with the aim of completing it so that revised arrangements come into effect on 1 April 2007.  

Good progress is being made on the review and my officials and officers in the Council have reached agreement on the principles for future funding which will be set out in a ‘Deed of Variation’ to the Agreement.  A draft of this ‘Deed’ is currently being considered by the Council’s officers prior to it being presented to the Council’s Executive on 8 March for approval.  The main principles are:

• That the National Assembly will provide the Council with funding necessary to ensure that it can discharge its functions in or under the Cardiff Bay Barrage Act 1993, to enable it to maintain the properties (transferred to it under the original Agreement) and to fulfil any other associated contractual liabilities;
• The funding will primarily be provided by way of a fixed budget for an expanded schedule of fixed activities (subject to qualifications and limitations) over periods of three years.  Unforeseen costs or costs associated with identified activities that cannot be reasonably quantified will be met on an actual cost basis;
• An Enhancement Fund will be established to facilitate, essentially, the funding of expenditure for improvement and enhancement of infrastructure or services in or around the Bay which will generally be additional activities or development.  It can also be applied to the performance by the Council of its functions under the Barrage Act, to the properties or to certain contractual obligations if it exceeds its fixed cost budget for doing so.  It will be an account held by the National Assembly to the credit of the Council. The Enhancement Fund will be resourced by any savings achieved by the Council on the fixed budget (including any outstanding credit carried forward from the existing ‘savings budget’) and income generated from activities in the Bay.  This is not additional money.  The National Assembly’s agreement is required for spend from this fund except where it is to be expended on core functions, property and contractual rights and liabilities transferred to it and can be accommodated within the total agreed spend from the Enhancement Fund;
• There will be provision for the National Assembly, if it chooses to do so, to fund in whole or in part other enhancement or improvement projects in or around the Bay or in relation to properties; and
• There will be provision to fund, on the basis of actual costs incurred, the renewal of assets used in connection with the Barrage Act functions and properties.  An asset renewal plan will be produced and an indicative budget agreed for each three year business period.

The next stage will be to agree detailed budgets and other operational details which will be set out in schedules to the document effecting the variation of the Agreement.  Budgets for the fixed cost element (the actual liability) will be based on experience gained over the last six years or so and a much better understanding of the risks, liabilities and the costs associated with them.   At this stage I cannot be precise but my Officials are considering the Council’s proposals for the first 3 year business period which, at around £10m per annum, are broadly in line with budgets previously agreed for the current year and in recent years.  A profile of spend on an asset renewal programme and from the Enhancement Fund will also be agreed.  These, along with the fixed cost budget, will be accommodated from within the current ‘CBDC to local government’ BELs.  Contingent liability costs are unquantifiable.

The variation will not alter the underlying liability that rests with the National Assembly to fund all unforeseen liabilities whether the former CBDC undertaking is carried on by the Council, another third party or by the National Assembly itself, but the proposed amendments will provide more clarity, flexibility and certainty in terms of the foreseeable liabilities.  Subject to agreeing the Schedules to the Deed and to agreement of the same by and on behalf of the Council’s Executive, I expect to be in a position to authorise a Deed of Variation to the Agreement some time next month.

As indicated above, the actual and contingent liabilities in this case are on-going.