Cambridge ‘haemorrhaging millions of pounds a month’ on £1 billion building project

The University of Cambridge’s £1 billion North West Cambridge development is “haemorrhaging millions of pounds a month”, a member of the institution’s council has suggested as academics debated a projected overspend.

At a meeting of the university’s governing Regent House to discuss North West Cambridge, critics of the project’s management likened it to infamously mishandled developments such as the Sydney Opera House and claimed the “true hole” could be as much as £87 million.

It was also suggested there has been a dispute between Cambridge and the infrastructure contractor, Skanska.

Cambridge took out a £350 million bond to part-finance the project, which includes 1,500 homes for staff, 1,500 homes for sale, accommodation for 2,000 postgraduates to address shortages in the city, and 100,000 sq m of academic and R&D space.

Formal approval for North West Cambridge was given in January 2013 and construction work on Phase 1 began in June that year.

A Cambridge spokesman said the development “remains a sound, self-financing investment, and is on track to deliver on its strategic and operational vision”.

He added: “The university has not incurred any additional costs at present, and the projected financial outcome can be brought back into line with the project’s original parameters.”

The spokesman also said: “As with many projects of this size and complexity, there have been a number of difficulties and challenges. These have included the timely installation of site-wide infrastructure, inflation in construction costs, and certain aspects of the project’s financial risk reporting.

“As soon as the full extent of these difficulties came to light, the university commissioned a review into why they occurred and what lessons could be learned for the future.

“The university will use the findings to improve certain aspects of the governance and management of the project, and ensure that further investment is made in key personnel and expertise.”

Last month, the university’s council, its executive body, received an update on the project.

According to the university’s official Reporter, the council then asked the audit committee “to commission an urgent investigation into the governance and management structures that had enabled projected costs to escalate to such a degree without the issue having come sooner to the attention of the Finance Committee and other University officers and bodies”.

Members of the Regent House discussed the project at a meeting last week, with a report of the discussion published in the Reporter last night.

Ross Anderson, professor of security engineering at Cambridge and a member of its council, speaking in a personal capacity, said the first indication of trouble he had received was when he received the papers for a July council meeting.

Professor Anderson “learned that because of building cost inflation and a dispute with the infrastructure contractor, Skanska, the Syndicate – to which the Regent House delegated management of the project – expected it to run £50-80m over budget,” he told the Regent House in his speech.

He added: “The Registrary is anxious that the full story not be told in public yet, arguing that the details of which consultant said what to which contractor, and when, might still be litigated.”

After likening the project to “classic case studies” such as the Sydney Opera House or the UK government's Universal Credit scheme, Professor Anderson warned that “we are haemorrhaging millions of pounds a month”.

He added: “Unless we can get this project under control, the costs could double rather merely increasing by 40 per cent.

“In that case the rental income from the new flats won’t even cover the bond interest, and our successors in the middle of this century will have to find over half a billion pounds to refinance it.”

Stephen Cowley, senior lecturer in the Faculty of Mathematics and a former member of council, said in his speech that, on the basis of a PriceWaterhouseCoopers review of the project for the university, he had calculated that the “true hole is not the rather fuzzy over-run of ‘between £49m and £76m’ as reported to the finance committee in July 2015, but £86.6m.

“On working this out I had a sleepless night.”

But Rachael Padman, lecturer in the Department of Physics and a council member, said it was "not a 'cost blow-out' as some have represented it", as the sums mentioned were "simply a potential liability if we don't take appropriate action".

Jeremy Sanders, deputy chair of the West and North West Cambridge Estates Syndicate and a former pro vice-chancellor, said that although the “short-term set-back is unwelcome and uncomfortable”, for “a hundred years and more” the project will provide “secure, steady, long-term income to the university, decades after any loans have been paid off, as well as providing an outstanding place for thousands to live and work”.

Steve Young, professor of information engineering and a former member of council, said the “projected cost over-run…is unfortunate and we must learn to manage ourselves better”.

But he added that “a successful conclusion to this project will result in a significant asset to the university which will be of great benefit not only to ourselves but to future generations”.

john.morgan@tesglobal.com