South Lakeland District CouncilCabinet Report

Wednesday 6th June, 2018North Kendal Industrial Area Flood Risk Management Scheme - European Regional

Development Fund - Accountable Body Status

Portfolio: Economy and Assets Portfolio Holder

Report from: Assistant Director Strategic Development

Report Author: Gareth Candlin – Economic Development Manager

Wards: Kendal East, Kendal North, Kendal Rural, Kendal Town, Kendal West, Kendal South and Natland.

Forward Plan: Key Decision included in the Forward Plan as published on 8th May 2018.

1.0 Expected Outcome

South Lakeland District Council is bidding for European Regional Development Fund (ERDF) funding to help deliver the North Kendal Industrial Area flood risk management scheme. This is the first phase of a six year programme of wider flood risk management for Kendal. The scheme will be delivered and match funded by the Environment Agency.

Officers are seeking approval for South Lakeland District Council to be the accountable body for the ERDF funding of £4.67m, subject to successful application. The anticipated scheme will provide direct flood alleviation measure to the businesses on the Shap Road industrial estates and indirectly to over 1700 businesses throughout Kendal.

2.0 Recommendation2.1 It is recommended that Cabinet

(1) Approves SLDC acting as accountable body for the ERDF funding; (2) Recommends to Council that the £4.67m project and funding be included within the Capital Programme for 2018/19, 2019/20 and 2020/21; (3) Delegates authority to the Director of Policy and Resources to amend and agree, as appropriate, the legal agreements to facilitate the accountable body status and corresponding legal agreement with the Environment Agency.

3.0 Background and Proposal

3.1 In December 2015, Storm Desmond caused significant flooding within Kendal, South Lakeland and Cumbria more widely. In total 2100 residential and commercial

properties were flooded at an estimated cost of £177m. The worst affected businesses within Kendal were located on the Mintsfeet Industrial Estate and the wider Shap Road Industrial areas.

3.2 As part of the Government response, £4.67 million was allocated to Cumbria under the European Regional Development Fund Priority Access 5 (PA5) – Climate Change Adaption. It was agreed by the Cumbria Local Enterprise Partnership (who manage the European Funding streams within the County) that the money should be ear marked for a bid from Kendal. The justification for this was Kendal was the only town affected by Storm Desmond that would be able to achieve the outputs required under PA5 in regards to the number of businesses protected.

3.3 Ultimately, the scheme will form part of the wider flood defences for Kendal but a requirement of the ERDF funding is that the scheme must be effective in isolation from the wider scheme and as such is being prepared as a separate phase from the remainder of the flood alleviation measure for Kendal.

3.4 The ERDF application is a two part application; outline and full. At present the outline application has been accepted and the Council has been invited to submit a full application by 28 September 2018.

3.5 A requirement of all ERDF funding is that there is an appropriate legal entity that will undertake the role of the accountable body, for the purpose of this application the accountable body would be SLDC (subject to Cabinet approval). If the Environment Agency (EA) was to act as accountable body then it will negatively impact its budget allocation for the flood alleviation measures and would not result in any additional funding for the scheme. It is intended that, due to the expertise the EA has in such matters, it would be the design and delivery partner on this scheme.

3.6 The accountable body is the organisation that would apply for the ERDF funding to deliver the project and enter into a legally binding agreement with the Ministry for Housing Communities and Local Government (MHCLG) (the managing authority for ERDF) if the grant was approved. The accountable body for the ERDF grant is legally and financially accountable to MHCLG for the effective management of the ERDF grant, will be required to submit ERDF claims, and pay out grant funding to delivery and project partners. As accountable body, SLDC will also be liable for any clawback of monies if it or any of its delivery partners breach the terms of the grant. The associated risks and how these would be managed is addressed under section 8 of this report.

3.7 Subject to Cabinet approval and a successful application process the timeframe for the final delivery of the scheme is March 2021.

4.0 Consultation4.1 As part of the Environment Agency’s work in designing the ERDF scheme it will be

leading on engagement with the effected businesses and residential properties.

5.0 Alternative Options5.1 Not to proceed as accountable body – As South Lakeland District Council was the

applicant at the outline stage, it is not now possible for another body to bid at full application stage. To not proceed as accountable body would mean forgoing the £4.67 million of funding plus the equivalent match funding from the Environment Agency. The Environment Agency have been clear that as protecting business is not within their remit, without this external ERDF funding they would not be in a position to provide flood alleviation measures to the industrial areas in the north of Kendal.

6.0 Links to Council Priorities6.1 The proposed alleviation works relate to the Council Plan priority under the

Environment “we will facilitate and support our third sector, community groups and businesses to plan and prepare for potential future emergency incidents” and under the Economy section to “improve the districts competitive advantage to succeed in today’s environment, exploring opportunities to influence, engage and work with strategic partners across the northern powerhouse including Lancashire and Furness to support our growth ambition and access external funding”

7.0 ImplicationsFinancial, Resources and Procurement7.1 As set out in paragraph 3.6 above, SLDC as the accountable body is legally and

financially accountable to MHCLG for the effective management of the £4.67m of ERDF grant. This includes ensuring the process and all spend is in accordance with the grant conditions, submitting ERDF claims and paying grant funding to delivery and project partners. This can be achieved within existing resources. This will include the need to ensure that VAT is correctly accounted for at all stages of the project.

7.2 SLDC will be liable for any clawback of grant if monies are not spend in accordance with the grant conditions. It is therefore necessary to ensure there are protections through legal agreements with the delivery partners, as set out in paragraph 7.6 below, to minimise the risk of ineligible spend.

7.3 Cabinet are requesting to Council that the £4.67m project and funding be included within the Capital Programme for 2018/19, 2019/20 and 2020/21. This will give authority to officers to incur expenditure on the scheme.

7.4 The works will be procured by the EA as delivery body. It is expected they will use a national framework which is compliant with OEJU requirements. This process has been agreed with the SLDC procurement team.

Human Resources7.5 Accountable body status will require resource to manage the claims process, it is

anticipated that this can be met within the current resources available within the economic development team but this will be kept under review

Legal7.6 If, following approval from Cabinet, the bid for funding is acceptable, SLDC will be

required to enter into a legal agreement to secure the ERDF funding. This imposes certain obligations on the Council on a wide variety of matters; for example, ensuring appropriate accounting takes place or ensuring the scheme meets its stated outputs. As the EA is the delivery body, it will be necessary for SLDC to enter into an agreement with the EA reciprocating, where possible, the obligations imposed directly on SLDC. However, it is recognised that the flood alleviation works are a desirable and positive output that will benefit the businesses within Kendal (and wider area) and, as such, it will be necessary to adopt a partnering approach with the EA. As a result, Cabinet is being asked to delegate authority to the Director (Policy & Resources) to negotiate and execute all of the necessary agreements to secure the funding.

Health, Social, Economic and Environmental7.7 Have you completed an Health, Social, Economic and Environmental Impact

Assessment? No

7.8 If you have not completed an Impact Assessment, please explain your reasons:

Accountable Body status does not carry specific Health, Social, Economic and Environmental Impacts. However the scheme that is will be used to fund does and this will be picked up as part of the Planning process where a full Environmental Impact Assessment will be complete and a full consultation process will be undertaken. Further as part of the Environment Agencies business case approval process the scheme will be scrutinised for compliance with DDA legislation and other socio economic criteria.

Equality and Diversity7.9 Have you completed an Equality Impact Analysis? No

If you have not completed an Impact Assessment, please explain your reasons:

Please see rationale as above for Health, Social, Economic and Environmental Impact assessment.

RiskRisk Consequence Controls required

*What is it? *What will happen if steps not taken to control it?

*What needs to be done to limit the risk happening?

Non-compliance with MHCLG funding agreement

Risk of clawback from EU Back to back agreements with EA to impose same requirements on delivery body as accountable body. Close monitoring of contract and compliance with Advertising requirements, Procurements and other.

Procurement exercise is not compliant with ERDF requirements

This risks a legal challenge and claw back from EU

Involve procurement team and legal as appropriate both at EA and SLDC. Ensure requirements are written into legal agreement between SLDC and EA.

ERDF funding is not secured Overall scheme for Kendal may not be delivered or reduced scheme delivered, impacting on number of properties and businesses protected and level of protection provided

Ensure the full ERDF application is submitted by deadline of 28 September and that the guidelines provided by MHCLG are covered

EA and SLDC Legal Agreement – unable to reach agreement between legal teams or agreement is not in place before ERDF submission deadline

Would not meet ERDF criteria.

Ensure legal teams are working together, have clear understanding of timescales and requirements

Match funding not obtained from EA to deliver North Kendal

Reduced scheme delivered for north Kendal

Ensure match funding is written into the legal

Risk Consequence Controls required

Scheme by Environments Agency

industrial estates, impacting on number of properties and businesses protected and level of protection provided

agreement between SLDC and EA

Planning permissions not obtained within timescales

Delay in delivering scheme affecting ERDF timescales

Ensure EA, SLDC and LDNP are all aware of planning requirement and deadlines and work closely to ensure these are met.

Contact OfficersGareth Candlin, Economic Development Service Manager, 01539 793382, gareth.candlin@southlakeland.gov.uk

Background Documents Available

Name of Background document Where it is availableN/A

Tracking InformationReport sent to Date sentAssistant Director 11/05/18Solicitor to the Council 11/05/18Section 151 Officer 11/05/18Monitoring Officer 18/05/18SMT 10/05/18Human Resources Manager 11/05/18Communications Team N/APortfolio Holder 11/05/18Leader *** or N/AWard Councillor(s) *** or N/AExecutive (Cabinet) *** or N/ACommittee *** or N/ACouncil *** or N/A