Rural Growth Deal - Project Development Costs Update
Argyll and Bute Council · 21 August 2025
Back to Policy and Resources Committee — 21 August 2025 and its agenda
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ARGYLL AND BUTE COUNCIL POLICY AND RESOURCES COMMITTEE DEVELOPMENT AND ECONOMIC GROWTH 21ST AUGUST 2025 RURAL GROWTH DEAL – PROJECT DEVELOPMENT COSTS UPDATE 1.0 EXECUTIVE SUMMARY 1.1 The Rural Growth Deal, signed on 10 March 2025, will deliver £50m of investment from the Scottish and UK Governments for projects that are a driver for inclusive and transformational economic growth across the region. The Council and key delivery partners will also provide a minimum of £20m of match funding throughout the 10-year Deal programme. 1.2 This report provides an update on the Rural Growth Deal (RGD) and specifically costs associated with project development and follows on from the report presented to the Policy and Resources Committee on 5 December 2024. 1.3 Following on from the approvals at the Policy and Resources Committee on 5 December 2024, the RGD Programme Management Office (PMO) continue to review project timescales and development costs and have identified that the current threshold of delegated authority to the Internal Programme Board is likely to be insufficient for some projects and risks slowing progress with the programme. The overall value of maximum cash flow requirement has also been updated. 1.4 The total estimated development costs for all projects (as shown in Table 2) are now estimated to be £2.831m – this is reduced from the estimated figure of £3.183m reported in December 2024. 1.5 As agreed at Policy and Resources Committee on 5 December 2024, the Council would set aside a fund from the Priorities Investment Fund to the value of £0.700m that can pay for the development costs for Council projects on the basis that all will be paid back by the end of Year 10. This cash flow support requirement has now increased to £0.850m (see Table 5, Year 5). The maximum cash flow exposure is based on the assumption that the Full Business Cases are approved and the development costs become claimable. Members are asked to note that there remains a risk of abortive development costs if projects do not progress beyond Full Business Case. 1.6 As part of the review of project development costs, it has now been identified that there are likely to be instances where the agreed delegated authority threshold of £250k will be insufficient to meet pre-construction project development costs. Where project development costs exceed £250k, there is
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currently a requirement for approval to be sought from the Policy and Resources Committee. This creates risk of delay to projects. It is therefore considered prudent to ask the Policy and Resources Committee to consider increasing the current level of delegated authority to the Internal Programme Board up to a maximum threshold of 15% of each project. 1.7 The monitoring of cash flow spend/income against the funds allocated from the Priority Investment Fund will require to be regularly reported by officers from the Rural Growth Deal PMO and Financial Services to the Internal Programme Board initially and when required to the Policy and Resources Committee. RECOMMENDATIONS The Policy and Resources Committee are asked to:- a) Agree that the Council increases the amount set aside from the Priorities Investment Fund from £0.700m to £0.850m to cash flow the development costs for the Council. This cash flow support will be fully paid back by the end of Year 10. b) Delegate to the Internal Programme Board (Chief Executive and Executive Directors), in consultation with the Leader and Depute Leaders to approve pre-development funding requests relating to Council led projects up to a maximum threshold of 15% of each project, subject to there being sufficient cash flow available. (This is an increase to the £0.250m threshold agreed in December 2024.)
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ARGYLL AND BUTE COUNCIL POLICY AND RESOURCES COMMITTEE DEVELOPMENT AND ECONOMIC GROWTH 21ST AUGUST 2025 RURAL GROWTH DEAL – PROJECT DEVELOPMENT COSTS UPDATE 2.0 INTRODUCTION 2.1 The Rural Growth Deal, signed on 10 March 2025, will deliver £50m of investment from the Scottish and UK Governments for projects that are a driver for inclusive and transformational economic growth across the region. The Council and key delivery partners will also provide a minimum of £20m of match funding throughout the 10-year Deal programme. 2.2 This report provides an update on the Rural Growth Deal (RGD) and specifically costs associated with project development and follows on from the report presented to the Policy and Resources Committee on 5 December 2024. 3.0 RECOMMENDATIONS The Policy and Resources Committee are asked to:- a) Agree that the Council increases the amount set aside from the Priorities Investment Fund from £0.700m to £0.850m to cash flow the development costs for the Council. This cash flow support will be fully paid back by the end of Year 10. b) Delegate to the Internal Programme Board (Chief Executive and Executive Directors), in consultation with the Leader and Depute Leaders to approve pre-development funding requests relating to Council led projects up to a maximum threshold of 15% of each project, subject to there being sufficient cash flow available. (This is an increase to the £0.250m threshold agreed in December 2024.) 4.0 DETAIL 4.1 The majority of RGD projects now have approved Outline Business Cases and are considering the next stages of project development work to inform their Full Business Cases. The pre-development work necessary to inform Full Business Cases includes detailed design, procurement, site investigation works and statutory consents. Rural Growth Deal funds only become available for drawdown from Central Government, when a project has an endorsed Full Business Case. All costs incurred in advance of endorsement are at the risk to the Council and/or key delivery partners.
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4.2 As previously advised to Members, there is a significant amount of project development work necessary in order to complete Treasury Five Case compliant FBCs. This includes detailed design, construction tenders and statutory consents. In order to develop FBCs the following milestones should be completed: • Design to RIBA Stage 4 (Technical Design); • All consents should be approved (including Planning, Building Warrant etc.); • Procurement – costs in the FBC should be based on a tendering exercise; • Match funding – must be identified & approved by funders; • Any Legal agreements between the Council and Partners should be finalised; • Carbon Impact Assessments finalised; • Equalities Impact Assessments finalised; • Programme of works agreed. 4.3 As a general estimate, 10%-15% of project capital budgets requires to be allocated for pre-construction development costs.led Design/ents/Impact essments Construction Tender 4.4 The Policy and Resources Committee on 5 December 2024 agreed the following: • Council sets aside a fund from the Priorities Investment Fund to the value of £0.700m that can pay for the development costs for Council projects on the basis that all will be paid back by the end of Year 10. • Any cash flow funding requests for projects led by external partners will be brought to P&R for approval as and when a request for funding is made and considered on a case by case basis. • Delegated authority to the Internal Programme Board (Chief Executive and Executive Directors) to approve pre-development funding requests relating to Council led projects up to a threshold of £250k per project from the new Fund. 4.5 Following on from the approvals at the Policy and Resources Committee on 5 December 2024, the RGD Programme Management Office (PMO) continue to review project timescales and development costs and have identified that the current threshold of delegated authority to the Internal Programme Board is likely to be insufficient for some projects and risks slowing progress with the programme. The overall value of maximum cash flow requirement has also been updated. 4.6 The RGD Programme Management Office continue to scope project timescales and development costs. Table 1 provides an update on current estimated projected development timescales and estimated costs for projects that are going to require project development support.
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Table 1: Project Development Timescales (projects that are likely to have to spend at risk) Project Project Developme nt Period Estimated project developme nt costs Estimate d capital cost Estimated FBC Endorseme nt First drawdow n of Rural Growth Deal funds (financial year) Argyll and Bute Council led projects: Kintyre Seasports 2024-2026 £201,700 £2.5m- £3m March 2026 2025/26 Islay Low Carbon Currently estimating 2029-2032 £300,000 £3m 2031/32 2032/33 Housing – Isle of Mull 2025-2026 £80,000 £2.5m January 2026 2025/26 Housing – Isle of Islay 2026-2027 £100,000 £3m 2027/28 2028/29 Clyde Engineerin g & Innovation Centre 2027-2029 £700,000- £1,000,000 (£850,000 mid-point) £7m- £10m 2028/29 2029/30 West Coast UAV Hub 2029-2031 £300,000 £4m 2030/31 2032/33 RGD Partner led projects: SAMS STEM Hub 2025-2026 £200,000 £1.75m 2026/27 2026/27 UHI Argyll – Built Environme nt 2026-2028 £200,000 £1.5m 2028/29 2029/30 SAMS C- SSIDe 2025-2027 £600,000 £6m 2026/27 2027/28 4.7 Table 2 and 3 below set out the detailed projected profile of expenditure and claims for project development costs for those projects requiring cash flow support . Table 4 and Table 5 summarise this profile to demonstrate the cash flow implications.
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Table 2: Projected Profile of RGD Project Development Costs Table 3: Projected Claim Profile of RGD Project Development Costs Table 4: Summary Profile of estimated RGD Development Costs and Drawdown (All Projects): Table 5: Summary Profile of estimated RGD Development Costs and Drawdown (ABC Projects Only): 4.8 The total estimated development costs for all projects (as shown in Table 2) are now estimated to be £2.831m – this is reduced from the estimated figure of £3.183m reported in December 2024. 4.9 As agreed at Policy and Resources Committee on 5 December 2024, the Council would set aside a fund from the Priorities Investment Fund to the value of £0.700m that can pay for the development costs for Council projects on the basis that all will be paid back by the end of Year 10. This cash flow support requirement has now increased to £0.850m (see Table 5, Year 5). The maximum cash flow exposure is based on the assumption that the Full Business Cases are approved and the development costs become claimable. Members are asked to note that there remains a risk of abortive costs if projects do not progress beyond Full Business Case. 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 2031/32 2032/33 2033/34 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total Argyll & Bute Council led projects Kintyre Seasports 41,700.00£ 160,000.00£ 201,700.00£ Islay Low Carbon 50,000.00£ 100,000.00£ 150,000.00£ 300,000.00£ Housing - Mull 80,000.00£ 80,000.00£ Housing - Islay 100,000.00£ 100,000.00£ CEIC 500,000.00£ 350,000.00£ 850,000.00£ West Coast UAV 150,000.00£ 150,000.00£ 300,000.00£ RGD Partner led projects SAMS STEM Hub 200,000.00£ 200,000.00£ UHI Argyll - Built Environment 100,000.00£ 100,000.00£ 200,000.00£ SAMS CSSID-e 200,000.00£ 400,000.00£ 600,000.00£ Total 41,700.00£ 640,000.00£ 600,000.00£ 600,000.00£ 350,000.00£ 200,000.00£ 250,000.00£ 150,000.00£ -£ -£ 2,831,700.00£ Project Development Costs 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 2031/32 2032/33 2033/34 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total Argyll & Bute Council led projects Kintyre Seasports 201,700.00£ 201,700.00£ Islay Low Carbon 300,000.00£ 300,000.00£ Housing - Mull 80,000.00£ 80,000.00£ Housing - Islay 100,000.00£ 100,000.00£ CEIC 850,000.00£ 850,000.00£ West Coast UAV 300,000.00£ 300,000.00£ RGD Partner led projects SAMS STEM Hub 200,000.00£ 200,000.00£ UHI Argyll - Built Environment 200,000.00£ 200,000.00£ SAMS CSSID-e 600,000.00£ 600,000.00£ Total -£ 281,700.00£ 200,000.00£ 600,000.00£ 100,000.00£ 1,050,000.00£ -£ -£ 600,000.00£ -£ 2,831,700.00£ Projected Claim Profile
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4.10 The following Rural Growth Deal projects are not deemed to currently require project development cash flow support: • Dunoon STEM Hub – it is deemed that there is sufficient match funding available from existing funds to cover development costs, without need to spend RGD funds at risk, in advance of business case endorsement • Rothesay Pavilion – this project is already in delivery phase, post conditional approval of the Full Business Case • Business Skills – this is a revenue project with minor development costs • Machrihanish Innovation Campus – at this time, the University of Stirling have not indicated that they will require cash flow assistance. • Marine Industry Training Centre – this project is currently being re-scoped following a decision by UHI Argyll to not proceed with the project. When more is known about the future of the project and associated funding, estimates on any funding requirements will be made. 4.11 Where possible, projects will identify match funding opportunties to reduce reliance on the Priority Investment Fund and reduce financial risk exposure. For example, the Clyde Engineering and Innovation Centre project continues to access funding via previously agreed Section 75 monies, and RGD housing projects have been supported by funding from the Strategic Housing Fund and other external grants such as the Scottish Governments Islands Programme. 4.12 The Policy and Resource Committee also agreed that any cash flow funding request for projects led by external parties will be brought to Policy and Resources for approval as and when a request for funding is made and considered on a case by case basis. The RGD PMO have held initial discussions to scope cash flow requirements for RGD partner led projects. While no formal requests for funding support have been made to the PMO at this stage, it is likely that the Scottish Association for Marine Science (SAMS) may require cash flow support for their projects. The PMO will continue to work with SAMS and HIE to identify where cash flow support may be required. UHI Argyll continue to work through the Outline Business Case process for their project and will review project development costs following endorsement of the project Outline Business Case by the Scottish Government. 4.13 Should future cash flow support be approved by Committee, this will be subject to robust funding agreements with external partners to minimise potential risk to the Council. 4.14 As part of the review of project development costs, it has now been identified that there are likely to be instances where the agreed delegated authority threshold of £250k will be insufficient to meet pre-construction project development costs. Where project development costs exceed £250k, there is currently a requirement for approval to be sought from the Policy and Resources
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Committee. This creates risk of delay to projects. 4.15 As a general estimate, 10-15% of project capital budgets requires to be allocated for pre-development costs. Therefore, it is estimated that projects with an overall capital budget of more than £2.5m are likely to exceed the current level of delegated authority for pre-construction development costs. For example, a Council led project such as the Clyde Engineering and Innovation Cluster has an estimated capital cost in the region of £7-10m, therefore development costs could range from £700k-£1m. 4.16 It is therefore considered prudent to ask the Policy and Resources Committee to consider increasing the current level of delegated authority to the Internal Programme Board up to a maximum threshold of 15% of each project, subject to there being sufficient cash flow available. 4.17 The monitoring of cash flow spend/income against the funds allocated from the Priority Investment Fund will require to be regularly reported by officers from the Rural Growth Deal PMO and Financial Services to the Internal Programme Board initially and when required to the Policy and Resources Committee. 4.18 Members are reminded that the current funding mechanisms for the RGD programme require lead partners to incur pre-construction project development costs at risk and in advance of FBC endorsement. 4.19 In a scenario where tendered costs are unaffordable, project leads will aim to secure additional match funding or consider value engineering where possible. Members should note that value engineering can incur additional design fees. 4.20 Central Government will not currently fund abortive costs on RGD projects and the lead funding partners carry the risk of all costs incurred prior to FBC endorsement. 4.21 If Rural Growth Deal projects are unable to proceed, the associated funding will require to be reallocated within the wider programme. There are protocols in place to manage change across the RGD programme and any decision to re- allocate project funding which deviates from the Full Deal Agreement will require Ministerial Level approval from both the UK and Scottish Governments. 5.0 CONCLUSION 5.1 The majority of RGD projects have now had their Outline Business Cases approved by Central Government and are scoping project development requirements necessary for Full Business Cases. A significant amount of work is required to get to this stage, including detailed design, procurement, site investigation works and statutory consents. As such, pre-construction activities will incur significant development costs. 5.2 Members are asked to note that all spend in advance of FBC endorsement is at risk to the Council and key project partners and this is necessary due to the current funding mechanisms on city region and growth deals. Where possible, all costs incurred will be reclaimed from RGD capital budgets following
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endorsement of FBCs by Central Government, however there is a risk over the lifetime of the RGD programme that the Council will have to fund any abortive project development costs. 5.3 The Policy and Resources Committee has previously agreed delegated authority of up to £250k to the Internal Programme Board to cashflow RGD project development costs. On review of the programme, this level of delegated authority is now deemed insufficient and risks delay to the programme. The Policy and resources Committee are therefore asked to consider a request to increase the level of delegated authority to the Internal Programme Board for pre-development funding up to a maximum threshold of 15% of each project, subject to there being sufficient cash flow. 5.4 The Policy and Resources Committee are also asked to increase the cash flow maximum to £0.850m on the basis that all will be paid back by the end of Year 10. 6.0 IMPLICATIONS 6.1 Policy – The RGD is consistent with the Council’s Economic Strategy. 6.2 Financial – RGD Projects require a level of upfront spend at risk to allow project development to progress. There is a risk that where projects do not proceed, the Council will have to absorb incurred spend on project development costs via the Priority Investment Fund. 6.3 Legal – Legal will be required to draft funding agreements with any RGD Partners who require cash flow funding support. 6.4 HR – None at present. 6.5 Customer Service: None. 6.6 Risk: Risk of abortive spend for any costs incurred prior to FBC endorsements by Central Government. 6.7 Climate Change: None. 6.8 Fairer Scotland Duty: Required as part of Business Case process. 6.9 Equalities - protected characteristics - Equality Impact Assessments are required for all RGD projects. 6.10 Customer Duty – None at present. 6.11 Island Communities: None. 6.12 Childrens rights and wellbeing – None at present. Kirsty Flanagan Executive Director with responsibility for Development and Economic Growth Council Leader: Councillor Jim Lynch
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22 July 2025 For further information contact: Fergus Murray, Head of Development and Economic Growth Fergus.Murray@argyll-bute.gov.uk Jonathan Welch, Transformational Projects & Regeneration Manager Jonathan.Welch@argyll-bute.gov.uk Aileen Semple, Rural Growth Deal Project Officer Aileen.Semple@argyll-bute.gov.uk