This is the story of how it took six years, £40m and many public punch-ups between the council, Mowlem and Grimshaw to build a smallish public leisure amenity in Bath. And it’s still not built. We tell the story, and reports on Mowlem’s plan to put an end to it …
Bath spa, One of construction’s most delayed, disrupted and disputed projects may be nearing the beginning of its end. Last week, contractor Mowlem offered Bath and North-East Somerset council (Banes) an exit strategy from a landmark public leisure project that is, at present, five years late, and the out-turn cost of which has grown from £13m to £40m.
Mowlem has offered the council the chance to cut its liability for Bath Spa for a fee of £26m. It is offering to assume all future risk by way of a fixed-price design-and-build contract with a guaranteed completion date of 31 July 2005.
It has also ruled out any further legal recourse.
Surprisingly, given the millstone the Spa has become, the council has not immediately accepted the offer. Less surprisingly, the offer has become the occasion for yet another public row between the parties.
Banes is arguing that it has already paid Mowlem £14.5m on an £11m contract, and says it found out about the contractor’s offer only through the press. A spokesperson said Banes had no intention of committing more public money until it had had detailed briefings from Mowlem.
Whatever the problems of the past and whoever wins any future legal wrangles, the council cannot ignore Mowlem’s dramatic offer
Mowlem, for its part, is complaining that it has been the victim of a “systematic smear campaign” orchestrated by Banes, and points out that it has been standing by since 15 December to take over the project. It further claims that the £14.5m figure is included in its £26m bill, and that it sent a detailed solution to the Spa’s principal defect, the leaking steam room floor, to Grimshaw, the project architect. Mowlem says Grimshaw lost it – which the architect denies – and also claims that Banes has not been in contact with them to inquire about its offer. Banes’ retort is that it is Mowlem’s offer, so it should come forward with the details.
All of this is but a brief excerpt from a row that has now been going on for years. Although Mowlem’s offer seems to preclude any future legal shenanigans, all sides in the dispute are known to have been preparing their legal teams for an epic battle over who is to blame for the Spa’s peeling paint and leaking floors.
Construction minister Nigel Griffiths, who visited the scheme for the first time on Monday, endorses Mowlem’s offer and has savaged the council. “My take on it is that you have an award-winning architect, an internationally recognised contractor, and the council,” he says. “I know who I think is the weakest link. This will be a case study of a dying era in this type of council procurement.”
But, as Building found out, the issue over who is to blame is less clear cut than Griffiths suggests. To understand, you need to study a catalogue of cock-ups stretching all the way back to November 1996 – the month that an ambitious council decided to bid for some of the lottery millions on offer for landmark buildings from the Millennium Commission (see “Sparring at the Spa”).
Whatever the problems of the past and whoever wins or loses any future legal wrangles, the council cannot ignore Mowlem’s dramatic offer. The fixed price and delivery date seem to offer it some much-needed certainty. Whether the £26m pricetag is the end of the story, or whether the huge legal claims (said to be at least £15m) are still operative, remains to be seen. Certainly, the demagogic tone of Mowlem’s latest press release does not suggest that swords are about to be beaten into ploughshares. It said: “Mowlem’s message to the people of Bath is that we can still have your Spa open this summer. But we cannot do it if your council does not co-operate …” It’s Banes’ move.
Sparring at the Spa
Banes’ application for lottery money makes amusing reading. Among its more comical predictions is that it would take four months to get the scheme through planning (see document). This would be optimistic in the case of a government-backed scheme for key workers in the Thames Gateway. In the city of Bath, with its world renowned heritage and vested interests, it was ludicrous. Planning was eventually achieved more than year later than forecast, in mid-1999, after 19 months of hold-ups.
Another of the council’s preliminary bungles was to be coerced into using the wrong contract. The Millennium Commission’s £7.78m grant stipulated that the council must opt for a traditional JCT contract. Unlike design-and-build, where the contractor assumes the risk, the traditional contract puts much of the risk on the client, and by extension the taxpayer. To make it work the council needed a private development partner to take on some of its liabilities.
A recruitment search
An initial search for such a partner yielded one serious contender: Dutch firm TDC, which runs a string of spas and casinos in Europe. But TDC failed on nine occasions to come up with its required capital input before a vital council meeting of 1 July 2000. Spa watchers call this meeting “the point of no return”. At that meeting councillors could have decided to ditch the project, write off £4m and return the lottery money. Instead it decided to press on. For a while it looked like a good call: TDC finally put in a feasible offer and was taken on as the council’s partner under its vehicle Thermae Bath Spa in February 2001.
For Malcolm Hanney, a Banes councillor who voted against continuing the Spa, the subsequent disasters can be traced to poor business decisions in this period. “The sheer scale of the council’s risks arose when it decided take the unlimited project risk in July 2000,” he recalls. “The current problems reflect how the council decided to manage and progress the project back then.”
Aside from the selection process, the deal the council struck was a duff one. Getting a private developer on board should either mean it shares some or all of the risk, or that it shares a good percentage of the future profits of the project (in this case, receipts, merchandise and operating profits). The deal Banes struck, in contrast, meant it kept the risk in return for only 12.5% of the profits. The council will probably never make more than £3m out of the Spa.
Worse still, the deal precludes Banes from pulling out. If Banes ditched the Spa tomorrow, it would have to pay back all of its lottery money and cover all of Thermae’s costs.
Too little, too late
Then there was the confusion over the project contractor. The November 1996 plan said work would start on site in June 1998 and a resplendent spa would be delivered before Christmas 1999. A grand opening could have been staged for the millennium. In the event, the selected contractor, local firm Ernest Ireland, did not start work until 2000 – by which time they had been taken over by Mowlem.
Strapped for cash
Most worrying of all were the spiralling costs. In November 1996, Bath council said it could deliver the Spa for £13m. According to councillor Hanney, who is now executive member for resources at the council, this was always a “back of the fag packet” value submitted in a hurry to get lottery money. As soon as cost estimates were performed, and architect Grimshaw (above) had produced designs with “more clarity”, the costs rose to £15m and then to £22m.
By 2002, Banes’ own outlay had risen from £3m to £8.8m. According to a councillor close to Banes’ financial affairs, at least some of the extra money was taken out of a crucial contingency fund for the scheme. This meant that the council had less money in reserve for when things went wrong – which they proceeded to do. Spectacularly.
The Spa’s revised timetable had it opening in August 2003 to coincide with a concert for the Three Tenors. The building was built, practical completion was nearing, and Mowlem had started sending out legal claims to recoup its losses from time overruns caused by design changes and what JCT contracts call “relevant events”, that is, those beyond the contractor’s control.
But Grimshaw, as contract administrator, refused to certify practical completion because it had become apparent that the paint on the walls of the pool was peeling. This coincided with a council report in September 2003 that placed the cost of the Spa at £26m.
Relations between the three parties, which had been strained by design changes, time and cost overruns, got nasty. Whoever was at fault would be liable for the bill of sorting out the problems, as well as the bill for cost and time overruns.
Seeking an impartial judgment of what was going on, Banes asked Mowlem to allow another contractor, Warings, on site to carry out tests on the paint. Mowlem refused – a decision that appeared to support Grimshaw’s contention that the contractor applied the right paint wrongly. But Mowlem countered that the paint specified by Grimshaw, RIW Toughseal, was not elastic enough to be properly waterproof. Banes went to court and got an injunction to allow access.
An unreadable report
Trying to understand what had gone wrong is made harder because there is no objective view of events. A report by material specialist STATS concluded last March that the paint problem would cost £4.3m to solve. It also criticised Mowlem, prompting a furious denial and claims that the council was trying to “embarrass” the contractor. But because the whole report was not released, there is no point in trying to apportion blame: no accusation, however detailed, could be verified because nobody could enter the Spa to check.
To the disbelief of Bath councillors, a second cataclysmic defect was announced in September – the steam room floors were leaking. The miuse of the same paint, RIW Toughseal, had created 1500 mm long cracks through which water poured. Another £4m was thrown at this problem, pushing the project’s total costs up to £35.3m.
Once more, all three sides sharpened their claws. Grimshaw kicked off, saying the problems were construction-related. Mowlem, perhaps learning from the negative publicity over the paint, then upped the ante by releasing to the press edited extracts from a report into the leaking floor by architect Bickerdike Allen. Mowlem quoted criticism of Grimshaw in the report, and announced they had been totally absolved of blame.
Grimshaw remained silent on that matter. Council insiders, however, indicated that the full report, which was not released pending legal claims, criticised Mowlem’s role as much as the architect’s. Although not exactly coming to Grimshaw’s defence, the council is clearly not best pleased with its contractor. “Mowlem has been haranguing us, using bully boy tactics,” says one source. “Grimshaw has been seen as more honourable.”
Last week Mowlem sent out a press release detailing its offer to take on the project under a design-and-build contract. Grimshaw refused to comment.