Working Smarter Transformation Project Pullar House Mothballing City Centre Accommodation Options
Perth and Kinross Council · 4 October 2023
Back to Perth and Kinross Council — 4 October 2023 and its agenda
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PERTH & KINROSS COUNCIL 4 October 2023 WORKING SMARTER TRANSFORMATION PROJECT PULLAR HOUSE MOTHBALLING /CITY CENTRE ACCOMMODATION OPTIONS Report by: Stephen Crawford, Head of Property Services (Report No. 23/268) 1. PURPOSE 1.1 The purpose of the report is to provide an update on progress in relation to implementing the budget decision of March 2023 to: - a) mothball Pullar House from April 2024 and b) realise savings in 2024/25 and 2025/26 from reviewing operational buildings through rationalisation, consolidation or working with other public sector partners. 1.2 The report sets out the high level emerging logistical, financial, operational and strategic risks and opportunities identified whilst undertaking the required work to implement Council’s decision. Based on assessment of the implications of the mothballing proposal, it also seeks authority to undertake a more detailed options appraisal and develop a concurrent business case to create a Public Service Hub and retain Pullar House for consideration by Council in August 2024. The report also seeks approval to draw down funding from the Working Smarter earmarked reserves to complete this work. 2. RECOMMENDATIONS 2.1 It is recommended that Council: i. notes the content of the report and the work undertaken to date to progress the decision of Council in March 2023, including the operational, financial, partnership and strategic implications which have been identified ii. pauses the instruction from March 2023 to mothball Pullar House from April 2024 iii. notes that officers are currently developing a hybrid working policy for approval by January 2024 iv. agrees to the principle of the development of a public service hub v. instructs officers to develop a business case, to include the potential purchase of Pullar House, in accordance with the Council’s approved Investment Planning framework, for consideration and decision at a Special Council meeting in August 2024
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vi. in the absence of a viable business case being presented to Council for consideration in August 2024, proceeds to relocate staff and mothball Pullar House from 1 October 2024 and terminate the lease arrangement on 10 September 2025 vii. agrees to a Special Council meeting on 19 August 2024 to make a final decision on the future of Pullar House; and viii. applies the funding of £179,000 from the Working Smarter earmarked reserve to take forward this work. 3. STRUCTURE OF REPORT 3.1 This report is structured over the following sections: • Section 4: Background • Section 5: Working Smarter Programme • Section 6: Perth City Accommodation Analysis • Section 7: Options • Section 8: One Public Sector Estate – developing an integrated public service hub. • Section 9: Conclusion 4. BACKGROUND 4.1 On 1 March 2023, the Council agreed the 2024/25 and 2025/26 provisional Revenue Budgets. This included the decision to make a £400,000 saving from “mothballing” Pullar House from 1 April 2024 (costs based on operating costs reduced part year from 1 October 2024). In addition, from 1 April 2025, Council agreed a further saving of £400,000 from the full year effect of “mothballing” Pullar House and £1 million from the review of operational buildings through rationalisation, consolidation or working with other public sector partners. 4.2 Since then, officers have been undertaking the necessary work to manage the logistical, financial and operational requirements and risks in relation to implementation of Council’s decision. This work has also identified potential opportunities which will not only meet the operational requirements of the Council for office accommodation but also facilitate the strategic ambition to design and deliver more effective and integrated public services in the future, whilst maintaining a strong Council presence in Perth city centre. 4.3 These matters are set out in the report, albeit at a high level, recognising that further detailed work will be required to enable Council to make a more fully informed decision regarding the future use, or not, of Pullar House. This work will provide a greater level of detail on the potential options for the building to become a public service hub. This is explored in more detail in Section 8 of this report.
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5. WORKING SMARTER PROGRAMME 5.1 The Council has previously undertaken a significant office accommodation review in Perth (Perth Office Programme) which delivered a significant reduction in accommodate and subsequent costs in 2016/17. The key objectives of the programme delivered: • the reduction of operating and property costs through reducing the Council’s office accommodation footprint in Perth City. • investment in the maintenance; refurbishment and modernisation of Council owned property through savings generated from a phased withdrawal from leased accommodation. • Creation of a modern, flexible and efficient working environment for the current and future delivery of public services. 5.2 The Working Smarter Programme, approved by the Transformation and Change Board in April 2023, builds on this and is part of the Council approved Transformation and Change Strategy. This project aims to further transform how we work as a Council; making the best use of our people, financial resources, property and other physical assets and by optimising the use of digital technology to deliver modern ways of working. 5.2 The programme has inter-dependencies with other transformation projects and workstreams and key Council strategies including: • One Public Estate • Property Asset Management • Digital Strategy • Corporate Workforce Plan • Culture Change Programme • Records Management Plan • Strategic Commissioning Plan for integrated health and care • Climate Change • Economic Wellbeing Strategy • Community Engagement - working with and within communities. 5.3 As part of the wider Working Smarter Programme, there is a specific project focussed on considering Perth City office accommodation options. 5.4 The decision of Council in March 2023 has provided a focus for the team. Work has been undertaken to firstly, identify and assess the risks for the Council in relation to moving staff, closing the main city centre public access point, and relocating the corporate records facility and the specialist CCTV infrastructure. This will also include the loss of rental charges from space used by partner organisations. All of these flow directly from the decision to mothball, then exit Pullar House. Secondly, and intrinsically linked, is the need to determine future office requirements within the city centre, given the decision to derive savings through consolidation/ rationalisation of the wider operational estate.
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5.5 In terms of Pullar House, the Council currently has a 25-year lease which expires on 10 September 2025. Under the terms of the current lease, the Council has an option to: • renegotiate the lease, • walk away or, • purchase the property at market value. If we wish to exercise our right to purchase the property at market value, then this needs to be intimated to the Landlord by 10 September 2024. 5.6 The Perth City office project has 12 properties within scope. These are listed below and include Pullar House. Each of the specified properties provide office accommodation as either their primary function or as part of the building function. Other Perth properties are excluded such as schools and ALEO accommodation as these do not offer clear options to relocate office accommodation. Similarly, the property at 1-5 High Street was considered as part of the previous Perth Office Programme and discounted as being unsuitable for conversion given the nature of the building, the listed elements and the significant capital cost associated with bringing it up to required specifications in terms of efficient, open plan and accessible working spaces. 5.7 The 12 properties currently provide office accommodation capacity of 12,636 m2. The table below shows the current usage of office accommodation only. This analysis specifically excludes public counters and records storage across the properties as well as circulation and other non- operational space. Eight of the properties are owned by the Council, one is owned by the NHS and three are leased by the Council, including Pullar House, at a combined annual lease cost of £3.45 million. The current annual cost of Pullar House is £3.2 million. Key: # properties with significant specialist accommodation * Leased properties Space only used for office accommodation Capacity (m2) Pullar House* 6,631 2 High Street 2,961 Carpenter House 505 Scott Street*# 263 St Martin’s House*# 404 NAVIGATE (George Inn Lane) # 17 Almondbank House# 378 Beechgrove House 34 Colonsay Resource Centre# 269 Friarton Depot 572 Inveralmond Depot 556 Drumhar Health Centre (NHS)# 46 TOTAL 12,636
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5.8 The office accommodation capacity provides open plan, cellular offices and meeting spaces. In some properties, the office space forms part of accommodation that is designated and designed to offer direct support and care to some of our priority vulnerable groups through easily accessible, flexible, non-stigmatised, therapeutic and trauma-informed environments. Those groups include young people including those disengaged from school or referred through the justice system, child/adult support and protection, services for people in the justice system and the management of offenders, people with learning disabilities and people who are experiencing drug or alcohol addictions and/or who require health treatment. Any reconfiguration of the estate requires careful consideration to ensure that these services can continue to be delivered effectively. 6. PERTH CITY ACCOMMODATION ANALYSIS 6.1 In light of the March 2023 decision of Council to mothball Pullar House, work undertaken to date includes: • Assessment of city centre property portfolio to identify properties in scope • Assessment of work styles of different office-based teams • Audit of IT provision • Mapping exercise of meeting/collaborative space availability and demand • Assessment of relevant number of full time equivalent (FTE- Full Time Equivalent) employees within scope • Assessment of current occupancy levels • Forecast of future service and organisational needs • Valuation and dilapidations assessment of Pullar House • Assessment of HSCP requirements as per current occupation • Phase 1 assessment of storage capacity and requirements • Assessment of co-located team requirements 6.2 Whilst the decision to mothball Pullar House has provided a focus for the review of office accommodation, it has created a hiatus in other projects looking at future operating models for more integrated working with public and third sector partners. Uncertainty as to future accommodation capacity, type and location has stalled discussions with potential partners. Managers have also felt unable to reassess and give stronger messaging as to the required balance between home and office working needed to support more collaborative ways of working to deliver services. 6.3 Consequently, most service teams have been operating hybrid working to suit current working practices as opposed to implementing new ways of working. As a result, current desk usage figures for our main office accommodation (i.e., 2 High Street, Pullar House and Carpenter House – 30% average) do not reflect the space needed for an operating model designed to facilitate closer and more effective internal and external collaboration. If it was known that Pullar House was to be retained then as an organisation we could move to implement more integrated working around public protection and the delivery of our shared priorities around poverty, net zero and growing our city economy.
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6.4 Implementing the March 2023 decision requires an understanding of emerging work practice as well as future office accommodation requirements. To assess this, managers provided data in relation to their current operating model and the estimated future space requirements to meet the business needs of services going forward, aligned to the ambition for more partnership working and integrated service delivery models. It is noted that the organisation is presently undergoing significant structural change. The leadership review has established fresh operational portfolios to be underpinned by closer internal and external collaboration. The estimated operating requirements reflect where we are at present in terms of known organisational structure and anticipated new ways of working. A new hybrid working policy is currently being developed. This will form part of the work to inform the business case. 6.5 In accordance with guidance from Scottish Futures Trust, a 10m2 metric to cover individual working, collaboration, mentoring and secure/private working space is applied to establish the aggregate demand for net internal area office space. The metric does not include other spaces that form part of the overall spatial demand as outlined in paragraph 6.7 below. Based on the 799.5 FTE assessment of future need and the SFT metric above the Council will require 8000m2 of office space. Any future operating model will be less desk driven and have more of a focus on collaborative spaces to facilitate work across new service teams and groupings. 6.6 This projected minimum need for approximately 8,000 m2 of desk space across Perth City is a significant 36% reduction from the Council’s current 12,000sqm plus “office” accommodation, across all 12 sites in scope. This is in line with where other large organisations are in this post-covid environment. This requirement is based on a current working assumption of an equitable home/office split. This will be developed further for the business case and will be influenced by the hybrid working policy. 6.7 This 8,000 m2 of assessed office accommodation required, excludes significant space requirements for other provision within these buildings including: • receptions • public counters • accommodation for corporate records storage • Council chamber located in 2 High Street • health and social care services • specialist requirements currently provided for within Pullar House such as CCTV (Closed Circuit Television) • parking attendants • PPE (Personal Protective Equipment) storage health & social care needs
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6.8 In developing options, buildings were categorised as follows: Retain: anchor / strategically important Release Potentially Surplus • 2 High Street, • Friarton Depot, • Inveralmond Depot, • Carpenter House, • Almondbank House, • Navigate (George Inn Lane) • Colonsay Resource Centre • Beechgrove, • Drumhar (NHS) • Pullar House • St Martins House • 68-86 Scott Street 6.9 Leaving aside the requirements excluded from the net space area calculation set out in 6.7, a high-level assessment of the data indicated that exiting Pullar House would leave the Council with an accommodation deficit of 2,000m2 in terms of office space plus a further deficit of 1,000 m2 for storage and archiving capacity to comply with statutory requirements of the Public Records (S) Act 2011. At present, corporate records are secured in a dedicated space within Pullar House but a project is currently underway to collate and appraise several thousand additional boxes of records which are presently dispersed and uncategorised across the wider council estate and to bring these into the central corporate records store and meet our information management obligations. This could potentially see an increase in demand for centralised records storage capacity. It is noted that the corporate records management requirement is not simply for storage/containment – many of the documents need to be accessible for ongoing use by officers. 6.10 To enable the Council to mothball and exit from Pullar House as directed, further recurring expenditure (over and above the ordinary costs associated with removal and relocation etc) will require to be incurred to secure sufficient accommodation and infrastructure to meet future business needs. This is considered by officers to be a material factor which requires further consideration by Council prior to implementation. 6.11 That being the case, given the Council’s statutory duty to secure best value, a high level SWOT analysis has been carried out on the basis of both: - (A) - exiting Pullar House and (B) - retaining Pullar House 6.12 The purpose of the SWOT analysis is to identify the most cost-effective model to meet business needs whilst delivering on the Council decision to secure savings from consolidating the city centre property estate. A summary of this SWOT analysis is set out below. A more detailed analysis will be undertaken as part of the business case.
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HIGH LEVEL SWOT ANALYSIS (A) - Exit Pullar House Strengths * • Reduction in fixed property costs • Potentially less direct carbon emissions • Less reliance on partners subsidising surplus accommodation • Maximises use of Council owned properties *These are potential as the cost/impact of securing the required additional space is unknown as are the carbon costs of alternative accommodation solutions Weaknesses • Requirement to rent 2000m2 for office space and 1000m2 for storage space • Exposure to greater financial risk with lease / adaptation costs, savings less certain including costs of change • Reduced public sector presence in Perth city centre. • Loss of control of a quality strategic site within city centre / cultural quarter and the ability to influence longer term city regeneration and economic growth. • Threats • relocation costs for additional office /storage/public reception space may significantly reduce/negate deliverable savings. • impact on city centre economic regeneration • operational inefficiency • undermines One Public Estate policy ambitions and opportunities for co-location currently in development Opportunities • mixed/flexible office property portfolio through leasing as opposed to ownership. • redesign operating model • repurpose existing surplus properties. • Potential market interest in the site, though other office accommodation available in the city centre SWOT ANALYSIS (B) - Retain Pullar House Strengths • Meets all assessed business needs. • Ownership and control of strategic site within City Centre / Cultural Quarter • Purchase price within the current lease agreement significantly reduced in comparison to construction costs of required office space. • Reinforces public service presence. • Contribution to city centre economy Weaknesses • Surplus PKC office accommodation • Potentially reduced deliverable saving as compared with exiting PH if unable to secure partner commitment to shared location • Unknown net zero costs if the building is owned by the Council.
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Threats • Future net zero costs • Inability to sub-lease to partners and generate income. • Lack of interest in creating public sector and 3rd sector hub Opportunities • Potential to generate income from sub leasing surplus space. • Deliver on one public estate ambition with public partners • Capacity to accommodate the corporate Archives/Museum collection overspill. • Establish 3rd sector Fair City Hub • Asset resale or repurpose in line with long term ambition 7. OPTIONS 7.1 The SWOT analysis has been used to identify scenarios upon which an initial high-level options appraisal has been undertaken. These are set out below: - i. Exit Pullar House and retain all other potentially surplus office accommodation. ii. Exit Pullar House, retain all other potentially surplus offices and utilise vacant Council owned property such as Balhousie PS, Rodney Centre, 1-5 High Street, currently under option with developers. iii. Exit Pullar House, retain all other potentially surplus and utilise un-used capacity in appropriate Council locality properties (e.g., Town Halls, Community Halls, Area offices, locality depots) and community learning campuses surplus. iv. Exit Pullar House, retain all other potentially surplus accommodation and purchase or lease new premises which offer whatever shortfall in capacity is needed to meet the assessed office/storage/archive requirements. v. Exit Pullar House and all other potentially surplus properties. vi. Purchase Pullar House and retain all other potentially surplus properties. vii. Purchase Pullar House and release specific potentially surplus (Colonsay, Beechgrove, Drumhar, St Martins House & Scott Street) viii. Renegotiate a new lease for Pullar House
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7.2 Options (i), (iii) and (v) are excluded on the basis that they cannot meet the assessed office accommodation needs. 7.3 Option (ii) is excluded due to the anticipated level of capital investment required to meet the assessed office accommodation need, meet building efficiency requirements and ensure accessibility compliance, significantly reducing the deliverable savings. 7.4 This leaves options (iv), (vi), (vii) and (viii) as potential viable scenarios requiring further consideration. 7.5 On basis of the risks and potential opportunities as identified by the SWOT analysis exercises, these four options compare as follows ( ** Option (viii) would be dependent upon the Council securing favourable lease terms): - 7.6 High level financial modelling has also been undertaken for the four options identified above that merit further consideration. This modelling includes assumptions on future running costs, borrowing costs, potential income generation and cost of change. The estimated savings attached to each option are set out in the following graph and measured against the Council decision to achieve £1.8 million of recurring savings from 1 April 2025. Known/Potential Benefits Option (iv) Exit PH Option (vi) Buy PH Option (vii) Buy PH Option (viii) Lease PH ** Accommodates/aligns with current operating model (hybrid) x x x x Delivers Savings x x x x One Public Sector Estate Ambition x x x Consolidation of City Centre Estate/ further potential savings x Income generation opportunity x x x 3rd sector hub opportunity x x x Mitigate risk re museum collection store x x x Mitigate risk re AK Bell Archive overspill x x x Ownership/control over key strategic site x x
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7.7 The high-level options appraisal indicates that retaining Pullar House potentially represents the best opportunity to not only deliver savings but to enable wider policy ambitions in terms of integrated service delivery, closer collaboration with the 3rd sector and optimising both commercial opportunities and the use of public sector assets through the “one public estate” approach. Retaining Pullar House also provides a potential solution to known or emerging risks in relation to storage of the wider museum collection (given the Council decision to defer investment in a new collection store) and the Council’s archive (which now exceeds the archive capacity at AK Bell). 8. ONE PUBLIC ESTATE – DEVELOPING AN INTEGRATED PUBLIC SERVICE HUB 8.1 Prior to this exercise, the Council’s Asset Management Team, in accordance with our approved Investment Blueprint, has been working with partners to develop a more strategic approach to the design of the future public sector property estate to support more integrated service delivery in line with key national drivers for more integration of public services and accommodation. This approach has already been implemented successfully, with the co- location of services with Police Scotland in James Square, Crieff and the Community Safety and Community Alarm Teams sharing Scottish Fire & Rescue accommodation at Perth Fire station. 8.2 The benefits of a one public estate approach are widely documented and include: • delivering more cohesive and integrated services to better meet the needs of our communities; • generate efficiencies and savings; • create and promote growth in the local economy; • reducing the carbon footprint of the public sector estate; • opportunities to make further climate change adaptations to this smaller estate; reducing energy need and associated emissions; and • releasing or repurposing surplus public service sites for potential affordable housing, community adoption or economic development.
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8.3 As part of that work, there has been an ongoing project to consider the viability of developing an integrated public service hub in Perth City which brings services and agencies together in a single location to provide more cohesive service provision and an improved customer experience. Discussions have been ongoing with internal services, the Health & Social Care Partnership, Police Scotland, Scottish Government and 3rd sector organisations. These have been positive. However, the uncertainty around the Council’s continuing occupation of Pullar House has impacted on progress. 8.4 The model being adopted is consistent with the principles of the recent Verity House agreement between Scottish Government and Local Government. Officers have had encouraging discussions with senior Scottish Government civil servants to explore opportunities. 8.5 Should the Council be minded to support the recommendations within this report, this will provide assurance to potential partners and enable the Council to enter into more formal discussions regarding the co-location of these services/agencies to Pullar House and the respective lease terms. 9. CONCLUSION 9.1 It is however recognised that the proposal is not without risk. Success is dependent upon several factors some of which are outwith our control (e.g., decisions of partners or an unexpected shift in anticipated market value of the property etc.) More detailed assessment and analysis is required to determine the viability of any potential business case for the purchase/retention of Pullar House. To ensure business continuity and mitigate risk however concurrent work will continue to identify suitable alternative office provision, public access points, storage and other specialist accommodation to ensure that the Council can proceed to mothball and exit Pullar House should the business case fail. 9.2 In preparing the outline business case, we will review the city centre property portfolio and undertake a more in-depth assessment of future business needs, availability and costs of external office / storage, alternative public counter accommodation, corporate records storage and costs of change. 9.3 Concurrent work will also be undertaken to determine the detailed costs associated with implementing the original decision to mothball and exit if a viable business case cannot be made to retain Pullar House. 9.4 Regardless of whether we decide to retain or exit Pullar House as an operational building, more detailed space planning work needs to be carried out alongside a review and development of the Council’s hybrid working policy to ensure that our future operating model is effective and that our office property estate is fit for purpose. This exercise will move teams into smaller accommodation footprints over the next 9 months – 12 months either in readiness for public sector hub aspirations or to exit Pullar House in 2025.
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9.5 Approval is sought to draw down £179,000 from the Working Smarter earmarked reserve to take this work forward. This funding will support project management, space planning and design costs, the cost of advice on any potential building remodelling, updated independent valuation advice and property marketing material which would be used to engage potential partners. It also includes funding towards a plan to exit Pullar House in the absence of a viable business case. 9.6 In terms of the current legal agreement in relation to Pullar House, if the Council wishes to exercise its right to purchase the property, it must commit to this by 10 September 2024. It is recommended that Council will agree the future of Pullar House at a Special meeting on 19 August 2024. 9.7 This report provides members with an update on the work undertaken to date to implement the decision of March 2023 to mothball Pullar House with a view to exit in 2025. 9.8 The work has identified a number of operational, financial, partnership and strategic implications which officers consider to be material and requiring further consideration by Council. Approved Name Designation Date Thomas Glen Chief Executive 26 September 2023 Name Designation Contact Details Stephen Crawford Head of Property Services scrawford@pkc.gov.uk Lisa Simpson Head of Legal & Governance Services lsimpson@pkc.gov.uk Scott Walker Chief Accountant swwalker@pkc.gov.uk
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ANNEX 1. IMPLICATIONS, ASSESSMENTS, CONSULTATION AND COMMUNICATION Strategic Implications Yes / None Community Plan / Single Outcome Agreement None Corporate Plan Yes Resource Implications Financial Yes Workforce Yes Asset Management (land, property, IST) Yes Assessments Equality Impact Assessment Yes Strategic Environmental Assessment Yes Sustainability (community, economic, environmental) Yes Legal and Governance None Risk None Consultation Internal Yes External None Communication Communications Plan None 1. Strategic Implications Corporate Plan 1.1 The Council’s Corporate Plan 2022 – 2027 lays out seven outcome focussed strategic objectives which provide clear strategic direction, inform decisions at a corporate and service level and shape resources allocation. They are as follows: • Tackling poverty • Tackling climate change and supporting sustainable places • Growing a sustainable and inclusive local economy • Enabling our children and young people to achieve their full potential. • Protecting and caring for our most vulnerable people • Supporting and promoting physical and mental wellbeing • Placing communities at the heart of how we work 1.2 This report relates to all these objectives. 2. Resource Implications Financial 2.1 There are no direct financial implications arising from this report other than those reported within the body of the main report.
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Workforce 2.2 There are no direct workforce implications arising from this report other than those reported within the body of the main report. Asset Management (land, property, IT) 2.3 There are no direct asset management implications arising from this report other than those reported within the body of the main report. 3. Assessments Equality Impact Assessment 2.4 Under the Equality Act 2010, the Council is required to eliminate discrimination, advance equality of opportunity, and foster good relations between equality groups. Carrying out Equality Impact Assessments for plans and policies allows the Council to demonstrate that it is meeting these duties. 2.5 The information contained within this report has been considered under the Corporate Equalities Impact Assessment process (EqIA) and has been assessed as not relevant for the purposes of EqIA. Strategic Environmental Assessment 3.3 The Environmental Assessment (Scotland) Act 2005 places a duty on the Council to identify and assess the environmental consequences of its proposals. 3.4 The information contained within this report has been considered under the Act. However, no action is required as the Act does not apply to the matters presented in this report. Sustainability 3.5 Under the provisions of the Local Government in Scotland Act 2003 the Council must discharge its duties in a way which contributes to the achievement of sustainable development. In terms of the Climate Change Act, the Council has a general duty to demonstrate its commitment to sustainability and the community, environmental and economic impacts of its actions. 3.6 The information contained within this report has been considered under the Act. However, no action is required as the Act does not apply to the matters presented in this report.
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4. Consultation Internal 4.1 The Executive Leadership Team have been consulted in the preparation of this report. 2. BACKGROUND PAPERS 2.1 No background papers, as defined by Section 50D of the Local Government (Scotland) Act 1973 (other than any containing confidential or exempt information) were relied on to any material extent in preparing the above report. 3. APPENDICES • None