In early June 2023, St James Securities (SJS) signed a contract with Bowmer and Kirkland (B & K) for the construction of the Becketwell Performance Venue (BPV). The value of the contract means that the total project cost for the venue is within the fixed price of £45.8m; a figure which was first committed in July 2020, before there was a design, or planning permission.

Becketwell Arena – vague “early doors” plans and a poor business case. Why is the Tory Council shy about scrutiny?

Paul Morris, Director of SJS said

“In a very difficult inflationary climate where materials and labour costs have increased substantially, St James Securities has worked extremely hard with B+K through the design development and tendering stage to ensure the project would be delivered well within the fixed price contract with Derby City Council.”

Since July 2020 inflation in the Construction industry has been been 15%+.

St. James Securities’ fixed price contract for the Council’s Becketwell Performance Venue at risk due to inflationary pressures

A number of options for mitigation would be:

• Value engineering – more cost efficient ways of delivering the same scope and value
• De-scoping – removing features/facilities/value from the venue.
• Reducing the profit for the project.
• Different long term financial structure.

In October 2021 SJS borrowed £1.95m ( with a floating charge over SJS’ assets) from Peveril Securities – the development subsidiary of Bowmer & Kirkland. In February 2022 Peveril Securities was appointed the funding and development partner for future phases of the Becketwell scheme.

Bowmer & Kirkland is a large company with net assets of £573m ; SJS is very small with net assets of just £2m. The average number of employees in SJS during 2022 was just 4 , down from 5 in the previous year.

The press release for the appointment of B&K stated that the BPV project was just a few weeks behind plan:

“…practical completion is scheduled for January 2025, just a couple of weeks later than was originally planned when contracts were signed in March 2022.”

However, the original commitment was October 2024, 3 months earlier. Construction was due to start at the “beginning of 2023” – it is now 6 months late.

Projects that are late tend to cost more than planned. Recovering delayed projects tend to cost more than planned.

Paul Morris, Director of SJS , stated:

“We have a wealth of experience in delivering complex, award-winning regeneration schemes and having the financial backing of Peveril Securities has further strengthened our ability to take on these challenges and win.”

SJS was technically illiquid in 2013 owing £8.7m; it was then subject to a management buy-out in the same year. The majority of their publicised projects were delivered prior to 2013 and, largely as part of a Joint Venture. Since 2013 there have been 3 projects. It’s a moot point whether standard shop units constitute “complex”.

• 2014 – M&S Simply Food shop (Harrogate),
• 2014 – Morrison’s supermarket (Ilkeston),
• 2018 – St James Retail Park (Sheffield).

Since 2017 SJS has focussed solely on the Becketwell scheme. SJS was not involved in the often quoted BPV template project – Hull Bonus Arena.

Comment

The commercial arrangements in the Forward Funding Agreement (FFA) between Derby City Council and SJS are a closely guarded secret. The reasons for not being transparent do not bear any examination other than that it is in the interests of both parties to keep the details away from public scrutiny.

It is highly unlikely that 4 years of high cost inflation can be absorbed by SJS unless the BPV is a slimmed down, cheap version of the original expectation. Assuming that the operator, ASM Global, insists on a high quality venue, then the inevitable overspend will be absorbed in a modfied financial arrangement.

It is evident that Bowmer & Kirkland will be the significant player in the future of the Becketwell project – it has the resources and experience to deliver it; SJS doesn’t. It is already being financed and supported by B&K’s funding subsidiary, Peveril Securities.

Under a normal Forward Funding Agreement the developer’s involvement ends on handover. I asked Derby City Council if SJS would be in receipt of any future revenue streams after handover e.g. profit share, rent, licence arrangement.

DCC confirmed that it holds information relating to the request i.e. future funding streams, however the Council refused to confirm the details as the contents of the FFA are confidential. Whilst the request did not ask for details the Council’s response did confirm that SJS would receive revenue streams after completion and handover. This is not a necessary commercial arrangement and is evidently a means to compensate SJS ( or potentially B&K) for the overspend.

Derby City Council will never confirm or deny this, but this is public money and this charade that SJS are delivering a fixed price project serves only their commercial gain and not the people of Derby.

Paul Morris, Director of SJS stated:

“There have been a few naysayers who have sought to publicly criticise us and suggest we would either throw the towel in or return to the Council seeking more money. This is simply not how we operate and once we agree a price, as we did with Derby City Council, then we stand by it.”

As one of the “naysayers” , open your books and allow proper scrutiny of this publicly funded project – why the need for secrecy?

Postscript

SJS published their accounts for the year to 30 September 2022 just a few days before the Companies House deadline of 30 June 2023. Conveniently SJS was able to reference in the section on “Going Concern” ( i.e. whether the company is viable for the long term) details of the contract with B&K and that work had commenced on 5 June 2023. Without this in place their viability would have been questionable – it is no surprise that they waited until the last minute to publish their accounts!