Organising for Success: How to be an Effective Compulsory Purchase Client
The second in a series of articles by the aspireCP team looking at best practice in compulsory purchase from an acquiring authority’s perspective.
Introduction
Compulsory purchase is seen by government an essential tool for unlocking and enabling comprehensive development and infrastructure projects. However, it is a specialist and complex process in which there are many things that can go wrong if the risks are not actively managed.
Whilst there are many examples of public bodies who have the experience and skills to oversee compulsory purchase programmes, there are many more who either shy away from using Compulsory Purchase Order (CPOs) altogether, or come unstuck once they launch the process. In their June 2019 report the Welsh Assembly highlighted that …”the most significant barrier of regular use of CPOs is a lack of knowledge, resources, and recent experience of the process”[1]. Given that learning from mistakes on the job will be painful and expensive, this article aims to set out what is needed to organise for successful delivery of a compulsory acquisition programme thereby delivering the land for your project on time and within budget.
To understand how to be an effective compulsory purchase client, we first need to map out the key elements of the compulsory purchase process, identify the actors involved and understand who owns the cost and risk. This defines the client’s role and responsibilities.
CPO Process & Roles
| Compulsory Purchase Process | Advisers Available | Issues, Cost & Risk |
|---|---|---|
| 1. Apply for statutory powers from the relevant Secretary of State, including statement of reasons, managing the process & objections. | Specialist lawyers & Counsel can advise on which powers to apply for and help guide acquiring authorities through the process. | Promoters (largely public bodies) must demonstrate a compelling need in the public interest to compulsorily acquire land. The buck stops with the acquiring authority as powers must be exercised in their name. They must steer/ fund and organise the process, as well as managing the relationship with stakeholders whose land and lives they impact. Whilst c. 80% of CPO applications are successful, there will be abortive costs and reputational damage if the application is refused. Critical success factors to securing powers are appointing the right team, tight programme management and careful stakeholder relationship management with well thought through policies and processes for dealing with their objections. |
| 2. Provide schedule of interests leading to the ‘Book of Reference’ required at the CPO Public Inquiry to evidence that all those with an interest in the land affected have been identified and consulted with. | There are a small number of specialist land referencing agents with experience and skills in this area and who are now often associated with mapping the interests on a geo-spatial database. | Land referencing is a para-legal process of making ‘diligent enquiry’ to identify people or organisations (‘parties’) that have a legal or equitable interest in land which may be affected by a project and identifying the nature of that interest. The penalties for failure in diligent enquiry can be severe leading in some cases to the CPO being abandoned. Whilst the acquiring authority may remain in possession if a party has been omitted through “mistake or inadvertence”, there is no protection for your project if errors are discovered before the powers are exercised (except claims against your land referencer’s limited PI insurance). It is therefore critical for the client to set a clear brief in terms of the standards expected, then provides quality assurance and understands how the data and geo-spatial data will be used in both serving notices and in grouping land parcels to accurately assess compensation. |
| 3. Exercise of powers, serving all statutory notices required within the time-limit, responding to blight notices and taking possession in time for construction works. | Lawyers may help preparing notices & land referencing companies assist with mapping & service. But very few advisers have experience of exercise of powers. | Except on the simplest of projects, the exercise of powers will likely require careful programme management to secure land as and when contractors need it. Notice programmes must take account of construction schedules, contractual commitments, and ensure the right notices are served within statutory time-frames. Construction contracts should specify the methodology for transferring responsibility for land to and from the main works contractors. All this requires systems, processes, governance, reporting and assurance mechanisms. Taking possession needs to be planned in advance, photographic surveys undertaken to document condition and risks assessed to see if use of the court sheriff is required. All these activities are very much a client responsibility as it is the acquiring authority who is legally responsible for the land acquired in their name and whose reputation is on the line. |
| 4. Establish the Property Cost Estimate (PCE) and negotiate all compensation for land acquired, including any land purchased by agreement. | Specialist compulsory purchase surveyors, with experience of the compensation code. N.B the pool is very small | In the early stages of a project, the PCE will be subject to a high degree of inaccuracy as property values can only be based on high-level estimates at a Property Budget Unit (PBU) level (contiguous land parcels in the same freehold ownership). Initially, these estimates will not be informed by knowledge of associated leasehold structures and property condition, nor an understanding of the claimants’ circumstances. Only once there is engagement with each of the parties and detailed claims can estimates be improved and negotiations get underway in earnest. Proper oversight of transactional suppliers to manage compensation risk, cash flow, timely payments and internal reporting is a client responsibility. It requires a guiding mind experienced in identification and management of the risks, as well as real-time data to identify trends and track progress in case management. Unfortunately, the industry standard is to manage PCEs in Excel. Whilst this may be appropriate for small projects, it will be found wanting as soon as there are multiple claims per PBU, each with differing risk profiles, and multiple payments to manage. Managing effectively requires a relational database. |
| 5. Closing out the project and managing any associated litigation in the Upper Tribunal (Lands Chamber). | Specialist compulsory purchase surveyors, lawyers, counsel and expert witnesses. | Despite the best intentions of many public bodies to act consensually and ensure fair offers in line with the ‘compensation code’, it is not always possible to reach a negotiated settlement. The risk profile of compulsory purchase is therefore very different from a construction project as the most complex cases with the biggest differences between the claimants’ assessment of compensation and that of the acquiring authority tend to surface at the end of the project, and if not managed forensically can lead to significant increases in the PCE. Delivering on budget will require an effective litigation strategy, expertise in setting sealed offers at the right level to protect costs, identifying, briefing and managing the right expert witnesses and considering alternative dispute resolution. Whilst each of the advisers need to play their part, acquiring authority control will be instrumental in getting the best outcome. |
The successful client
The role of the client is perhaps the most critical success factor in managing compulsory purchase effectively. Even with the right consultants, advisers are only as good as the brief they are contracted to fulfil and the quality of their day to day instructions. Huge amounts of time and resources can be wasted if client teams have poor strategies, tactics, policies, governance, internal processes and no visibility of trends or understanding of the risks and therefore no ability to anticipate and mitigate them.
There are different client organisation models to be adopted depending on existing capacity and skills and ‘best athlete’ principles. Different organisations may opt for a ‘thick client’ model where the majority of resources are retained in house or a ‘thin client’ where much of the doing is out-sourced. TfL was very successful over a 30-year period with a thick client model. The assessment of compensation was undertaken largely in house whilst “cherry picking” the best consultant surveyors for specialist valuations and litigation. Substantial corporate knowledge meant it became a knowledgeable client. With the exponential growth in compulsory purchase over recent years it is unlikely that other acquiring authorities will be able to compete for the limited specialist experience in the market to repeat TfL’s thick client model.
Some larger projects such as Highways England’s Lower Thanes Crossing have adopted the Institution of Civil Engineers Project 13 Principles[2] and put in place a ‘project integrator’ on major projects that can work with the client to establish the processes and systems that will enable the client and its suppliers to operate as a high performing, integrated team and build capacity for the future. Others have outsourced all the transactional work to external suppliers. The trend is for greater outsourcing which can be very effective but only if the suppliers are given the right brief and actively managed.
The defining feature of the most successful compulsory purchase projects starts with ensuring there is an informed and intelligent client that will guide and take responsibility for end to end execution of the project. Active client management does not mean duplication of outsourced transactional work but requires an informed client with sufficient expertise in the compensation code to be able to understand the risks, anticipate them, instruct transactional surveyors to engage internally and with affected parties on priority issues, and put in place the systems to allow informed decisions. Having CPO compensation expertise on call will not be effective when the client does not know when and how best to involve the compensation expert.
Effective governance is also critical. Too often we have seen a new acquiring authority use its existing governance on its compulsory purchase project. e.g. all payments over £50,000 must be approved by the Director of Property and everything over £1m by the board. This creates a huge overhead, inefficiency, delay and an illusion of control. The problem is not the hierarchy of approval but what is being approved. We would expect the Board to approve the major ‘go-no go’ decisions such as the exercise of the compulsory purchase powers or unilateral commitments in discretionary purchase policies which will all be based on a budget. There may be smaller ‘go- no go’ decisions such as blight notices which can be delegated. But, having made the decision to exercise powers the responsibility for delivering to budget should rest with the client property team where the expertise resides to manage risk and steer negotiations.
At TfL/Crossrail the Executive Directors had almost unlimited authority once the commitment was made to exercise powers. It is an illusion of control for the Board to be presented with a technical compensation paper on the merits of making a payment of say £1m when they have already committed to the transaction following the exercise of powers and don’t have the expertise to assess the claim according to the law. Authority residing at the correct level allows for agile decision-making, which is essential, particularly in litigation, and empowers the client team to negotiate deals through active case management.
For this to work the Board must have confidence that they are being presented with accurate and reliable data on both the trends and variance of forecast outturn to budget. This is where IT systems come in. aspire Partner, Adrian Maher, developed the Phoenix financial case management system for TfL and has developed the second-generation web-based system called AFiRMS, which is coming on the market in 2021. A proper IT system was an essential component in delivering the Crossrail compulsory acquisition programme within budget, tracking all property compensation throughout its life cycle, providing strong change management, risk analysis, cash flow and dashboards to track performance. This gave the Board the confidence they could hold their managers to account and managers had the tools to hold their supply chain to account.
So, what are the hall-marks of an effective compulsory purchase client:
- It’s all about risk. The client needs to understand the key risks at each stage of the project and choose the right team to mitigate and control those risks. That means knowing what you want to buy, writing a clear brief, setting objectives and holding your suppliers to account for delivery? Get the right balance between in-house resource and what is out-sourced, based on who has the skills and experience you need. Look for advisers with actual programme implementation experience who will work with you on identifying and managing risk. Do you or your advisers understand the levers you can pull to mitigate risks e.g. designing out problems, extending notice periods etc and not just waiting for claims to be received before you start negotiating compensation.
- The client needs to curate a high-performing team. It should be clear who is responsible for what, but the team culture needs to be based on collaboration and mutual support and on getting long-term value, not just on driving down cost in procurement. Clients can save more money in the long run by ensuring they have the best team to do the job. The shortage of specialist compulsory purchase skills, particularly among surveyors is well documented[3] and this was one of the reasons for the RICS introducing their 2017 professional statement[4] for surveyors advising on compulsory purchase and compensation, to try to improve standards. Procurement of advisers therefore needs to pay attention to quality. Given the chronic shortage of experienced transactional compulsory purchase surveyors you should consider using local surveyors to assess market value/ investment interests, overseen by a specialist CPO surveyor. They can then ensure the correct compensation rules are applied as well as negotiate the specialist disturbance compensation etc. This can permit the most experienced resource to be applied to the highest risk issues.
- Focus on long-term outcomes and on designing the project and programme management systems, processes, reporting and governance that will be needed to deliver these effectively. Use leading indicators such as erosion of float in your programme to pick up trends in good time. Give yourself visibility on the statistics and trends through high quality reporting so that you can work with your advisors to make evidence-based decisions.
- Pay attention to what IT systems will be employed to manage finances, risk and cash-flow so claimants receive payments promptly and acquiring bodies can meet payment timescales without incurring penal interest. Compulsory Purchase has long been in the dark ages but is now undergoing a digital transformation with GIS based mapping functionality and dynamic links to financial management, payment and stakeholder management systems. The up-front investment in digital solutions is often paid back many times over through the life of the project in terms of allowing fewer people to deliver better overall outcomes.
- Consider independent expert project review and assurance to give yourself confidence that your systems and teams are up to the task; and put this in place before things start going wrong. An ‘ounce of prevention is worth a pound of cure’ and that’s the very reason that the three lines of defence assurance model was created, to help public and private bodies assure themselves and their stakeholders that their projects are managed in line with market best practice.
- Finally, learn from other projects to understand what has gone well and their key challenges. Make the effort to speak to others and see whether you can learn lessons from what they have done, perhaps sharing experience, systems and resources. Some of the lessons learned from Crossrail are set out on the Crossrail learning legacy web-site (https://learninglegacy.crossrail.co.uk).
If you want to know more and to see the other articles in this series, please visit our web-site at www.aspireCP.com, follow ‘aspire Compulsory Purchase LLP’ on LinkedIn or contact:
Ian Lindsay ilindsay@aspireCP.com +44 7920 155 779
Adrian Maher amaher@aspireCP.com +44 7976 881 303
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Whilst this article is believed to be correct at the date of issue neither the author nor aspireCP LLP accept any liability for the accuracy or completeness of the information contained in this article.
[1] National Assembly for Wales, Compulsory Purchase, June 2019 para 53, p.22
[2] Institution of Civil Engineers: Project 13 – www.p13.org.uk
[3] https://www.compulsorypurchaseassociation.org/files/Hannah-Griffin,-Jack-Clitheroe-Slides.pdf
[4] https://www.rics.org/uk/upholding-professional-standards/sector-standards/land/surveyors-advising-in-respect-of-compulsory-purchase-and-statutory-compensation-uk/
