Birmingham City Council (BCC) has effectively declared bankruptcy – but what could it mean for the construction industry and the companies that have joint projects with the council?
The local authority today issued a Section 114 Notice, adding all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately.
The council, thought to be one of the largest in Europe, attributed this to an equal pay claim in the region of £650 million to £760 million, previously announced in June.
This figure, it said, has an ongoing liability accruing at a rate of £5 million to £14 million a month, which the council “does not have the resources” to meet.
“The council has insufficient resources to meet the equal pay expenditure and currently does not have any other means of meeting this liability,” a BCC report states.
The role of local authorities
Local authorities are key players and partners in delivery of various aspects of the construction industry, particularly to those already working with those bodies.
Councils have a significant influence on the fate of many construction contracts, from major capital projects like roads, schools and hospitals, utilities and leisure, to building including housing developments and their associated infrastructure.
Local authorities also determine the outcome of planning applications for these various projects and manage the administration of the planning system.
They also work with government entities like the Planning Inspectorate in the resolution of development disputes and Nationally Significant Infrastructure Projects (NSIPs).
Councils also negotiate with developers and associated building companies on Section 106 Agreements, legally binding contracts or obligations as part of the granting of planning permission, which impacts social value considerations.
In short, the effective bankruptcy of BCC could have a major impact on the future of development in the city.
Some major projects known to be underway in Birmingham include HS2, capital works for University Hospitals Birmingham NHS Trust, regeneration of the Ladywood Estate, several tower builds, and St Andrew’s stadium.
What happens when a Section 114 Notice is issued?
With the exception of core services, no new expenditure is permitted.
However, existing commitments and contracts will continue to be honoured, according to a report by Oldham Council.
The notice published by BCC states:
- all non-essential expenditure will now stop with immediate effect
- council is prevented […] from entering into any new agreement or commitment for expenditure
- this could affect companies controlled, or jointly or partly owned, by BCC
- financial controls apply to all services, including statutory, delivered via controlled and connected entities
- BCC’s Capital Financing Requirement will need to be reviewed and re-calculated
- no further loans will be sought from the Public Works Loan Board, unless to be applied for capital purposes for which the council is in contract
“The council’s senior officers and members are committed to dealing with the financial situation and when more information is available, it will be shared,” said BCC.
BCC was approached for comment.
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