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George Osborne to reveal Mersey Gateway UK Guarantee plan at spending review

Exclusive: George Osborne is set to announce that the £600m Mersey Gateway scheme is in line for a UK Guarantee at next week’s spending review.

The Merseylink consortium – which includes a construction team of FCC, Kier and Samsung – was announced as preferred bidder today by Halton Borough Council.

Mersey Gateway’s project director told Construction News that the decision was based 97 per cent on price, and that all three bidding teams went in under the estimated £520m construction cost. Quality had already been assessed on a pass or fail basis.

Bidding costs were in the millions for the winning consortium, which came in ahead of the likes of Balfour Beatty and Bouygues, and Bam Nuttall and Hochtief.

The government has previously indicated it would support the Mersey Gateway toll bridge, listed as one of their top 40 priority projects under the National Infrastructure Plan and set to be 70 per cent privately funded.

Merseylink consortium project director Chris Rhead confirmed to Construction News that the Treasury was set to underwrite half the debt on the scheme through a UK Guarantee, adding that it was offered during the bid and was looking like the most “likely solution”.

The Treasury is assessing the project through its own internal ratings system, though the project has already been rated by Moody’s and Standard & Poor.

A government source said the chancellor is expected to confirm that a UK Guarantee is “on the table” for Mersey Gateway at the spending review, but added that details are “yet to be negotiated”.

Construction News reported last July that the government was “looking closely” at a UK Guarantee for the Mersey Gateway.

It comes after Construction News revealed last year that the Drax power station was set for a UK Guarantee. That project and the Northern line extension are the only schemes to be officially announced, ater the decision to fund the Crossrail rolling stock directly.

Though the debt element on Mersey Gateway was expected to be £500m, meaning Treasury would underwrite £250m, the total borrowing has been cut down after the client and bidder found “tens of millions” of savings across the life of the project.

Winners and losers

The construction joint venture, made up of Kier Infrastructure and Overseas Limited, Samsung C&T Corporation and FCC Construcción S.A. Sanef S.A., will deliver and operate the tolling solution for the consortium.The consortium’s equity partners are Macquarie Capital Group Limited, Bilfinger Project Investments Europe Limited, and FCC Construcción.

Two other bidders lost out. They were a team of Balfour BeattyBouygues Travaux Publics, Egis Projects, and the MGL consortium, comprising equity members Bam Nuttall, Hochtief PPP Solutions GmbH and Iridium Concesiones de Infraestructuras S.A.

Mersey Gateway project director Steve Nicholson described the UK Guarantee as a “helpful incentive”, adding it covered the risk of any deterioration in the project finance market in the next six months.

The original estimate was a £600m contract, including £520m in construction and £80m for land acquisition, but Halton Borough Council and Merseylink said savings have been identified across the £2bn project budget.

Mr Nicholson said these were made on the the whole-life cost and “not just construction”, adding that all three bidding teams put forward prices under the estimated price, describing it as “a very competitive process” to enable the clients to get value for money.

“It’s really refreshing to see the construction industry responding to these challenges,” he said, adding that the design enabled a more efficient construction process and savings were not at the expense of quality.

Mr Rhead said the design and solution had been priced up individually by FCC and Samsung – both with extensive bridge building experience – and Kier, with extensive road networks experience. He said all three had been “very close to each other” with the final figure.

“That was the way we decided whether it was a robust cost, rather than slashing and burning,” he said.

Both directors said it was a positive sign for large-scale infrastructure in the UK.

Costs cut but bid expenses run into millions

Merseylink and the council look to have shaved a large amount of money off the overall cost of the scheme, but bidding costs were also in the millions.

While retaining the three-tower design, Merseylink’s Mr Rhead said the reinforced concrete deck approach would save cost and reduce disruption, making long-term maintenance savings and working to keep traffic flowing over 40mph.

He said he thought another bidding team went with steel, while the third opted for concrete.

Savings had been found in the design of the junctions, with one particular junction “cutting down the cost quite significantly”, he added.

Mr Rhead said the bid costs had run into millions, but could not give a specific number. He stressed that the savings will not be passed down the supply chain.

Mr Nicholson said the collaborative approach did make the process a more costly one, but said it would pay dividends in the end for the scheme and the taxpayer.

Galliford Try chief executive Greg Fitzgerald told Construction News in April that it had pulled out of the MGL consortium, partly due to the exceptionally high bid costs.

The savings found also mean the project requires “far less” than the expected £180m government grant, originally planned to offset the unitary charge on tolls, Mr Nicholson added.

Any financial savings confirmed on the projected budget will be split 70/30 between the government and Halton Borough Council.

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