4.3.1 In some Projects it may be necessary for a new site to be secured for the purposes of the Project. Historically, where there has not been a requirement for the Project to be operated from a certain site, Authorities have required bidders to price the cost of the land acquisition into bids with a view to making the acquisition after selection of the winning bidder. However, such an approach should not be taken on Projects where the location of the site is critical to the success of the Project for the following reasons:
• deliverability of the Project should be demonstrated at the time the Outline Business Case is prepared by the Authority. This may be best achieved if the Authority secures the site prior to, or at the time of, the Outline Business Case being prepared;
• when using the Competitive Dialogue procedure, the availability and pricing of the land would need to be determined prior to the close of the dialogue;
• requiring bidders to commit to pricing of land acquisition prior to making the acquisition is unlikely to offer best value for money to the Authority, as bidders are likely to include a contingency in their bid to allow for difficult negotiations with the owner of the site or future variability in the purchase price. Furthermore, delay in Contract award may arise if the owner of the site realises that the winning bidder has priced its bid on the assumption that the Project will be delivered on that site, therefore giving the owner a strong negotiating position against the winning bidder; and
• the result of competition could effectively be determined not by the best value for money bid, but by the best property deal available.
4.3.2 Where the location of the site is not critical to the success of the Project, bidders should be encouraged to offer innovative solutions in respect of land acquisition.
4.3.3 Where land and property owned by the Authority becomes surplus as a result of the Project and this surplus land is dealt with as part of the procurement, the Authority must ensure that it receives market value5 for such land from the Contractor. When surplus land and property features as an integral part of a bid, it can be difficult for the Authority to reach clear judgements about market value. However, this does not relieve an Authority from its obligation to demonstrate that it has achieved market value. The risks involved in surplus property development are different to those within a PF2 Contract and Authorities should consider these in advance of procurement:
• how best value can be extracted from surplus land Assets to the benefit of the public sector
• (including whether it should form part of the Contract or be sold separately), taking account of the town planning status and market risks;
• if land is to be included in the Contract, how mandatory and variant bids will be evaluated to take account of differing approaches by bidders to the treatment of land receipts within the PF2; and
• whether it is appropriate to introduce competitive market testing of the surplus land proceeds and/or gain sharing mechanisms within the Contract.
4.3.4 Where the Authority cannot satisfy itself that market value has been achieved it should consider seeking bids that remove the financial benefit of the surplus land and property. Where the Authority intends to release property to the Contractor, it must consider carefully how best this is done, over time, in order to achieve best value for money. For example, transfer of surplus property at Financial Close prior to it receiving detailed planning permission, may not prove good value for money. Care should be taken in evaluating proposals that combine the realisations from sale and/or development of surplus land with the construction of operational property and provision of services.
4.3.5 The Authority needs to take care that the inter-relationship between the realisation of proceeds from the sale of surplus land, and the property and the facilities from which services will be delivered during the term of the Contract, supports the overall objectives of the Project and also does not prejudice the Authority's position should an event of early termination arise.6 Where a local authority provides land for a housing project it should not ordinarily transfer the land before the new housing has been completed on it (to avoid the risk of losing its interest in the land before acquiring value for it). It may transfer the land for housing to the Contractor in consideration of a capital sum, or, , more normally, a reduced unitary charge (with a peppercorn being paid for the lease). Authorities involved in housing projects have found that there is no significant benefit to be had from transferring a freehold interest as opposed to transferring a 99 year or 125 year lease, and accordingly it will be better value for money simply to transfer a leasehold interest. DCLG provides detailed guidance on transfers and residual value interests in land in its "Guidance and drafting for Non HRA Projects" at www.localpartnerships.org.uk.
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5 See http://www.civilservice.gov.uk
6 Where the Contractor takes the market movement risk, it may be exposed in the event of a termination at a down-cycle in the property market.