A report of the Director of Legal and Governance Services (Monitoring Officer) was presented to set out the draft findings from the internal audit on the project management of Boho X and the proposed management response. The report set out proposed actions to improve programme and project governance across the Council in the light of the findings of the audit, subject to further comment from the Committee.
The Chair reminded Committee Members that the aim of presenting the report to Committee was for Members to recommend ways to strengthen policy and procedures. Any questions that strayed into areas that were more appropriate for Standards Committee would not be permitted. The Monitoring Officer added that this was an opportunity for the Committee to consider the findings of internal audit review and investigation, monitor the implementation of recommendations and ensure that effective systems were in place that would underpin and ensure high standards. The Committee was requested to note the findings of the draft internal audit report on the project management of Boho X and the proposed management responses and consider whether it wished to make further comment on the issues raised by the audit and the proposed actions.
Following discussions with the Chair and Vice Chair of Corporate Affairs and Audit Committee, and direction from the Committee at its meeting on 15 October 2020, the Director of Finance and Director of Legal and Governance Services commissioned an internal audit review of project management of the Boho X project. Group Leaders were also consulted on the scope of the audit.
The plan for the Boho X building had seen one significant change since the start of the project. It was agreed by the Executive in March 2020 that Boho X would be a 20 storey office development with 100,000 square feet of floor space (plan A). In August 2020 the design of Boho X was reviewed and the downsizing of the building to six storey, 60,000 square feet development was subsequently initiated (plan B). The project was the responsibility of the Regeneration and Culture Directorate. The original sponsor was the then Executive Director of Growth and Place, moving to the Head of Economic Growth on the former’s compulsory redundancy. The Council expected to let Boho X in its entirety for ten years in the near future.
The purpose of the audit was to provide assurance to management that procedures and controls within the system ensured that:
· The project had used and met the requirements of the established Project Management Framework in operation at the Council.
· Meetings and communications directing the design and development of the project were carried out in line with proper procedures and fully recorded.
· Decisions relating to the project had been taken, recorded, published and communicated in line with the Council’s Constitution (including the Scheme of Delegation).
· Key information relating to the project was available and had been retained to support decisions.
· There were appropriate project governance arrangements in place including processes for managing project risk.
The auditor’s key findings were that:
· The project was not always managed in line with the Council’s Constitution, in that the Mayor of Middlesbrough held meetings with third party contractors on project direction without officers present, and without these being documented – while this arrangement was agreed by the former Executive Director of Growth and Place via email, it was not in their gift to do so and was contrary to the Constitution and the Programme and Project Management Framework (PPMF).
· As the above meetings were not documented, there was not a clear record of discussions and there appeared to have been a perception by the third party contractor that the Mayor was making decisions and formal instructions for the project, while the Mayor did not perceive that he made those formal decisions. This may have led to decisions and design changes being made without appropriate input or transparency or being communicated efficiently.
· Change control notices were not submitted, reviewed and authorised in line with the Council’s PPMF as a result – key design changes were recorded in the (third party contractor) BCEGI decision log following meetings as being agreed the Mayor. They were not formally referred to the Project Sponsor and Directorate Portfolio Board as they should have been – instead there was an agreement that these would be relayed via the former Executive Director of Growth and Place, although no email evidence was available to support this had occurred.
· Changes recorded in the BCEGI decision log included those items that BCEGI perceived as being authorised by the Mayor, and there was no officer involvement in these decisions, which resulted in changes to the project design and cost – as such, notwithstanding the agreement and direction of the former Executive Director of Growth and Place, decisions were not in line with the Council’s constitution or PPMF.
· Seven design changes outlined in the BCEGI change log between June and August 2020 (in which period there were no internal project board meetings) represented the change from plan A to plan B, and were perceived by BCEGI as authorised by the Mayor and recorded as such in their log – there was no evidence that these changes were attributable to COVID-19 as identified public communications and as such the decision-making on the change was not transparent. The Project Board minutes for September 2020 also recorded that the Mayor had instructed changes to the project.
· Decisions relating to securing funding for Boho X and awarding key contractors had been taken, recorded, published and communicated appropriately, there was a clear record available of the abortive costs as a result of the design changes and an appropriate procurement process was followed for key contractors.
· An appropriate project risk register was in place that was reviewed and managed by the project manager, but not reviewed and managed within the internal project working group board meetings, and as such project risks might not have been overseen appropriately and mitigated to an acceptable level.
· There did not appear to be an effective culture of challenge in place across the project – while the Mayor acted outside of their expected roles and responsibilities, the process was agreed by the Executive Director of Growth and Place at the outset.
· There was no evidence that the Mayor was advised that he could be perceived as exceeding his constitutional role in relation to the BOHO X project identified during the investigation. Standard Member training would not have included training on governance arrangements for operational project delivery as there was no role for Members. Induction training did include information on the Officer/Member relationship and the split of responsibilities, which had been provided to the Mayor.
Significant gaps, weaknesses or non-compliance were identified by the auditor, leading to an overall opinion of the controls in place at the time of the audit as providing only limited assurance.
It was vital that the management response to this audit addressed the culture that allowed these arrangements to be put in place and persist, as well as necessary procedural changes.
The Mayor had been advised by the Monitoring Officer not to meet with third party contractors or potential tenants on this or any other project without officers being present, and when attending with an officer, to be clear that it was the officers that were leading the discussion and only they had the authority to execute decisions.
The Director of Regeneration would now sponsor the Boho X project so that leadership of the Council’s biggest project was re-established at Chief Officer level.
The project’s controls had been reviewed by the PMO and were now compliant with the Constitution and the PPMF.
Appendix 1 to the submitted report summarised the additional actions proposed by management to address these. These focused on ensuring that the issues identified in this audit were not present in other projects within the Directorate and strengthened the PPMF to address the issues raised, with associated training for Members and officers.
In addition to the response to this audit, other actions would be undertaken to strengthen governance across the Council. These would be outlined in the forthcoming Annual Governance Statement to be considered by the Committee as part of the Statement of Accounts in April 2022. Relevant to this audit would be consideration of the robustness and subsequent tracking of the implementation of delegated authorities agreed for major projects.
Members asked questions in relation to the rationale for the review of the Boho X project, additional costs incurred, how costs were signed off, the lack of internal project board meetings, promotion of, and communications in relation to the project, and the risk register.
The internal auditor confirmed that the senior management review was not included in the terms of reference for the audit and therefore not considered.
The Monitoring Officer confirmed that BCEGI and Logic Architecture were the two contractors involved in the project.
AGREED as follows:
1. the findings of the draft internal audit report on the project management of Boho X
and the proposed management response were noted.
2. the internal auditor would provide further details to the Committee in relation to the Project Board Meeting held in September 2020 referenced at paragraph 17, bullet point 5 of the report.
3. a draft of the final Audit Report would be shared with Members of the Committee and Group Leaders for comment once the detailed actions in response to the findings had been populated.
4. details of the Monitoring Officer’s formal response to Members and the Leadership and Management Team, to reiterate guidance on the Constitution and PPMF would be provided to the Committee.