The fifth in a series of articles by the aspireCP team looking at best practice in compulsory purchase from an acquiring authority’s perspective.

“Stakeholder engagement should not be seen as a separate activity from ‘real’ project management, and in most cases, it should not be outsourced or, worse still, regarded as an activity only for public relations or communications departments. It is vital for project teams, especially the senior members, to continuously develop their understanding of their stakeholders’ evolving objectives, interests, constraints and expectations, whether these are reasonable or not”.[1]

The above quotation is taken from the 2014 RICS guidance on stakeholder engagement, arising out of a collaboration with the Association of Project Management (APM) which identifies ten principles for effective stakeholder engagement and reflects best practice guidance to surveyors as well as being enshrined in the APM ‘Body of Knowledge’ (7^th edition). 

The aspire team wholeheartedly endorse the ten principles and are keen to promote a much more collaborative approach to assessing compulsory purchase compensation, rather than the adversarial approach which we too often see adopted by BOTH sides in compensation negotiations.  This article explores the dynamics of effective engagement between claimants and acquiring authorities.  It builds on the work undertaken by aspire partner Adrian Maher as a board member of the Compulsory Purchase Association (CPA) and explains how acquiring authorities should aim to better align their own and claimants’ objectives for mutual benefit.  Our experience of having operated in this way on major projects such as Crossrail is that it can reduce objections, drive efficiency and save compensation many times the fees incurred.

What drives the parties’ behaviours?

The interpretation of the European Convention on Human Rights (ECHR) in Government Guidance is largely to blame in driving the wrong behaviours. The ECHR requires the public need for the CPO to be proportionate such that this need outweighs private loss of the individual. The “Compulsory Purchase Guidance and Crichel Down Rules” (“the Guidance”), interprets this legal requirement by stating that acquiring authorities should “demonstrate that they have taken reasonable steps to acquire all of the land and rights included in the Order by agreement[2]. Contrast this with the weak statement in the Guidance that authorities should “consider”[3] steps to help those affected by a compulsory purchase order (CPO).

Compliance with the guidance is assessed by the inspector at the CPO public inquiry and hence the promoter’s primary focus is on acquiring land to meet the guidance. But, many owners are not interested in agreeing to sell before the inquiry. Some want to challenge the principle of the CPO and not be bought-off, others just want it to go away and yet more may wish stay as long as possible but want to understand the impact on them and their personal or business finances. Whilst offering to purchase land by agreement is important, the Government Guidance should recognise that not all affected parties want to sell and that for them engagement should be about helping them understand the impact of compulsory purchase and what measures might be available to mitigate that impact when it happens. Adrian Maher is leading a CPA working group on ‘constructive engagement’ and presenting a paper regarding proposed changes to Government Guidance at a CPA Reform Engagement Briefing event on 29^th April 2021.

What this highlights is that differences in the objectives of acquiring authorities and affected parties can drive the wrong behaviours. Unfortunately, it is rather too easy for an acquiring authority to be focussed on solely what it wants from the compulsory purchase process, which is primarily to deliver project-related land on time and to budget. This requires minimising objections; negotiation to address objections where practicable; securing vacant possession of all land on time and ensuring that the Property Cost Estimate (PCE) provides an effective assessment of all compensation within the law.  However, the best outcomes in negotiations are generally achieved if there is an appreciation of what the other side to a transaction wants to achieve, why they want to achieve it and in using this understanding to tailor the approach to negotiations. 

Utilising this approach, we suggest that there are four key steps for acquiring authorities in managing engagement:

• explain the impact of the project;
• understand the financial consequences;
• work together with stakeholders to mitigate the impact; and
• invest in building good relationships.

The key issue for acquiring authorities to bear in mind throughout its stakeholder engagement is …’what would be the implications of giving the affected party the minimum three months’ notice’? The affected party’s duty to mitigate their loss does not require them to take unreasonable risks and so the acquiring authority would be foolish if it did not try to understand what these risks are and to work to reduce the claimants’ risks where this can result in a lower overall net cost to the project. i.e. having regard not just to compensation, but to the construction costs, risk and programme. Mitigation of the claimants’ loss means less compensation payable by the acquiring authority, but this first requires both parties to understand the impact, then quantify it and for the acquiring authority to weigh up the cost and risk of making commitments against potential savings for the project. If engagement pre-inquiry is solely focused on attempting to buy an objector’s property, then this will mean a huge missed opportunity and a frustrated objector.

In the absence of any commitments to the contrary the CPO Inspector will assume the minimum three months’ notice of entry is given to all parties. The impact of the unmitigated private loss will be compared to the public need articulated by the Authority when assessing the ECHR test of proportionality.  If an Authority meaningfully engages and can evidence how they have (where practicable) taken steps themselves to help the affected party mitigate the impact, then it will lower the hurdle they need to jump in demonstrating that the public need exceeds a lower, mitigated private loss. It will reduce objections, increase the chance of a deal with objectors and perhaps most importantly it will establish firm foundations for a constructive relationship through what will likely be a lengthy process from objection through inquiry, exercise of powers, possession and assessment of compensation. Acquisition is just one of many means by which an acquiring body can help the claimant mitigate the impact.

1. Explain the impact of the project.

It is implicit that “fairness” requires the acquiring authority to provide clear information as to the impact of their proposed project. The standard approach is for affected parties to be notified of the powers being sought and it is for them to review, attend public consultation and flag any concerns to the acquiring authority. However, land referencing and other CPO data is now being produced digitally and the future is not far off where this data can be integrated so that an affected party could type in their address and see how all this generic information was relevant to their specific property. We will be exploring this in a future article.

Compulsory acquisition imports unwelcome risk, costs, and a huge investment of time and stress for all affected parties. Having a route map to addressing their concerns gives claimants a sense of control. For example, occupiers need to plan their relocation and want details of when possession is required, the notice period, certainty as to compensation etc. Offering to buy their property pre-Inquiry when they don’t want to sell will only wind them up and lead to criticism that the authority is not listening and having pointless meetings.  This approach contributes to a breakdown of trust.

The biggest problem for acquiring authorities is that the project design is usually not sufficiently mature in the time leading up to the CPO inquiry to be definitive as to the impacts on all affected parties and construction methodology details are rarely known. The design of a project throughout the consents stage is normally just sufficient to produce an Environmental Impact Assessment and obtain a planning consent. Such detail only comes with procurement of the main works contractor, who will normally be appointed on or around the anticipated confirmation of the CPO.  There is ample evidence that the more commitments which are made at Inquiry on design and construction, the greater the cost, restriction on innovation and impact on project viability. Consequently, when an acquiring authority makes commitments it will need to retain flexibility for the future evolution of detailed designs and construction methodology after the main works contractor is appointed.

On this basis, it is important that we should not view engagement as an exercise ending at the public inquiry but as a continuous process from initial impact assessment, through both inquiry and the lead up to possession and later in negotiating compensation. Perhaps commitments could best be expressed in terms of a road map, using future milestones to trigger activities when detail will be known. In this way, claimant issues will be addressed through long term solutions which evolve over time and long-term solutions will be delivered most effectively through building collaborative long-term relationships.

2. Understand the financial consequences of ‘no commitment to mitigate loss’;

All claimants are under a common law duty to “mitigate their loss” when claiming compensation. This simply means they should take all the steps that a reasonable person would take to minimise the cost of their claim. Disturbance loss is generally crystallised when possession is taken, albeit that it may take some time to assess.  But, the cause of the loss will have roots before possession is taken and hence the duty to mitigate applies even before the compulsory purchase powers are exercised.

Even so, the duty to mitigate does not mean that a claimant should take unreasonable risks. For example, a small business would not be expected to make a commitment to buy another expensive property before the acquiring authority had committed to pay compensation. But, in this example an early financial commitment by an acquiring authority to facilitate purchase of alternative business premises would probably require the claimant to take action to mitigate a material impact.  In this way, helping claimants to avoid losses is a key tool to ensure compensation is kept within budget.  The key is for the acquiring authority to use meaningful engagement to identify risks early so that it is possible to do a cost-benefit analysis and offer those commitments that will enable the claimant to mitigate their loss.

The table below identifies the type of issue which an authority should look to tease out in early engagement.

Issue	Understand What?	Potential Mitigation
Relocation. Availability of suitable property	Assess likely availability of alternative property in light of the project being undertaken. A project may remove a large part of the supply.	Commitment to fund longer than three months minimum notice lead-in period so claimant can start looking for suitable premises and undertake adaptations.
Lead-in period	Any licences or specialist equipment or adaptations required with long lead-in times to procure.	Pre-exercise of powers commitment to pay fees to advise of such needs.
Likely overall programme	An indiative high-level programme	Longer than three months’ notice of entry? Minimum early warning before powers exercised? Contractual commitment that if a construction milestone slips, notice periods also slip.
Loss of profits	You need to get a feel for the order of magnitude of loss of profits/goodwill. A good starting point is to ask for their ball-park average net profits to factor into your assessment of the net cost of offering mitigation.	Loss of Christmas trading, or loss of a contract can lead to material loss of profits. Can you flex the possession date or agree not to exercise powers before a key date or business milestone?
Extinguishment or relocation	What is the catchment area for customers and what are the key things which will determine the suitability of alternative property and its availability.	Relocation is normally cheaper than extinguishment. Do you tink they can search for, secure and relocate in three months? If not quantify the ball-park incremental saving from relocation. Offer mitigation to extend timescale for search and or commitment to buy new property after a milestone.
Injurious affection	Is some part of a hereditament critical to the business but potentially only nice to have for the project?	Do you really need all of the land, what about shared use or guaranteeing rights of access and emergency use.
Funding	Scale of the funding required vs. claimant’ss ability to raise bridging finance.	Offer of advance paments pre-possession or commitment to pay briding loan at agreed interest rate.
Cash flow certainty	Does the claimant have the means to raise the funds for relocation?	Loans may require compensation to be pre-assessed.
When does the owner want the property acquired?	If no hardship then does the claimant NEED an early purchase, does th acquiring authority have the cash and are there advantages of becoming landlord to restucture occupiers contractually.	Valuation certainty – pre-agree compensation or option to purchase. Independent third-party assessment of market value?

3. Work together to mitigate the impact!

There is no statutory obligation on acquiring authorities to pay affected parties their reasonable fees in understanding the impact of the scheme until after the compulsory purchase powers have been exercised. Most affected parties are therefore at risk that any early professional advice they seek will not be compensatable and, as a result they will not engage in meaningful discussions on assessing the impact and mitigation until a commitment has been given by the acquiring authority. At the same time, an open-ended commitment to pay reasonable fees will be a “free for all” unless it is linked to a defined scope of work and clear deliverables which can often be broken down into small incremental steps.

The objective of early engagement is not to get lost in the details but to get sufficient clarity for the acquiring authority to make its own assessment of the risks and incremental costs and then decide what if any mitigation funding is value for money and it is willing or able to provide. Having decided in principle on a course of action, the implementation of some form of mitigation by the acquiring authority may be triggered by a programme milestone within the project programme or by an external event such as confirmation of the CPO.

This is a time-consuming exercise to do well and so we would recommend that it is started as much as two years before possession and potentially earlier on the highest risk/ highest value claims. Identifying and quantifying such risks requires good reporting and data capture from stakeholder engagement. The financial impacts of both risk and compensation should  captured  and tracked over time to provide the data in a format that enables the client to make informed decisions when prioritising engagement activities.

4. Relationships

Whilst compulsory purchase does not necessarily involve a willing seller in the negotiation process, this does not mean that all relationships must be adversarial.  Even if you cannot immediately agree terms, treating people with respect and consideration will help build relationships and trust and where there is trust it is usually possible for people to work together collaboratively.  However, this trust needs to be earned and is easily lost.

Our experience suggests that it is critical that the acquiring authority is seen to deliver what it says it will. Think through any commitments before they are made. In particular, how they will be delivered and any qualifications you need to make.  But, don’t over promise! Expectations need to be managed from the outset. It is helpful to set out clearly and in writing what the authority is looking to achieve in its engagement such as compliance with Government Guidance; identifying opportunities to mitigation their loss; effects of any limitations of funding; desire to acquire early of defer expenditure; appetite for conditional or unconditional offers and limitations on what (if anything) may be offered at what stage.

Setting out the ‘rules of the game’ clearly and at the out-set of your project may seem onerous, but our experience is that it will save time and cost in the long run.  It is therefore worth publishing clear acquisition policies, for example setting out how you will deal with fees both before and after powers are confirmed, determining how you will deal with the impacts of construction on peoples’ daily lives and establishing how you will deal with cases of hardship.  Such policies should be written in plain English, potentially with the ‘crystal mark’ accreditation and also comply with the project’s Equalities Impact Assessment to ensure that they are easily accessible to and do not discriminate against protected groups.  It may also be worth putting in place a ‘Project Charter’ transparently setting out key commitments as to how you will deal with people, and perhaps also establishing what you need from claimants in return.  Relationships after all are a two-way street.

It will be important to ensure that those undertaking the negotiations have a clear brief and are empowered to negotiate fair compensation. This necessitates suppliers regularly engaging with their client on complex or contentious issues to understand the boundaries beyond which approval from the client is unlikely to be forthcoming.  There is nothing more frustrating than discussions with someone who has no authority. Recommendations from Suppliers will always need to go through client governance which needs to provide swift and responsive decision making. If your supplier is keeping the client regularly informed of material developments on every case then there should be no surprises when a deal is provisionally agreed and it should proceed smoothly through the governance process (see article 2 in this series on how to be an effective compulsory purchase client).

Our key mantra would be to …”treat the claimants as you would expect to be treated yourself.” If it is an appropriate time to start incurring costs in advance of compulsory purchase then the Authority should be engaging with the claimant on issues such as value for money. It will quickly sour a relationship is costs are incurred in good faith, the claimant’s agent asks for a view on the extent of value for money and the Authority refuse to engage until after the costs are incurred.

Conclusion

In summary, we believe that a new more collaborative approach to compulsory purchase negotiations is the way forward and we have set out above some of the key practical approaches that we believe will deliver results. 

We are also passionate about the digital future of compulsory purchase and strongly believe that the best way to achieve an integrated approach is through integrated IT systems.  At present, most large projects will use some form of stakeholder relationship management (SRM) system to log engagement with affected parties.  However, these are generally stand-alone systems to which property teams don’t have direct access and therefore are not updated with the latest data on compensation negotiations.  Also, most are address based, with no GIS interface to show where the property sits in relation to powers or proposed works and no link to the property negotiation status held by the property suppliers in Excel. 

However, during 2021 the aspire team will launch the Acquisition Financial Risk Management System (AFiRMS).  This aims to solve these problems as it will be hosted by TerraQuest who are also developing a portal to provide a dynamic link to map-based land referencing data. Given that that the case management, land referencing and most SRM systems are all built with MS Dynamics compatible technology, it will not be long before all these systems can be linked up and enabled to interface with one another. The aspire vision, as illustrated in the ‘honeycomb’ diagram below is to link systems in one project platform. 

On this basis Counsel at Inquiry could have access to a single database showing real time data in acquiring land and detailing every contact made with each stakeholder.  Community relations teams would have access to maps setting out the status and details of every contact and property teams would be able to see the full picture.  When we presented this vision to Simon Bennett, Crossrail’s Head of Stakeholder Engagement he described it as … “the Holy Grail for Stakeholder Management.”

If you want to know more, please visit our web-site at www.aspireCP.com, follow us on LinkedIn @aspire Compulsory Purchase LLP or contact:

Ian Lindsay                  ilindsay@aspireCP.com            +44 7920 155 779

Adrian Maher               amaher@aspireCP.com            +44 7976 881 303

© Copyright aspireCP LLP 2021

All rights reserved. No part of this article may be reproduced in any form without permission in writing from the copyright owner, except by a reviewer who may quote brief passages in a review providing this is suitably referenced.

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.

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[1] RICS Professional Guidance, ‘Stakeholder Engagement’ 1^st edition 2014

[2] Paragraph 2 of the Guidance

[3] Section 19 of the Guidance sets out some sensible issues which acquiring authorities should consider.

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