Delivering Local Projects: How can Local Authorities and the Private Sector collaborate for commercial success?
- Anthony Shum
- Jan 17
- 7 min read
Key questions to ask yourself early on
This article explores the challenges faced by Local Authorities in delivering projects and how collaboration with the commercial sector could help to alleviate some of those barriers.
Whilst this article does not intend to provide detailed solutions or a framework to delivery, it provides some insights into the common challenges and considerations needed to support effective collaboration between Local Authorities and their private sector partners.
Challenges Faced by Local Authorities
Successful delivery of some of the more ambitious schemes under the Future High Streets Fund, Towns Fund and Levelling Up Fund has frequently relied on significant support from the private sector. Given the ongoing budgetary pressures , land assembly challenges, as well as resource and time constraints faced by Local Authorities, the private sector still has a key role to play in the successful delivery of larger schemes.
Local Authorities often have constraints in being able to deliver their projects or engage with the private sector, with project delivery often being additional to the day job. Capacity and capability issues have been building over an extended period resulting in increased workloads in certain activities not matched by reductions elsewhere[1]
Furthermore, the fragmented ownership of land in a key regeneration area can prevent Local Authorities from delivering their objectives. Where landowners have divergent objectives to Local Authorities, Local Authorities must work hard to influence and persuade landowners to support investment into a wider plan for a bigger prize post-development.
Engaging early and maintaining relationships with the private sector will be essential to ensure a meaningful participation and help address some of these challenges brought about by larger, complex schemes.
Potential Role of Private Sector
The private sector retains a substantial role to play in supporting delivery of regeneration. At the most basic level, private sector partners can bring their land interests into the scope of development – unlocking opportunities for more wide-scale regeneration with greater societal and economic impact. This isn’t a one-way street either; Local Authorities have strengths they can leverage with significant land interests of their own, knowledge of the local planning system and the ability to tap into funding sources otherwise not available to the private sector.
Through the supply-chain, the private sector has access to innovation, resource and techniques which Local Authorities may not have. Working closely can foster an environment of innovation – whether this be through design and construction techniques that reduce cost or utilising more sustainable materials to support health and wellbeing.
A further advantage is that it can facilitate access to more expansive financing opportunities beyond traditional routes for Local Authorities such as PWLB borrowing, where prudential borrowing rules may already be under pressure.
Potential Commercial Arrangements
So how could these deals be structured? Potential commercial arrangements are often driven by the balance the Local Authority wants between the level of control it has versus the level of risk it is happy to accept. This means that commercial arrangements can vary from having simply a stakeholder role, where in practice they have limited control or risk, through to taking on all risk (and having total control and all potential reward) by acquiring all land and effectively acting as a developer to deliver the whole scheme.
In practice, a public-private partnership provides a happy medium, and is often the route taken by Local Authorities, with the Local Authority and private sector landowners pooling their land into a delivery vehicle and working together to deliver regeneration.
Figure 1 below illustrates the range of commercial arrangements that can be adopted based on the levels of control and risk that local authorities are willing to undertake:
The key question for many of these projects is whether the development is commercially viable. The challenge for Local Authorities is ensuring that they have enough financial and commercial expertise to engage and negotiate with the private sector effectively, to make a decision on whether the calculated funding gap is ‘real’ and would provide Value for Money for the public purse. We have seen Local Authorities partner with local developers to great effect, drawing upon their commercial expertise, knowledge of supply chain capability and the market knowledge to deliver successful regenerations of areas ranging from shopping centre redevelopments to housing developments.
Key to these partnerships is optimising risk transfer between the parties and structuring incentives to align interests and balance rewards. There is a common mantra that risks should be allocated to the party best able to manage them (at the lowest cost) and bear the financial consequences. This is true but can be challenging to implement in practice. Establishing and negotiating positions requires Local Authorities to have good commercial awareness and a high degree of pragmatism but also to understand the value of what they hold. Often, Local Authorities hold the key to making these developments happen, whether that be through land holdings or the ability to support any viability gaps in exchange for the wider economic gains for the area. Knowing how to leverage these, while also recognising the private sector’s own constraints, is vital to reaching a mutually beneficial arrangement. Such engagements should be undertaken collaboratively with a view to finding solutions, not necessarily with a view to ‘winning’ in negotiations.
Furthermore, trying to make projects more commercially viable through greater revenue generation often needs to be finely balanced with a Local Authority’s objectives in supporting essential services and providing societal benefits. For instance, do you forego the areas of the development pitched for a leisure centre or green space in favour of more profitable commercial uses or housing which may generate a greater financial return ultimately, but take away the opportunity to provide health and wellbeing benefits to the community? Unlike the private sector, Local Authorities must take into consideration the wider economic impacts beyond financial gain, which is often reflected in the options appraisal and BCR of a typical Green Book business case.
Ultimately, if you would like to leverage the private sector for your project, here are a couple of early questions to ask yourself:
What risks as an Authority are you comfortable with holding?
What are the ‘must-haves’ in your delivery objectives and what could you cede to help make a project more appetising for the private sector?
And realistically, what are your strengths that you can offer to make yourself attractive to a private sector partner?
Trafford Council and Bruntwood Case Study
Trafford Council have established multiple joint ventures with Bruntwood, a family-owned property company which offers office and leisure space across the North West of England. Together, they have embarked on the ambitious redevelopment of Stretford Mall that includes an exciting reconfiguration of retail space in the town to create a vibrant high street, as well as unlock new housing development in the town centre.
Although the Future High Streets Fund provided £20m of funding, the regeneration of Stretford would not have been possible without collaboration between the Council and Bruntwood firstly to acquire Stretford Mall and progress designs and plans that have made the most of strengths from both sides.
This public-private collaboration has also seen the successful delivery of regeneration projects at Altrincham’s Stamford Quarter, Lumina Village and Foundation, a 75,000 sq ft workspace and leisure destination.
Governance and Collaboration
Building relationships with private sector partners is key to ensuring sustainable success – Local Authorities are not going to be able to solve their issues individually and the private sector similarly needs support where Local Authorities can provide it. The recent Local Town Plans are a good first step in bringing partners to the table, to agree on a shared vision and plan for the town, that can develop into a bigger commercial opportunity.
Negotiating with the private sector landowners and developers comes next. But how do we proceed from there? We have seen these groups come together to develop a shared vision and proposition for regeneration to the benefit of all involved. A memorandum of understanding can be signed which sets realistic expectations and establishes the principles for collaboration.
Importantly, each party needs to understand the governance processes of the other. Ensuring the private sector understands the business case and funding approval process – including requirements and constraints - is crucial to building confidence, securing support and actively engaging them through these steps.
To consider your governance and collaboration arrangements, you may want to ask yourself:
Whether formal arrangements are required to bring parties together; and
Whether providing a detailed walkthrough of the steps required of a typical business is worthwhile to ensure that all parties are aware of the level of information and narrative required to support public funding approval.
Local Authorities and the private sector can work together to deliver social, economic and financial returns. The parties need to be true partners; understanding each other’s objectives and commercial drivers and conducting negotiations towards a shared goal. Public-private partnerships are a crucial platform fostering collaboration, pooling resources and sharing expertise which will deliver sustainable, viable regeneration to towns and cities across the UK.
References and Footnotes
[1] Local Partnerships (2023). Local government finance – capacity and capability study
Anthony Shum works for Arup in its Business & Investor Advisory team and has over 15 years of experience providing financial and commercial advice to Local Government on regeneration projects from business case to delivery. A qualified accountant, Anthony has previously held roles in an accounting & advisory firm and a bank.
Alastair Howcroft is an Associate Director in Arup’s Business and Investor Advisory team and has over 20 years’ experience advising on the development and delivery of major infrastructure projects across the UK and globally. Alastair is a qualified accountant and previously part of an accounting and advisory firm.