Cost model: Infrastructure

Introduction

Infrastructure comprises roads, services provision and public realm, including landscaping and lighting. This cost model identifies the issues involved in delivering infrastructure works on a mixed-use scheme located on a brownfield site.

Since the introduction of PPG3 and sequential planning, brownfield development has typically occurred on sites that are relatively easy to develop, in locations that offer favourable market conditions such as high demand for residential property.

As the best sites have been developed, schemes have become progressively more demanding in terms of commercial viability and technical difficulty; new challenges for infrastructure are emerging concerned with site condition, funding, phasing and so on.

Scope and phasing of infrastructure works

Site condition

All brownfield sites will require a thorough investigation in order to understand their background. This includes previous use and owners of the site and its history in conjunction with site surveys and investigations appropriate to the stage of development.

This will highlight potential risks and hence sources of additional cost that could impact on the commercial viability of the scheme. As a result the client can be exposed to a high degree of risk - hence the role of English Partnerships in preparing sites for development (see page 64).

Examples of potential constraints impacting directly on the cost and programme of the development include:

• Existing live and redundant services - size, location, condition
• Requirements for temporary and permanent services diversions
• Capacity of incoming and outgoing services
• Existence of wayleaves and easements (legal rights to use part of the site for routing services above or below ground) that might limit development
• Capacity of drainage and sewage systems
• Contamination of soil, groundwater
• Site infestation such as Japanese knotweed
• Discovery of sites with historical or archaeological interest
• Presence of Sites of Special Scientific Interest (SSSI), Special Areas of Conservation (SAC) and Special Protection Areas (SPA).

With respect to remediation works required, special care should be paid to whether remediation is to be off site or on site, or whether there is a funding condition that specifies one or the other.

• Off-site remediation has increasingly prohibitive costs because of the limited capacity of suitable waste sites and the cost of transportation.
• On-site remediation has a cost, time and logistics impact as in situ treatment could take up space on the site.

Scope of public realm design

The public realm elements of the scheme are what convince the occupier that they are in a new neighbourhood. The design of public realm is about creating a sense of place that supports the aspirations of the developer, and third parties including RDAs and local authorities.

From a developer's perspective, public space is a value-adding element of the scheme and increases its commercial viability. Providing public space increases the opportunity for interaction between users of different parts of the scheme and contributes to the occupiers' perception of the quality of the environment provided by the scheme.

Other factors that contribute to this are:

• A strong site identity achieved through the use of coherent materials, features and design elements
• Pedestrian flow through the site, which needs to be as "porous" as possible, allowing multiple routes to all locations
• Supporting information infrastructure, such as signage to transportation links and other parts of the site.

Scope of road design

The design of roads initially might not seem an opportunity to further enhance the creation of place, but lessons are being learned from the Dutch traffic designers. One such concept is the "homezone" style of road design, which is suited to schemes containing a residential component.

This design, currently being pioneered in residential schemes such as King's Cross and New Islington in Manchester, promotes road safety by eliminating the distinction between the road and paving through the use of similar material on both and the absence of kerbs and markings.

Effect of local and statutory authority adoption on design

Where roads, public realm and other aspects of the infrastructure including drainage are to be adopted by local or statutory authorities, developers need to appropriate standards set by the adopting authority. Effects on public realm design include:

• Ensuring the design of public realm items such as lampposts, benches and so on are in keeping with the context of other public spaces in the borough.
• Material selection of finishes of roads, paving and so on are in keeping with the borough's maintenance regime and do not require specialist cleaning.

Where the infrastructure is to be handed over to public bodies for asset stewardship purposes, the whole-life cost implications in terms of operating costs will need to be taken into consideration. This is an often overlooked issue that can have a significant impact on the developer's cost where a significant commuted sum will need to be set aside for future operational costs.

On projects that span across local authority borders, consideration also needs to be paid to the different design standards with regards to public realm space and roads. Finding a balance between these two potentially conflicting design standards requires delicate negotiation to prevent the site identity being diluted.

Phasing

Infrastructure doesn't generally generate revenue; in most cases it provides the network of services required to enable the revenue generating development to take place. The phasing of works should aim to install sufficient infrastructure to establish a critical mass for the minimum amount of initial investment. This is so that the phases can be developed, or sold on to other developers in order to generate revenue early in the development cycle.

Works that need to be included in the first phase usually include site survey and investigation works, decontamination, main site connections, services diversions and heavy civils.

The cash flow of investment is a key variable in determining the phasing of packages of works. These works need to be aligned to funding schedules and co-ordinated with the various parties assigned to deliver the works. There should be a degree of flexibility in the packages to allow a "spend rate" to be maintained if required by the funders.

Certain types of work can be done in phases, such as on-site services, roads and landscaping. In addition, if possible, high-cost works such as electrical supply reinforcement and major elements of public realm should be programmed for later phases once some positive cash flow has been secured.

Procurement

Main contractor procurement

The key attributes of an infrastructure specialist are the flexibility to deal with uncertainty in the scope of works with the minimum of disruption, and the management skills necessary to co-ordinate third parties such as utilities and other project stakeholders.

Because of the involvement of public sector funding in many of these regeneration projects, procurement will often need to follow the OJEU process as specified in the Public Sector Procurement Directive (2004/18/EC) and implemented through the Public Contracts Regulation (SI 2006/5). As a result it is important that the contractor's management capabilities are identified as selection criteria for both prequalification and appointment.

Given the complex nature of infrastructure works involving the co-ordination of a variety of different parties for each type of utility, the NEC third edition suite of contracts is currently the form of choice for major projects including the Olympics, London Underground's East London Line extension and the Channel Tunnel Rail Link.

The NEC 3 contracts lend themselves to infrastructure projects as they advocate a partnering approach. The large number of variants available also caters for every procurement eventuality. This flexibility also enables a wide range of approaches to resolving scheme phasing issues.

Once on site, key issues for both the project manager and contractor revolve around maintaining the continuity of works across phases in line with available funding and other project priorities. Adoptable works, which are performed by a third party and fall under the responsibility of the statutory authority upon completion, are a further source of risk and complexity on infrastructure works. The interest in the infrastructure that utilities and local authorities will adopt post-completion means they will need to be consulted on specification, construction and handover.

Because of issues of the adopting authorities' standards and approvals, it can be useful to employ a main contractor who is on the approved list of the relevant utilities and authorities.

Procurement of services infrastructure

The interface between the scope of contestable and non-contestable works - where contestable works can be undertaken by the clients' main contractor while non-contestable works such as alterations to existing networks, capacity reinforcement and final connections must be undertaken by a statutory supplier - can have quite a bearing on the successful completion of an infrastructure project.

The involvement of utilities supply companies is likely to introduce cost and programme risks as the scoping, design and procurement of these works is undertaken independently of the client. These issues are particularly acute for electricity supply reinforcement works, where quite often there is insufficient network capacity. In these instances, additional off-site cable and switchgear is needed as part of the scope of non-contestable works, which will be funded by the client.

The three options available to procure the electricity supply are:

• Procurement of both contestable and non-contestable works from the network operator. This route does not provide cost competition or the ability to enforce a programme, but at least the full scope of work is the responsibility of a single supplier.
• Contestable works undertaken by client-appointed specialist contractor. This splits the work in two packages and involves the network operator in approving the design and installation prior to adoption. The advantage is that there is some price competition for the contestable elements of the work and some opportunities for programme co-ordination with the clients' other works.
• Full scope of works undertaken by a joint-venture electricity supply company (ESCO). The ESCO funds, manages and operates the installation and derives transmission revenue from it. Depending on the funding model, this may reduce the client's initial costs but will lock them into a long-term management arrangement with the scheme and the electricity supplier, potentially with further exposure to revenue risk associated with the operation of the system.

Funding

Funding from the public sector is typically used to lever private development into previously used sites by funding the costs of remediation and infrastructure works. This "enabler" role has been undertaken by English Partnerships on many projects including New Islington in Manchester and its aim is to increase the viability of developments that support the Sustainable Communities Plan and ultimately the Urban Renaissance agenda.

Funders no longer wish to be "the" funder, they want to be "a" funder. The maxim for such organisations is now "matching the right project to the right funder", which means every application made will be measured against criterion specific to that organisation. Applications for funding of less than £1m normally take six to 12 weeks, whereas above that, it can take between 12 to 18 months.

Typical criteria used by funders include:

• Evidence of need and demand in the area
• Proper planning and consultation with the local community
• Experience and track record of the developer
• Technical viability of the scheme proposed
• Financial viability of the business plan
• Measurable outcomes - to demonstrate the difference that has been made
• Sustainability options to be utilised and installed.

In addition to grant funding, tax incentivisation can also provide financial assistance to projects. For brownfield sites, Land Remediation Relief is a key tax break.

As with all forms of assistance, there are conditions attached.

Land Remediation Relief is applicable on qualifying expenditure incurred from May 2001 onwards. It offers up to 150% tax relief on remediation expenditure. This is worth 10-45% to the company incurring the expenditure, depending on the tax rate they incur and whether they are acting in the capacity of a developer or investor.

There are cash-flow advantages for investors, insofar as they can claim the relief in the year it is incurred, as opposed to the year of sale. However they are restricted by how far they can go back in making claims retrospectively. Developers can generally go back six years but investors only two.

Although the take-up has increased significantly in the past 12 months, there are still some misconceptions that are preventing companies from maximising their entitlement. For example, the application of the subsidy rules is still causing confusion in relation to purchase price reductions. As a general rule, provided companies are paying a price that represents the open-market value of the site in its contaminated state, then they will also be entitled to claim the relief on any clean-up costs.

There are further complexities, but for companies who show initiative in considering these tax issues early, there can be a significant impact on the post-tax return of the development.

Risk in infrastructure development

The installation of infrastructure for a brownfield site can make a very substantial contribution to the reduction of the overall risk profile of a regeneration project. The involvement of regeneration agencies such as English Partnerships assist commercial developers in taking the schemes forward, but effective risk management processes need to be in place to control the exposure of all parties on the scheme.

The risks identified provide an overview of unknowns that could potentially impact on cost, time or both. These are:

• Complexity - managing the potential impact of delay and cost
• Financials - managing the potential impact on viability
• Planning, programming, phasing - managing the impact on time.

Complexity

• Project scope and size
• Control of scope of works
• Number of stakeholders involved as part of the development team

or as funders

• Extent of services required
• Requirements for capacity reinforcement
• Requirements for land remediation and constraints on techniques
• Programme management of multiple packages and consultants
• Co-ordination of utilities work required with statutory bodies and main contractors
• Scope of works required to meet planning requirements as part of a section 106 or 278 negotiation.
• Meeting and demonstrating achievement of multiple funding criteria.

Financials

• Scope of works and cost uncertainty
• Obtaining sufficient funding within the planned programme
• Extent of public and private funding
• Co-ordination between the funding parties and their payment schedules
• Phasing of works and cash flow
• Cost of stripping, diversions and demolitions
• Cost of works by statutory authorities
• Generation of income from initial phases.

Planning, programming, phasing

• Ensuring site investigations occur early enough in the development cycle
• Availability of off-site infrastructure capacity and timing of reinforcement
• Ability to complete phases to generate income.

Sustainability

The drivers for the sustainable element of a masterplan of the scheme can come from the client or legislation or a potential funding organisation.

On site in London, renewable energy generation is a key element of sustainability strategies. Currently, bodies including the LDA and boroughs are requiring an increasing proportion of schemes to provide a portion of their energy needs through renewable means. This is a trend that is likely to continue.

Sustainable energy source options are assessed against capital and running costs and to a lesser extent for their potential to generate revenue. CHP is not classed as a sustainable option and the alternatives are:

• CCHP - combined chilling, heating and power
• Tri-generation system - integrated gas and steam generator (ISIG)
• Biomass
• Fuel cells
• Solar panels
• Wind generators
• Earth coupled heat pumps
• Ground-water cooling.

The energy generated can be utilised either to contribute to the supply to buildings on the site or for public realm spaces such as lighting. The design of any sustainable element will be subject to planning constraints such as height, noise and lines of sight.

The composition of the scheme can determine which sustainable energy generation options are viable. A scheme that comprises commercial elements such as an office and retail, for example, won't require a large supply of hot water 24 hours a day that could be used in part for the residential scheme. The capture and use of waste heat arising from energy generation through absorption chillers is one way in which a commercial-based scheme can fulfil its sustainability agenda.

The scope of sustainability extends to the drainage and management of water on site. To this end, sustainable urban drainage systems (SUDS) offer a solution to attenuate drainage so that the capacity of the outfall is not exceeded.

In an urban context, SUDS design would impact on the design of public realm spaces, in that flagstones used need to be laid on aggregate with a large surface area in order to attenuate the flow of water into the drains.

The cost of installation can be mitigated somewhat by making the management of surface water (cleaning and attenuation) an item in the design specification as opposed to retrofitting.