Report seen by Housing Today shows contractor set to be brought in to oversee troubled housing company
Croydon council appears to be lining up contractor Wates to take over the management of its ailing housing company, Brick By Brick, as it prepares to reject an offer for the firm from regen specialist Urban Splash.
An internal council document seen by Housing Today reveals that one of the people appointed by the government to oversee the recovery of Croydon following its financial collapse last year has recommended Wates be taken on to ensure the build out of existing schemes goes ahead.
The document, written by crown commissioner and former Balfour Beatty executive Phil Brookes, who sits on Croydon’s government-appointed Improvement & Assurance Panel, also makes clear that the panel has advised the council not to sell the business to Urban Splash.
The revelation follows the news last week that council officials recommended the offer from Urban Splash be refused, despite concluding it represented value for money and reduced risk, in favour of keeping hold of the business and winding it down.
This recommendation was approved on Tuesday by the council’s scrutiny committee, and is due to receive the final go-ahead in a cabinet meeting next week.
Brick By Brick, which has built over 300 homes since being set up in 2016, has been blamed by critics for contributing to the cash crisis at the council because of its failure to repay loans of more than £200m when originally agreed.
A council report last month revealed that Croydon has been in talks with a buyer for Brick By Brick – subsequently confirmed as Urban Splash – since February this year, with a “best and final” offer received in April.
Despite recommending that the bid be turned down in a report produced last week, council officials admitted the offer was “not unreasonable”. The report added that keeping hold of the company and building out its remaining 23-site pipeline, as recommended, posed a series of risks to the council, the largest of which was “management failure and collapse of Brick by Brick”, but offered ultimately higher receipts.
The build out option will also require ongoing additional support for the business from the council, with a further 400-500 homes to be constructed.
While a sale to Urban Splash could conceivably have kept Brick By Brick going, the council’s decision to decline the bid consigns the firm, once seen as a leading example of a new breed of council-owned housing companies, to being slowly wound down and shut over the next 18 months.
The confidential Improvement & Assurance Panel advice note seen by Housing Today reveals that the council has already been in discussions with both Wates and consultant Arcadis about taking on the job of overseeing the build out of Brick By Brick’s remaining sites, in order to minimise the risk of the firm collapsing as staff leave in advance of its closure.
In the advice note, Brookes says Wates’ bid for the initial stage of the job came in at £1.1m, compared with just £64,000 from Arcadis. Nevertheless, Brookes said this premium was worth paying because “the panel consider that premium is more likely to provide a solution that achieves a greater outturn position through the build out”.
The advice note says Wates’ bid had “highlighted the risk of a number of staff leaving BBB in the short term leaving the company short of the capacity it needs to complete the development work. Wates are confident that they have resources available to mitigate this risk”.
It also says Wates would be able to drive property sales through its “experienced in-house marketing team”, and that there was potential “for LB Croydon to widen the nature of the relationship to seek joint development opportunities elsewhere in Croydon”.
Brookes’ report concludes: “The premium is likely to represent less than 0.25% of the surplus monies generated through the remaining build out and therefore this decision is about appointing the most capable supplier for the unusual circumstances Croydon face and not the least cost for this initial exercise.”
Brick By Brick staff are understood to have been pinning their hopes on a sale to renowned Manchester-based developer Urban Splash to ensure a future for the business. However, the advice note says “the panel were clear that they do not recommend pursuing the current offer from a third party, […] unless that is substantially improved”.
The revelations come as Housing Today understands there has been considerable confusion and anger in the firm as Brick By Brick staff and consultants have become aware of the council’s plans for the company.
One source close to the situation said: “I feel for Brick By Brick staff. This has been a hatchet job from start to finish.
“Brick By Brick have been struggling for years with the inability of the council to deliver even the most basic level of services required to support their development programme and the council has instead chosen to use the company as a convenient scapegoat for its own wider failures. The idea the council is now presenting itself as being in a position to provide assistance is farcical.”
Brick By Brick declined to comment and referred enquiries to the council. A spokesperson for the council said: “We cannot comment on this advice note as it is an internal document containing commercially sensitive information”.
Wates declined to comment.