RESTRICTED INFORMATION

ANNEX 1:LOCAL GROWTH FUNDSUMMARY

OF APPRAISAL AND RECOMMENDATIONS

APPLICANT DETAILS
Lead Organisation: / Materials Processing Institute
Registered Address: / Teesside Technology Centre
PO Box 11
Eston Road
Grangetown
Middlesbrough
TS6 6US
Details of Any Joint Venture or Consortium Arrangements:
None
PROJECT DETAILS
Project Title / MPI – Open Access & Innovation Centre
Project Location / Teesside Technology Centre
PO Box 11
Eston Road
Grangetown
Middlesbrough
TS6 6US
Project description:
To create a globally recognised centre of excellence in the development and commercialisation of technology, for the materials, processing, energy and related industries.
Objectives
  1. Develop and commercialise technology solutions for industry and SMEs that increase profitability, enable growth and reduce environmental impact, in a safe and sustainable way.
  2. Work across the materials sector and in collaboration with the Institute of Materials, Minerals and Mining as the recognised national centre of excellence for materials processing, raising the profile of UK materials nationally and internationally.
  3. Provide challenging and rewarding careers to talented technicians, engineers and researchers. In so doing, attract, invest in and nurture people to the benefit of the Institute, the individual and the materials sector as a whole.
Societal and Ethical Mission
  1. Develop technology based solutions for industry and the supply chain, which enable the highest standards of ethical production without economic disadvantage.
  2. Have a lasting positive impact on the surrounding community, as a consequence of the work undertaken, the way in which business is conducted and the opportunities provided for education, employment and training.
The project seeks to enhance the existing facilities to provide a new Open Access Innovation Centre for Industry and SMEs. This is by the creation or provision of;
  1. Modern market standard office accommodation for SMEs within Red-Block
  2. Laboratory and demonstrator space for SMEs within Blue-Block
  3. A hospitality area within Green-Block
  4. Office accommodation for the Doctoral Training Centre within Blue Block
  5. New equipment to enhance the R & D capabilities and service offering.
Changes Since the Original Application
  1. A number of details around which spaces are being developed/refurbished have changed and some additional equipment following significant developmental work since the last approval stage.
  1. There have been significant changes to outputs but these are driven by original estimates including significant double counting and by the inaccurate calculations of safeguarded jobs.
  1. BCR has also changed following assessment by a professional economist rather than MPI’s commercial team. The basic principle and scale of the project is in line with previous stages.

HIGH LEVEL FUNDING SUMMARY (Full detail to be provided in spreadsheets)
Funding type / 2014/15 / 2015/16 / 2016/17 / 2017/18 / Status
LGF / £66,465 / £2,023,304 / £910,231 / Project will only be able to draw down up to £1.5m in 2015/16 and £1.5m in 2016/17 as per approved allocation.
Private / £6,410,410 / £98,135 / £2,702
Total / £6,476,875 / £2,121,439 / £912,933 / TOTAL = £9,511,247
APPRAISAL SUMMARY
Case / Result / Comment
Strategic / Satisfactory /
  1. Strategic case has been made and this project contributes to achieving both the SEP and wider Government Strategies through:
  • Developing the infrastructure necessary to create an open access technology centre for the materials, processes and energy sectors,
  • Providing industrial R&D to overcome business challenges
  • Supporting SME growth and start up
  • Supporting commercialisation of technology
  • Strengthening supply chain linkages
  • Develop high level skills in key sectors
  • Contributing to the transition to a low carbon economy
  • Enabling the Tees Valley and the UK to maintain its comparative advantage in these sectors.

Economic / Satisfactory /
  1. Evidence of Need - has some evidence base but could be have been strengthened by drawing upon information collated for the SEP and ESIF and further consultation with businesses to better demonstrate evidence of need within the Tees Valley.
  1. Options assessment is well made, outputs are lower than predicted but robustly assessed.
  1. BCR is satisfactory at 2.3.

Commercial / Satisfactory (with condition) /
  1. Some evidence of demand for services based on initial trading (although lacking documentary evidence).
  1. Procurement conditions to impose as under OJEU threshold.
  1. The support/underwriting of XXiscrucial to viability – seefinance section for further details.
  1. Risk section highlighted normal construction issues but does not consider long -term operational risks. The appraisal references wider risks to TVU as the funder and identifies the possibility of legal charge for consideration.
  1. MPI has stated that this may be possible during the construction and grant payment phase but would potentially compromise funding if imposed beyond that.
10. XX
11. The introduction of a legal charge will usually add a 3 month delay on the legal state of the grant offer process which could impact on the programme.
ACTION: The panel are asked to recommend that a legal charge is not imposed as it will not offer the security required; thereby accepting this risk which will be managed accordingly according to the LGF Programme Management Framework.
Financial / Satisfactory (with condition) / 12.XX
13XX
14.XX
Option 1 – Monthly in arrears
Paying in arrears poses a higher risk to project delivery. The LGF monies are to be paid to SBC in one annual instalment via section 31; therefore the financial risk in paying monthly in advance is low.
Option 2 - Monthly in advance
This would provide the applicant with the level of cash flow required. The advanced payment would be evidence based, the details of which will be discussed and agreed with the applicant on approval. This will reduce the risk to TVU and minimise any potential loss of grant should the project get into difficulty, whilst removing the risk to project delivery due to cash flow.
The standard principle for LGF claims is quarterly as monthly claims for the whole programme would be unmanageable. Therefore the Investment Panel should consider this as an exceptional case.
ACTION:On this basis TVU would recommend Option 2 as a preferred option and ask the Panel to endorse this. If endorsed, a revised spend profile and cash flow will be required based on the maximum annual allocation of £1.5m in 2015/16 and £1.5m in 2016/17. The applicant cannot draw down over their annual allocation.
15. The revised cash flow must not include recoverable VAT.
16. A variety of requirements and conditions around finance to be satisfied before completion of any funding agreement.
Management & Legal / Satisfactory (with condition) / 17.XX
  1. The lack of intrusive site investigations is a risk to the project but acceptable risk given minimal new build and mitigation. A desktop report from SOLMEK (Nov 2014) has been provided that gives some comfort around site conditions. The cost plan has contingency included to cover the risk of ground conditions being worse than envisaged.
  1. XX
  1. Planning permission for the minimal external works has been submitted to the relevant authority, with a response expected in the next month. Reassurance has been provided to TVU that the internal works do not require planning permission. Planning is therefore considered a low risk but a precondition to draw down funding.
  1. State Aid – A legal opinion has been provided which in broad terms meets requirement of state aid. However there are a number of assumptions which are required to backup various assertions and grant conditions to ensure certain characteristics of the facility.
  1. Until these issues are finalised the state aid position is at risk. It seems likely that the applicant will be able to address these issues satisfactorily which would remove this risk and assure the appraiser of state aid compliancy. The applicant will also need their legal advisors to address the opinion to SBC as the accountable body. Not considered as a high risk as principled stance seems reasonable and conditions are in place to satisfy requirements.
  1. Timetable - is achievable with a suitable professional team in place (see conditions).Note that due to funding available to this project in 2015/16 (£1.5m against a requirement of £2m), there may be a delay in the start date of the project.
  1. XX

RECOMMENDATION
The project does have a number of risks which need to be covered off by further investigations XX. The project is recommended for approval subject to satisfying these requirements, the particular conditions recommended by the Independent Appraiser and completion of the standard funding agreement.
If any of the conditions are not satisfied in the necessary time period, this project will be referred back to the Investment Panel to review their decision.
Recommended / Recommended
(with conditions) / Defer/Reject
CONDITIONS
Essential Pre-Conditions - to be met prior to entering a funding agreement:
  1. Agree payment monthly in arrears or monthly in advance as set out in the financial case point 11 in the above summary.Applicant to confirm they can meet the revised spend profile on whichever basis is agreed
  1. Provide the following documents to Adrian Stanley at DWF (TVU’s legal representative):
XX
  1. Title Report must be issued contemporaneously with completion of the funding agreement.
  1. Clarifications as outlined in the full appraisal state aid review to support opinion is required.
  1. State Aid position to be issued as an opinion to Stockton Council at date of completion.
Essential Conditions - to be included in the funding agreement:
  1. Appointment of the main building contractor and any equipment outside of the main building to be procured through competitive tender with a minimum number (4) of suitable contractors to comply with accountable body’s minimum requirements.
  1. Detailed planning consent for the scheme is evidenced prior to draw down of funding.
  1. To meet State Aid Requirements:
8.1Charges for completed scheme will be market prices for access to the infrastructure.
8.2Access will be made available to end users on an open and non-discriminatory basis.
8.3Economic and non-economic activities of the facility will be separated out.
  1. MPI is to retain or appoint the services of a professional construction project manager should the application be approved.
Standard Conditions - to be referenced in the TVU issued LGF Project Handbook
  1. Mitigating action for red risks in register must be implemented.
Specifically for this project, confirming the main contractor procedure regarding discovery of asbestos materials to be commissioned for inspections and testing.
  1. At project closure a QS is appointed to check the original plans against the delivered project.

TVU LEAD APPRAISER:
PRINT NAME / Heather Heward (Strategic Investment Planning Manager)
SIGNATURE /
DATE / 23.01.15
TO BE COMPLETED AFTER INVESTMENT PANEL:RECORD OF DECISION
CHAIR: / Stephen Catchpole (on behalf of Neil Schneider)
CONFLICTS OF INTEREST: / Not direct but Stephen Catchpole is an observer on the MPI Council
DATE OF MEETING: / 27th January 2015
DECISION: / Recommended for Investment with Conditions

NOTE: When a decision is made at Investment Panel this document will become unclassified and will be available on the TVU Website to meet LGF audit requirements.

1