principles for implementing flood and coastal resilience...

Principles for implementing flood and coastal resilience funding partnerships - GEHO0312BWDK-E-E i

ii Principles for implementing flood and coastal resilience partnership funding

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Principles for implementing flood and coastal resilience partnership funding 1

Executive summary In May 2011, the Secretary of State for the Department of Environment, Food and Rural Affairs (Defra) introduced a new policy, 'Flood and Coastal Erosion Resilience Partnership Funding', ("Partnership Funding"). This policy describes a new approach to funding projects that will require the costs of many projects to reduce flood and coastal erosion risks to be shared between national and local funding sources. The Secretary of State asked the Environment Agency and officials from Defra to prepare guidance to help apply this new policy. This document provides the overall framework for implementing funding partnerships. It is intended as a "living document" for review during 2012, to ensure that early lessons from implementing the new policy are fed back into the guidance.

The new policy allows any worthwhile flood and coastal erosion risk management (FCERM) project to be eligible for Flood Defence Grant-in-Aid (FDGiA). A worthwhile project is one that would produce benefits greater than the costs involved over its useful life. The amount of grant available will depend on the outcomes and benefits that a project achieves over its lifetime.

The success of the new policy depends on:

creating strong partnerships to lead the agreed changes;

clearly defining the roles for the responsible organisations and their partners;

realising and managing contributions to help reduce flood and coastal erosion risks.

This guidance describes the actions, conduct and obligations - the principles - that will help make the policy a success.

Roles and responsibilities The overall amount of FDGiA is limited each year. The Environment Agency will continue to use an annual grant allocation exercise to develop an affordable national programme of projects. Regional Flood and Coastal Committees (RFCCs) will set local priorities with advice from other stakeholders including Lead Local Flood Authorities (LLFAs), Internal Drainage Boards (IDBs) and coastal groups, to secure additional investment and manage risks efficiently.

A project will always have a lead organisation. The lead organisation will need to ensure that its staff have the necessary skills to achieve the required project outcomes. It will also need to make sure that all funding partners are able to meet their financial and resource liabilities and other obligations.

Projects must have proportionate governance and management arrangements in place. Their purpose is to ensure the project outcomes can be achieved and that risks, liabilities and obligations are managed effectively. The lead organisation is responsible for these arrangements.

Contributions agreements may only be entered into by executive officers, senior managers or elected members who have suitable authority.

Lead organisations must ensure that appropriate arrangements exist to review their project proposals and those of their partners. The Environment Agency will continue to provide scrutiny arrangements for all projects. Its Accounting Officer will also review all proposals with a capital cost of £2M or more where funding is split between FDGiA and a significant amount of external funding, to ensure FDGiA is appropriately managed.

2 Principles for implementing flood and coastal resilience partnership funding

Partnerships Efforts to create and grow partnerships should begin as soon as FCERM needs, and possible projects to address them, are identified. The lead organisation is responsible for developing an initial business case, to help to make the case for other funders to support the project. The Environment Agency will only allocate FDGiA to further project stages if the partnership can secure additional contributions to help fund them, or if expected outcomes justify an allocation of 100% grant.

The level of commitment from a funding partner may change as the project progresses towards delivery. Prospective contributors should make their intentions clear and in writing, including any associated context, conditions and limitations. Agreement with contractors for significant works must not be entered into until legally binding agreements with funding partners are signed, reflecting the size of the overall investment needed to deliver the project outcomes.

Every project will consider a range of options against economic, social and environmental criteria in the context of local choice. Sometimes, the local choice may be for a more expensive project providing more protection than would have been the case by applying existing national guidance in choosing a solution. The lead organisation and the Environment Agency will support this choice if the community, and other beneficiaries, fund the extra costs of delivering the project over and above what the national guidance recommends, and that any additional planning consents are in place. At other times, limited contributions may mean that a local choice is made that would provide less protection than would have been suggested by applying the national guidance. The lead organisation and the Environment Agency will support this choice, provided all funding partners are aware of the implications, which in some cases could include significant residual risk leading to higher insurance premiums.

The planning system If a developer relies on a project to improve an existing defence, the developer will be expected to make a contribution towards that project. The contribution should be in proportion to the benefit realised by the developer as a result of the project.

Development in locations without existing defences, or where development is the only beneficiary, must pay for the full costs of all the required FCERM measures. New development must meet the aims of overall Government planning policy to be considered appropriate. A development cannot be made appropriate just because a developer will fund the required FCERM measures, but contributions from a developer can form part of the suite of measures for delivering safe and resilient development.

Finance The level of contributions will be calculated on the basis of the costs of the assets being proposed over a specified duration for which grant is claimed. All funding partners should share the costs and risks associated with developing, designing, constructing and maintaining the assets for the period over which the benefits are being realised. However, risk sharing arrangements need to recognise that the Government's contribution is capped, and that funding partners will sometimes want to cap their contributions.

Unused contributions will be returned to the funding partners in the same proportion as they were given. This will be reconciled periodically such as when the final project accounts are agreed.


Lead organisations should ensure that their accounting methods can manage contributions efficiently and that they can release the necessary sums to fund the maintenance over the period of agreement.

A funding calculator exists to quantify the maximum size of the FDGiA contribution to any project, but does not dictate who should bridge the funding gap. Contributors are likely to be those who gain the most from the project. Private or third sector contributors should be encouraged to contribute in proportion to the benefits that they will receive. This will reduce the funding needed from local public sector sources.

The lead organisation is responsible for negotiating individual contributions. It will also ensure that the risks and liabilities are shared proportionally across the funding partners, including the risk of overspend.


Contents Executive summary 1 Roles and responsibilities 1 Partnerships 2 The planning system 2 Finance 2

Contents 4

1 Introduction 5 This guidance document 5 Audiences 6 Objectives 6

2 Roles, responsibilities and capabilities 7 Background 7 Grant allocation and programme management roles 8 Project governance and project management 10 Contributions agreements 12 Project scrutiny 12 Project development 12 Allowable costs and benefits 13 Skills and capabilities 14

3 Partnerships 15 Background 15 Programme and project investment 15 Partnerships and agreements 17 Partnerships and risks 19 Local choice in FCERM solutions 19 The development planning system 20

4 Finance 22 Background 22 Contributions, future costs and financial liabilities 22 Sharing financial risks 23

5 Links and references 25

Glossary 26


1 Introduction 1.1 The Department for the Environment, Food and Rural Affairs (Defra) announced a new approach for funding flood and coastal erosion risk management (FCERM) capital projects on 23 May 2011.

1.2 The flood and coastal resilience partnership funding policy (referred throughout this document as partnership funding) marks a significant change in the way FCERM projects in England are funded and developed. Rather than fully funding some projects and declining others, many more projects may now be able to proceed by building partnerships and securing funding agreements with other parties. Partnership working means that organisations and communities that have a financial stake in managing risk remain involved throughout the life of their investment, and have an incentive to manage project costs throughout the project life cycle. Partnerships will exist from the time that a problem is identified through to finding the right solution, bringing together a funding package, developing and managing a project and maintaining the resulting benefits into the longer term. Projects completed through partnerships potentially achieve a range of wider benefits and outcomes such as amenity, tourism and regeneration as well as flood and coastal erosion risk management.

1.3 Information on the partnership funding approach, the thinking behind it, and how to assess potential grant availability, is available from the Department for the Environment, Food and Rural Affairs (Defra) and the Environment Agency web sites.

This guidance document 1.4 In May 2011, the Secretary of State for the Environment asked Environment Agency and Defra officials to develop guidance to help all risk management authorities implement the policy. This document forms that guidance. It gives risk management authorities and other potential partners advice about the actions, conduct, and requirements that are needed when developing and maintaining FCERM funding partnerships.

1.5 These principles are intended to promote trust between partners and confidence that partnership funding is being applied consistently and fairly. They improve the clarity about the roles and responsibilities of the various parties, and the project management, financial and legal arrangements that are needed to support the policy.

1.6 This guidance reflects the current understanding of how partnerships can work to achieve FCERM outcomes. This is based on previous experiences and discussions along with the new requirements of partnership funding. The Environment Agency is currently in the early stages of transition to this new approach to funding, so this document cannot be presented as the final answer to all the issues that might arise in the future. New knowledge and best practice from innovation and learning will emerge from applying the new approach, and this can improve this guidance over time.

1.7 This is a 'living document', and will be developed to include case studies and innovation from practical application of partnership funding. The next version of this document is planned for winter 2012. More detailed guidance and tools will be developed as appropriate to support specific elements of the new funding arrangements covered in this document.

1.8 Alongside this document, summary guidance is available focusing on the benefits of becoming involved in funding partnerships and where to go to for further advice. These summaries are aimed at elected members of local authorities, developers and other potential contributors.

http://www.defra.gov.uk/environment/flooding/funding-outcomes-insurance/funding/


http://www.environment-agency.gov.uk/research/planning/33700.aspx

http://archive.defra.gov.uk/environment/flooding/funding/documents/funding-letter-to-lord-smith.pdf



Audiences 1.9 This guidance is jointly sponsored by Defra and the Environment Agency. It is intended to be used by all organisations and communities with an interest in managing local flood and coastal erosion risks, and who want to see capital projects take place now or in the future. These projects may be to renew or replace existing defences at the end of their design life, or to reduce the risk of flooding or coastal erosion in areas where there may or may not have previously been formal structures.

Objectives 1.10 The overall objectives of the new funding arrangements, as set out in the Secretary of State's letter of May 2011, are to:

1.11 Better protect more communities and deliver more benefits by:

Encouraging total investment to increase beyond levels affordable to central government alone.

Enabling more local choice, and encouraging innovative, cost-effective options to come forward in which civil society may play a greater role.

Increasing levels of certainty and transparency over the national funding for individual projects, whilst prioritising action for those most at risk and least able to protect or insure themselves.

1.12 The letter also reiterated the importance of existing commitments to which the new funding system should contribute - in particular to reduce the risk of flooding and coastal erosion for at least 145,000 properties between 2011 and 2015, and to make a 15% efficiency saving through the procurement strategy for flood and coastal defences. Savings achieved from this will be reinvested into safeguarding and enhancing protection for people and properties.


2 Roles, responsibilities and capabilities Background 2.1 Defra, the Environment Agency, Lead Local Flood Authorities (LLFAs), other Risk Management Authorities (RMAs) and Regional Flood and Coastal Committees (RFCCs) have specific roles and responsibilities in relation to managing flooding and coastal risks, summarised below. They work together in various ways from developing policy and high level plans, through to strategic investment programming and delivering individual projects.

2.2 None of these bodies have a 'duty to protect' communities, businesses or other interests on the flood plain or around the coast. Their role is therefore to provide as much protection as possible and deliver the greatest overall benefit in terms of flood and coastal erosion risk management with the funding and other resources at their disposal.

2.3 Partnership funding depends on successful partnerships between these organisations and other stakeholders, beneficiaries and funders. This will ensure that, together, they achieve appropriate FCERM outcomes for as many people as possible and all those involved having a say in what gets done. Partnerships will only be successful if roles and responsibilities are clearly defined and applied in practice.

Figure 1: Flood and coastal erosion risk management - overview (from National Flood and Coastal Erosion Risk Management Strategy, September 2011)

http://www.environment-agency.gov.uk/research/policy/130073.aspx



Grant allocation and programme management roles

The Environment Agency will allocate Flood Defence Grant in Aid annually to projects using the outcome-based payments set by Defra. 2.4 The partnership funding arrangements mean that the maximum amount of FDGiA available to any project can be calculated based on the outcomes it is expected to achieve. Once other sources of funding are added, this can also be expressed as a Partnership Funding "score" representing the percentage of project costs that has been secured (and therefore the size of any funding gap), with all projects requiring a score of at least 100% to go ahead. Information on calculating the FDGiA contribution and project score is available on the Environment Agency's website.

2.5 The overall amount of FDGiA is limited and the allocation of funding is therefore subject to availability at the time of approval by the Environment Agency of the project.

2.6 The Environment Agency will continue to allocate FDGiA to delivery programmes every year on behalf of Defra. Its local teams will work with, and support, RFCCs, LLFAs and other RMAs, as well as communities at risk. Each year, they will identify bids for FDGiA project funding that promote local priorities, secure contributions, and maximise flood and coastal erosion risk reduction. When a jointly funded project proposal is accepted into the national programme, the Environment Agency will plan to allocate the agreed level of funding for each year of the project , subject to satisfactory delivery and contribution of agreed funding by other partners.

2.7 Every decision will be made based on the outcomes of, and contributions to, individual projects. The Environment Agency and RFCCs will work together to construct an affordable and deliverable overall FCERM investment programme.

2.8 Each year, the initial priority of projects for national funding will be ranked according to the Partnership Funding scores as described above. This produces the first view of an affordable national programme. It is important to note that the "cut off" score included within this indicative programme will vary from year to year. In the near term, given the amount of national funding available and the number of cost beneficial schemes in the pipeline, this threshold score is expected to be significantly above 100%.

2.9 This initial national prioritisation of schemes allows indicative allocations for future years to be set and approved by the Environment Agency’s Flood Defence Finance Committee on behalf of the Environment Agency’s Board in early October and communicated immediately afterwards to all Risk Management Authorities.

2.10 Regional Flood and Coastal Committees review indicative allocations at their October round of meetings and propose changes which reflect local choices, whilst securing or improving on the FCRM outcomes from each RFCC’s indicative programme and ensuring that any scheme introduced has a Partnership Funding score of at least 100%.

2.11 The Environment Agency then draws together the final investment programme that is affordable to all parties and can be delivered. This is finally agreed and published each February by the Environment Agency's Board in conjunction with the RFCCs.

2.12 A funding allocation to a project, particularly in relation to future years, does not automatically mean the grant can be spent. Payment is dependent on securing


approval at each stage of a project's life. For the purposes of partnership funding, projects can generally be divided into two stages. The development phase produces a robust business case and builds commitments from funding partners. This is then followed by the detailed design and construction phase. Once this second phase has commenced, the presumption is that the Environment Agency will continue to provide the necessary FDGiA alongside any partnership funding to complete the project provided that there is no significant change to the project cost, scope and outcomes described in the business case.

2.13 The Environment Agency will provide a five year forward look on the investment programme on the basis of the available information, and update this each February on a rolling basis.

2.14 On occasion, projects may secure an external contribution that is time-limited, requiring the project's proposed original start date to be brought forward. In these situations, FDGiA may be allocated in the current year provided all the necessary approvals are in place and this is manageable within the overall programme. It will be up to the Environment Agency to decide when it is possible to do this.

2.15 In exceptional circumstances, the Environment Agency may allocate more funding to a project than would be justified by the published partnership funding criteria. This will only apply to situations where there is a statutory obligation or when urgent works are required. Where appropriate, contributions will still be sought.

2.16 Further information on grant application, allocation and programme management is available on the Environment Agency website. The latest guidance will be issued alongside this document and is updated annually.


Project governance and project management

FDGiA will only be allocated if suitable project governance and project management arrangements are in place. 2.17 There must be suitable governance and management arrangements between partners at the appropriate strategic, programme and project level. These must be proportionate to the value and risk of the proposed investment, but should make sure that the public funding involved is spent appropriately.

2.18 An appropriate project management approach must be in place. These arrangements must set out how the partnership will maintain its accountabilities and compliance, the policies and processes they will follow, and the delegations and financial arrangements for each funding partner. Recommended governance structures for large projects are set out in Figure 2 below.

Figure 2: Examples of possible project governance arrangements

2.19 There must be a lead organisation that takes responsibility for securing funding for the project, although this responsibility can be passed to another organisation if all the funding partners agree.

2.20 The lead organisation will be the organisation that is promoting the project and is looking to deliver the planned outcomes for itself or on behalf of others. This lead organisation will be accountable for achieving the results required by funding partners and other stakeholders (see figure 3, below).

2.21 Every project should have a project management structure that includes an executive project board, or equivalent. They will oversee the project and ensure it stays on track to deliver the agreed outcomes. A delivery team, or equivalent, implement the agreed technical solutions.


2.22 The executive project board can include the funding partners and other key stakeholders (as in example 2, above) as agreed between the funding partners and the lead organisation. Where the executive project board does not include funding partners or other key stakeholders (as in example 1, above), a group with suitable representation should advise them on relevant issues. Technical information can be supplied directly to the delivery team. The partnership must be in place throughout the period over which the FCERM outcomes are delivered. Other interested parties can be represented by a separate steering group.

2.23 Membership of these groups will develop throughout the project stages. An appropriate governance structure, with suitably capable and relevant membership, should be included in the project business case.

2.24 Some projects may be handled by different parts of an organisation at different stages in the project. Where this needs to happen, the transition should be managed with a view to strengthening the partnership and improving the way delivery and operational risks are managed.

Figure 3: Roles and responsibilities by project stage


Contributions agreements

Contributions agreements can only be signed by someone who has the appropriate authority within their organisation. 2.25 Contributions agreements should only be entered into by executive officers or elected members within a partner organisation who have the appropriate authority. This can be from owners, shareholders or other senior management. It should be in accordance with the costs, liabilities and obligations required by, or placed on, the organisation by the agreement. The status of the agreement must be able to withstand changes in personnel, or ownership, of the contributor. A contributions agreement is not necessary where FDGiA is only being supplemented by local levy funding allocated by the RFCC.

Project scrutiny

Lead organisations must put project scrutiny arrangements in place to ensure public and partner funds are correctly managed. 2.26 The lead organisation will need to have arrangements in place to scrutinise and approve projects at the different stages of development and delivery.

2.27 All projects need to be authorised by the Environment Agency through proportionate review mechanisms, including the Large Projects Review Group or local Project Assurance Boards. Further information about these arrangements is available on the Environment Agency website. For high risk projects and projects with very large costs, scrutiny arrangements may also need to include Defra, the Cabinet Office and HM Treasury.

2.28 The Environment Agency's Accounting Officer will review all projects with a capital cost higher than £2m where there is a significant external contribution, and all projects where the lead organisation is not a public organisation or charity. This review is intended to ensure that the partnership will appropriately manage public funds, and that it will represent good value for money for the FDGiA contribution.

2.29 The degree of scrutiny involved in all Environment Agency review processes is proportionate, and in particular a lighter touch approach will be taken in cases where the FDGiA contribution represents a small proportion of overall project costs, or where the contribution is from local levy allocated by the RFCC.

Project development

Lead organisations will bear the cost of the early stage of project development, to the first stage business case which will identify the likely project benefits and costs. FDGiA funding for subsequent development and delivery stages will be based upon the Partnership Funding formula and approval of the appropriate business case. All funding is subject to overall availability.


2.30 Subject to availability of funds, from April 2012 the Environment Agency will allocate FDGiA to fund the first stage business case of projects for which it is the lead organisation. This does not include a commitment to fund fully the remaining appraisal, design, construction and maintenance of an asset. Other funders can decide to advance first stage business cases without FDGiA if they wish. The costs they incur can be included in the whole life cost on which overall FDGiA availability is calculated, and therefore a proportion can potentially be recovered by the lead organisation through the FDGiA contribution to later project stages.

2.31 The lead organisation will prepare the first stage business case, which will confirm the credibility of the project including an indication of the likely FCERM outcomes based upon outline consideration of possible options, costs and benefits. The case will explain how the project will be financed. Proposed funding partners will be expected to provide confirmation of the level of their financial contribution, including contingencies, to enable the Environment Agency to consider committing investment of FDGiA to the development of the detailed business case.

2.32 FDGiA will only be available to subsequent project development if the first stage business case demonstrates that the available grant, and the potential contributions, can fund fully the proposed project throughout its life. This is to ensure that the reduction in the cost of developing FCERM projects, that the Environment Agency has achieved in the past few years, is sustained.

2.33 For larger projects, once the first stage business case has been approved and suitable finances secured, the lead organisation will need to develop a detailed business case to justify the allocation of FDGiA towards the design, construction and maintenance of the proposed FCERM assets.

2.34 Where lead organisations choose to fully fund the development of a project, the later stages will remain eligible for FDGiA. This will be calculated according to the planned FCERM outcomes.

Allowable costs and benefits

Flood alleviation and coast protection projects can also deliver a range of non-FCERM benefits. The achievement of multiple objectives as part of a single project should be encouraged but Flood Defence Grant-in-Aid can only be used to fund the lowest cost required to achieve the FCERM outcomes. 2.35 FDGiA can only be used to fund costs necessary to achieve and maintain the FCERM outcomes of a project over its lifetime. This applies to all FDGiA-funded projects, including those that have a partnership funding score in excess of 100%. Funding partners looking to identify and justify non-FCERM benefits and include them within the planned outcomes of the project should identify them at an early stage and will need to fully fund the necessary additional work in terms of development, construction and ongoing maintenance costs. This is to avoid local preferences and demands placing unjustifiable extra cost on the national taxpayer. Reasonable and proportionate measures to conserve or enhance the environment may be considered eligible costs, but this will considered on an individual scheme basis.


Skills and capabilities

The lead organisation should make sure its staff have the necessary skills to apply the principles of partnership funding. 2.36 A new mix of skills and knowledge from all the organisations involved will be needed so that they can identify potential beneficiaries, develop successful partnerships and secure contributions.

2.37 Lead organisations should make sure that any of their staff tasked with working with partners, undertaking engineering projects and maintaining assets are suitably skilled. They need to be capable of understanding and effectively addressing the related risks and liabilities.


3 Partnerships Background 3.1 Working in partnership with others is essential where contributions are needed to achieve FCERM outcomes. Investing in FCERM infrastructure and assets can also realise benefits beyond those directly related to reducing flooding and coastal erosion risks. Non-FCERM benefits are not used to help justify the levels of FDGiA. However, they can be an incentive for others to contribute.

3.2 People who benefit from FCERM projects include anyone who lives, works and provides or receives services in areas benefiting from the work being carried out. It also includes anyone who represents them, and other commercial or voluntary enterprises.

3.3 Once those who benefit from FCERM projects are identified, it should be possible to connect different parties with each other, as well as with organisations with infrastructure and asset investment plans. This will help identify wider benefits that FCERM solutions can enable, such as economic growth and opportunities that can benefit businesses, authorities, communities and the local environment. Partnerships should agree at an early stage who is best placed to approach potential beneficiaries and explore options for funding.

Programme and project investment

Investment choices will be made based upon each individual project's benefits, costs and outcomes. A partnership approach to funding a series of works over time requires that partners contribute appropriately from the beginning, and throughout the work programme. 3.4 The Environment Agency has an overview of all FCERM projects through a national programme. In each case, the lead organisation will prepare an options appraisal to assess and justify its proposed investment choices and outcomes, while taking account of local influences. This will use the Environment Agency's FCERM Appraisal Guidance, unless otherwise agreed with the Environment Agency.

3.5 It may be possible to reduce delivery costs significantly if local FCERM projects are packaged together to take advantage of innovative funding and delivery methods. These projects, when taken individually, must each still be able to justify their required investment from public funding, in line with Defra and HM Treasury policy.

3.6 Partnerships, with support from RFCCs, should seek to raise money from beneficiaries of all projects within such a package, including ones that could qualify to be fully funded by FDGiA. Achievement of this objective is fair to all and in the case of fully fundable projects releases FDGIA to expand the number of projects with Partnership Funding. Where beneficiaries are able to contribute towards projects for which an allocation of 100% FDGiA funding has been made, the FDGIA released by the contribution can be re-invested in projects within the RFCC area. For projects that require a contribution to go ahead, the full value of the contribution, including amounts increasing the score above 100%, offsets FDGiA investment in the project. Contributions will only be spent on the project for which they ware raised.


3.7 Again, all projects within the partnership would still need to justify their investment individually, with the individual FDGiA contribution to any project capped at 100%.

3.8 Funding agreements can help deliver a wider programme of works to be completed in phases. Again, each phase within a project should justify its investment individually.

3.9 It will sometimes be appropriate to calculate overall potential FDGiA funding for a strategy, based on overall benefits and costs. This allows the discrete benefits of each phase or project to be apportioned based on their geographical distribution. This could lead to a proportionate share of the maximum grant payment being made available to each phase or project within the strategy. However, at no stage should benefits being used to justify FDGiA be contingent on latter phases of a strategy being delivered.

3.10 Each FDGiA payment is calculated on the basis that a project will achieve a stated outcome for an area at risk, for a stated duration. Therefore, where successive phases of work are planned to provide protection to the same flood or erosion cell, no further capital work in that flood or erosion cell will be eligible for FDGiA support for future phases during the stated duration of benefit of the first phase. Therefore, an apportionment of benefit from the higher level plan or strategy will help avoid ruling out future FDGiA payments to future work in the same flood or erosion cell, and therefore help secure funding agreements for future phases.

3.11 This approach follows the Defra policy statement on Partnership Funding, by establishing the amount of national funding each project will attract, allowing a separate funding decision to be made for separate projects delivered in phases while avoiding the overall benefit being double-counted. The funding allocation for the first phase will not set a precedent for future phases. Further operational guidance is available to help identify the outcomes associated with different phases and their duration of benefit.

3.12 Where investment is required to address multiple sources of risk, for example risk from surface water as well as river or tidal flooding, the Environment Agency can assist in building a case and quantifying the benefit of a project that deals only with part of the risk.

3.13 There will be cases where a work programme comprising a series of investments, needs to be completed fully to achieve a specified flood or erosion benefit. It may be difficult to agree a separate split of costs for each stage, if the highest level of contributions are required for the earlier phases. If an overall funding package for the work programme cannot be agreed from the start, it may in some cases be appropriate to use the overall benefits and costs of the work programme to establish a "flat rate" proportion of costs to be met by contributions for each phase. This approach offers flexibility to achieve benefits over time in logical phases without having a complete funding package agreed at the beginning of the work programme. However, it should not be used simply to draw down FDGiA for early phases where benefits are low and adequate contributions have not yet been found. Working in partnership means that contributions should be expected at every stage. This approach guarantees value for money on the FDGiA funded share of costs only if all planned works are completed over time, and must be agreed in principle with the Environment Agency's Accounting Officer in advance of the start of the work programme.

http://archive.defra.gov.uk/environment/flooding/funding/documents/flood-coastal-resilience-policy-statement.pdf

http://publications.environment-agency.gov.uk/dispay.php?name=GEHO0611BTUY-E-E


Partnerships and agreements 3.14 Once an opportunity to manage flood and coastal erosion risks has been identified, the lead organisation should develop relationships with potential partners as soon as possible. This will increase the chances of securing a contribution (see figure 4, below).

Figure 4: Development of partnership agreements by project stage

A legally binding agreement will be needed before any significant expenditure is incurred by the lead organisation on a qualifying project. 3.15 The lead organisation is responsible for developing an agreement with funding partners. Agreements will include details of the proposed intervention and the investment required to deliver the planned outcomes. The use of standard contract terms will reduce the input required to draw up agreements for lower risk projects, particularly where the external contribution covers a small proportion of the overall cost. A legally binding agreement is not required where FDGiA funding is being supplemented by local levy funding alone.


3.16 A confirmation of intent to contribute can underpin the early stages of project development as described in section 2.31. This should be obtained from officers with appropriate delegated authority to make commitments on behalf of their organisation, to reduce the risk of the commitment being withdrawn later. Legal advice should be sought at or before this stage. A legally binding agreement is required before a project can progress beyond the detailed business case into design and planning. This agreement will need to cover:

Aims and objectives

Governance arrangements

Roles and responsibilities

Financial and other contributions, including in-kind contributions and access to, or contributions of, land

The split between construction and maintenance contributions

Key decision-making processes and break points

Technical and operational factors

Mechanisms to procure services

Risks, liabilities and securities, including the liability for any cost overruns

Timescales, including timing of payments

Outcomes expected

Change and exit management, and resolution of disputes

Security of payment, including the consequences of default

Intellectual property rights

Public availability of information

3.17 Standard contract terms have been developed that could be included in a range of types of agreement, from small community funded schemes to major infrastructure investments. Further advice can be sought from the Environment Agency before drawing up an agreement. Wherever appropriate, partners should use the agreement as an opportunity to address at this stage project specific issues, such as access to land, to prevent time consuming discussion later on.

3.18 The lead organisation will need to take care to avoid becoming unwittingly legally bound by an undertaking made in discussion prior to the agreement. It should make sure that offers are suitably qualified and evidenced in writing to avoid misunderstandings and the potential consequences arising from changes outside its control.

3.19 Contributions agreements can only be made between legal entities - for example, public organisations, private companies or community-based trusts which may be established for the purpose of funding a project. The lead organisation will be responsible for undertaking due diligence to ensure that potential funding partners have the capacity to meet the financial, resource and legal obligations involved in the contributions agreement.

3.20 The legal agreement does not have to allocate responsibility for maintenance to the lead organisation. For example, maintenance can be valued as an in-kind contribution within a funding agreement, and therefore be the future responsibility of a contributor. Partnership Funding contributions from the Environment Agency to others already include an element of funding for maintenance.


3.21 Where appropriate agreements cannot be reached, projects might not be completed in time, at the location or to the standard expected.

Partnerships and risks

Partners should be fully engaged with FCERM projects. This will help them to manage the risks and liabilities, secure efficiencies and improve the quality of agreed outcomes. 3.22 All potential partners will need to understand and manage their liabilities effectively. They will need to make sure that actions and discussions leading up to an agreement are not misunderstood or misconstrued by others.

3.23 Best practice approaches and tools should be used by the lead organisation to ensure appropriate, open and fair engagement with anyone who will benefit from the planned investment. Lessons learned from past experiences should be shared with potential funding partners.

3.24 As far as possible, the project team should identify the project's risks and uncertainties, and agree any mitigation plans with the consultants and contractors who are commissioned for the required work. All funding partners should be encouraged to get involved and think of ways to limit or remove the likelihood of risks occurring. This will also mean they will have the opportunity to agree alternative actions before they incur any related costs.

3.25 When assessments of project options and valuations of benefits are carried out they must be clearly described and open to appropriate scrutiny, including the arrangements described in section 2.26 -2.29. FDGiA will only be allocated on the basis of benefits that have been subject to this review.

Local choice in FCERM solutions

FCERM solutions should be supported by the funding partners and communities that will benefit the most from their implementation. 3.26 When deciding which flood or coastal erosion risk solution to use in a particular location, the partnership should evaluate a range of options against social, environmental and economic criteria. Unless otherwise agreed, the partnership will use the FCERM Appraisal Guidance to make their assessment. The decision should be acceptable to the local community, but needs also to recognise that there is a wider national programme of projects requiring FDGiA funding which will benefit communities elsewhere. As far as possible, the lead organisation will aim to achieve a solution leading to the outcomes required by all funding partners, and which has the most support within the communities benefiting from the work.

3.27 The lead organisation will:

Advise the community benefiting from the project, and any potential funding partners, on the likely implications of each option they are considering;


Take account of local high level strategies and catchment level policies; and

Identify as a reference point the ideal option from a national perspective. This option, identified using FCERM Appraisal Guidance, is the one that offers the best value for money, taking the wider national programme into account and ensuring that, where significant investments of public funding are involved, money could not be better spent elsewhere.

3.28 Where the lead organisation is not the Environment Agency, it will be able to consult the Environment Agency for advice.

A funding partnership that chooses a solution providing less protection at a lower cost than the option preferred by the national guidance will be supported if the community is made fully aware of the implications of their choice. 3.29 Local communities can choose an option that provides less protection, at a lower cost than the option best suited to a national programme. To support this option, the lead organisation and the Environment Agency will need to be satisfied that the communities understand the implications of this choice. For example, this could include higher risks, reduced access to insurance products and reduced scope to cost-effectively improve FCERM in the future. In meeting its review function as set out in section 2.5, the Environment Agency will refer proposals to its Board or Defra where it considers that the option choice determined by the lead organisation would expose the community to unacceptable risk or represent poor value for money.

A funding partnership that chooses an option that has a higher cost than the option preferred by the national guidance, will be supported if the communities and other beneficiaries fund the difference through a contribution. 3.30 Local communities can choose an option that delivers more FCERM outcomes than the option best suited to a national programme. In this situation, national funding will be capped at the cost of delivering the "national programme" option. This is to make sure that FDGiA is available to support schemes in other communities across England. The communities and other potential beneficiaries will need to find the additional funds to pay for the locally preferred option.

The development planning system

New development must meet the aims of Government's overall planning policy to be considered appropriate. A development cannot be made appropriate just because a developer will fund the required FCERM measures, but securing contributions from a developer can help to deliver safe and resilient development.


3.31 Development facilitates growth, both locally and regionally. However, these benefits are not included in the outcomes used to justify FCERM projects. In particular the amount of FDGiA awarded to a project under Partnership Funding will not take into account any new residential dwellings completed or converted from another property type after 1 January 2012 (i.e. first sold after this date). This is to avoid national taxpayers having to fund protection in the future for new development in areas at risk of flooding and coastal change.

3.32 For new development that relies on existing defences, where contributions are sought, they should be in proportion to the benefits received by the development.

3.33 For new development in locations without existing defences, or where development is the only beneficiary, the full costs of appropriate risk management measures for the life of the assets proposed must be funded by the developer. This includes initiation, promotion, approval, design, construction, commission, operation, maintenance, refurbishment and decommissioning, and mitigating any flood risk impacts caused by the development elsewhere. Local Enterprise Partnerships may be able to assist developers with this.

3.34 Strategic and specific contributions should be secured from development using tariffs (the Community Infrastructure Levy) and /or other planning obligations (S106 Agreements).

3.35 Funding from developers should be explored prior to the granting of planning permission and in partnership with the local planning authority. Securing contributions from a developer can form part of the suite of measures for delivering appropriate development required by Government planning policy. A development can not be made appropriate just because the developer is willing to fund the cost of the necessary protection from flooding or coastal erosion, because other policy aims also need to be met.

3.36 During project planning, and especially when estimating the timing of funding streams, the partnership will need to make a reasonable allowance for the time needed to deal with planning issues, particularly where the project is linked to wider appropriate development to promote growth.


4 Finance Background 4.1 HM Treasury (HMT) and the National Audit Office (NAO) have to ensure that all public sector bodies follow rules on financing, funding and expenditure. There are strict rules governing the way in which income, including contributions, can be treated.

4.2 Contributions need to be calculated based on present values if they are to be received in future years, and consider the benefits that others will gain from the project. All joint funded projects will need to have a clear agreement for how financial risks and liabilities should be shared between partners.

Contributions, future costs and financial liabilities 4.3 Securing contributions will share the costs of developing, promoting, delivering and maintaining FCERM assets. Contributions will be calculated using the whole-life costs of the project for the duration of the benefits. Whole-life costs will include the costs associated with constructing, maintaining and operating the agreed assets throughout the agreed period, as well as any agreed refurbishment, replacement and decommissioning costs.

4.4 Unused contributions over and above the Partnership Funding score used to justify FDGiA and associated contingencies will be returned to the funding partners in the same proportion as they were given. This should be reconciled when the final project accounts are agreed. Lead organisations must therefore be able to account separately for the financing of assets funded by the partnership.

4.5 Where projects are not being managed directly by the Environment Agency, funding grants will be paid to the lead organisation three months in advance based on forecast capital expenditure. This is the same arrangement as with the previous system of paying grants to Local Authorities and Internal Drainage Boards.

4.6 Funding partners should share the costs of project development, delivery, operational costs, and risks and liabilities at each stage of the project, making allowance for the constraints that will exist for FDGiA and other funding streams, as described in section 4.13 – 4.20 below. The ability of each funding partner to raise the money at the required time must be taken into consideration. Commuted sums and bonds will help to avoid future default.

4.7 All contributions agreements should ensure that a proportion of each funding partner's contribution is reserved (Commuted) for maintaining the asset in the future unless other specific arrangements have been agreed.

The lead organisation must have accounting procedures to manage their obligations as set out in the contributions agreement. 4.8 The lead organisation must be a legal entity capable of entering into a contributions agreement as outlined in 3.19. In addition, the Environment Agency's proportionate approach to scrutiny described in section 2.26 – 2.29 will consider the lead organisation's ability to secure appropriate stewardship of public funds.


4.9 Contributions that are received for future work will be kept and released by the relevant asset management organisation to fund the asset maintenance over the agreed time period.

4.10 These financial provisions may only cover a proportion of the future maintenance liability. Other funding arrangements may need to be made to secure the balance of the required costs, through the funding organisations' resources.

The total value of contributions required is determined by the project's present value whole life cost, less the amount of FDGiA that might be allocated. The lead organisation is responsible for securing the required contributions, taking account of other factors including the benefits that others might gain. 4.11 The total value of the contributions towards a project will be determined by the benefits and outcomes, including their timing, the remaining budget needed and size of risk contingency that would be appropriate. In principle, contributors should reflect the groups or organisations that are likely to gain the most from the planned investment. Private or third sector contributors should be encouraged to contribute in proportion to the benefits that they are likely to receive. These contributions will reduce the costs required from any local public sector investment.

4.12 Cost and benefit values used in the calculation of potential FDGiA levels are all based on present values. Since the time value of money means, for example, that £1 is worth more now than it will be in five years' time, costs and benefits arising in future years are discounted. This means that the size of contribution necessary towards a project will also be shown as a present value, representing the payment that would be necessary now to guarantee whole life project funding. If contributions are in fact to be paid in later years, an additional allowance will need to be made in the profile of future payments, to reflect their timing.

Sharing financial risks

The partnership should share the risks and liabilities associated with the costs of delivering, maintaining and operating the project assets. 4.13 When estimating the size of contribution required from any funding partner, a range of values should be discussed representing the uncertainty in how much money will finally be spent. This range may be wide at the early stages of a funding agreement, but should decrease as cost certainty increases. Partners can also work together to drive down the cost of delivering their project.

4.14 Cost estimates must be realistic and reflect experiences from previous projects. 'In kind' contributions, such as an undertaking to maintain an asset, can be included at a fair value within contributions. The Environment Agency can provide further information on cost estimation.

4.15 The lead organisation must secure an agreement for apportioning the liability for any cost over-runs across the funding partners. This needs to recognise that the maximum amount of FDGiA that any project is eligible to receive is set by the


Partnership Funding tariffs, and therefore the ability to meet overspends through additional FDGiA payments is limited.

4.16 The maximum contribution agreed with other partners should make an appropriate allowance for potential overspend. If this contingency arrangement is in place, any cost overruns can still be shared across all funding sources, including FDGiA, in proportion to the size of their contribution, but the FDGiA payment cap cannot be exceeded. If not needed, unspent sums will be returned to contributors in proportion to their contributions.

4.17 A project entering the programme with a score of 100% has no allowance for potential overspend. This would mean that funding partners would need to be approached to meet any additional costs. In the near term, projects entering the programme through the initial ranking described in 2.8 will normally have scores significantly above 100%, which will help provide certainty of delivery once the project has started.

4.18 Where project scores are significantly higher than 100%, the lead organisation may agree that contributions are capped, provided that it is satisfied that this arrangement will not threaten project delivery. Where project scores are not significantly above 100%, fixed or capped contributions should be negotiated with a view to increasing the headroom for unforeseen costs, and therefore increasing certainty of delivery. Partners who have the most control over costs - normally the organisation responsible for project delivery - are likely to be best able to deal with uncertainty in cost outturn.

4.19 Since unspent contributions will be returned, a capped contribution to a project scoring significantly above 100% will allow for the risk of over-spend, and the benefit of under-spend, to be shared proportionally between funding partners. Excess contributions will not be returned if they are necessary at the financial outturn stage to maintain the score agreed when the original investment decision was taken.

4.20 Where the lead organisation is procuring a project through Environment Agency framework contracts, it may be possible in some cases to assign some additional liability for overspends to the FDGiA funding share. This is because the framework contracts set a standard approach to cost estimation and the contractor's risk liability, giving assurance that any overspends on one project are likely to be offset by savings made elsewhere and that the overall value for money required by the Partnership Funding policy will be preserved.


5 Links and references Department for the Environment, Food and Rural Affairs (Defra):

Flood and coastal resilience partnership funding

Letter from the Secretary of State for the Environment

Funding streams for risk management authorities

Case studies

Environment Agency:

Flood and coastal erosion risk management strategy for England

Flood and coastal erosion risk management appraisal guidance

Local Authority and Internal Drainage Board funding

Guidance for estimating outcome measure contributions

Department for Communities and Local Government

Community Infrastructure Levy

Local Government Association

Flooding and local authorities

Section 106 Agreements

Alternative sources of funding for FCERM, including links to funding case studies

Partnership Funding Case studies

Legislation

Flood and Water Management Act 2010



http://archive.defra.gov.uk/environment/flooding/documents/interim2/risk-management-authorities.pdf

http://randd.defra.gov.uk/Default.aspx?Menu=Menu&Module=More&Location=None&Completed=0&ProjectID=16953




http://publications.environment-agency.gov.uk/dispay.php?name=GEHO0611BTUY-E-E

http://www.communities.gov.uk/planningandbuilding/planningsystem/communityinfrastructurelevy/

http://www.idea.gov.uk/idk/core/page.do?pageId=12656790


http://www.lga.gov.uk/lga/aio/19270971


http://www.legislation.gov.uk/uksi/2011/95/made


Glossary Beneficiaries - those who will benefit from investment in an FCERM project, through reduction in flood and coastal erosion damage as well as wider enabled benefits such as economic growth. These could include householders, local businesses (including major business sites, retail parks, etc), water companies and other utility providers such as electricity networks, developers, Network Rail and other transport providers such as the Highways Agency and local highways authority.

Bonds - A guarantee issued to one party of an agreement in the event of the failure of the other party of the agreement to meet its obligations.

Community Infrastructure Levy - a levy that local authorities in England and Wales can choose to charge on new developments in their area. The money can be used to support development by funding infrastructure that the council, local community and neighbourhoods want.

Commuted sums - A one-off payment of a capital sum as a contribution towards the future maintenance of an asset.

Contingencies - a sum of money to pay for situations that are unlikely, but could occur during the project.

Contributions agreement - an agreement to contribute towards a specified outcome.

Contribution - Funding from sources outside flood and coastal erosion risk management budgets.

Contributors - those who are providing a contribution towards the agreed outcomes of a project.

Defra - Department for the Environment, Food and Rural Affairs.

Detailed business case - the detailed appraisal of options that will determine the preferred option and justify the case for further investment.

Due diligence - a financial, business and reputational investigation of a business or person.

Duration of benefits - the useful life of an asset before its next major capital investment, if it is maintained properly.

FCERM - Flood and coastal erosion risk management.

FCERM Appraisal Guidance - the document that sets out the way in which FCERM projects should be assessed to identify and justify further investment in delivering the preferred option.

FDGiA - Flood Defence Grant in Aid. The grant by which government funds its share of the costs of FCERM projects in England.

First stage business case - the stage at which justification is made to progress to a detailed business case. This includes a financial business case detailing how and by whom the project and the detailed business case will be funded.

Funding partner - those who are providing a contribution towards the agreed outcomes of a project, in particular when they need these outcomes to allow them to realise benefits beyond those related to FCERM.

HMT - HM Treasury.

Initial assessment - initial assessment of a project draws on pre-existing knowledge and data to make the decision to proceed to a full appraisal.


'In kind' contributions - a non-monetary contribution which can be given a monetary value, such as agreeing to maintain an asset on behalf of the asset operator at no cost.

IDB - internal drainage board.

Lead organisation - the organisation promoting the project and looking to deliver the planned outcomes for itself or on behalf of a group of funding partners.

LLFA - lead local flood authority.

LPRG - large projects review group. The Environment Agency's scrutiny panel for large FCERM projects.

NAO - National Audit Office.

PAB - project assurance board. The Environment Agency's scrutiny panel for small and medium FCRM projects.

Programme board - an Environment Agency scrutiny panel to ensure programme level risks are managed and overseen efficiently and effectively.

RFCC - Regional Flood and Coastal Committee as established by the Environment Agency under the Flood and Water Management Act 2010.

RMA - risk management authorities, as established by the Flood and Water Management Act 2010.

S106 Agreement - section 106 of the Town and Country Planning Act 1990 which allows a local planning authority to enter into a legally-binding agreement or planning obligation with a landowner as a condition of granting planning permission.

principles for implementing flood and coastal resilience...

Documents