The Audit Committee was scheduled to consider a report detailing the development of the Toft Hill and High Etherley Bypass scheme. The report outlined the background, funding, development, challenges, and lessons learned from the project.

Toft Hill and High Etherley Bypass Scheme

The Audit Committee was scheduled to review the development of the Toft Hill and High Etherley Bypass scheme, as detailed in a report by Mark Jackson, Corporate Director of Neighbourhoods and Environment. The report aimed to provide details on the project's background and bid submission, its funding award and budget, and the development work undertaken.

Key challenges were expected to be discussed, including the optioneering and compulsory purchase order (CPO) process, construction risks and site remediation due to geology and mining, the complexity of the scheme and resource requirements, and issues surrounding value for money and benefit cost ratio. The report also intended to cover the project timeline, its capital funding governance, and lessons learned from the experience.

The report indicated that a Levelling Up Fund bid was submitted in 2021, influenced by a Member of Parliament. The bid development was time-pressured, taking less than three months, with limited development beyond the concept design stage and optimistic assumptions regarding unknown risks. The funding for the scheme evolved significantly, with initial bids and subsequent cabinet decisions leading to changes in the grant and match funding breakdown. For instance, the initial bid involved a £20 million grant capped amount, with Durham County Council contributing £8.61 million and private funding £2.25 million. However, by July 2024, the final budget was £12.745 million, with only £1.1 million from the Levelling Up Fund grant.

Development work, commissioned to Jacobs in November 2021, included design, traffic modelling, and preliminary source study reports. The need for a CPO became apparent, necessitating the retrospective development of additional route options, which impacted development costs. Limited access to land for surveys also presented challenges. The report highlighted that risks identified in the Preliminary Sources Study Report were not fully captured in earlier cost estimating exercises.

Significant challenges were identified in relation to the CPO process, with an initial single option requiring retrospective development of additional routes, leading to programme delays and increased costs. The report also detailed design risks and site remediation issues, stemming from a combination of opencast and shallow mine workings, requiring extensive and difficult-to-estimate ground remediation costs. Construction cost inflation between bid submission and commencement on site further exacerbated these issues.

The report noted that the scheme's Benefit Cost Ratio (BCR) had reduced from 2.45 at the bid stage to 1.07 in the final Option Appraisal Report, impacting its value for money. Furthermore, a shift in funding priorities meant that the Council's provisional allocation from the Local Transport Fund was replaced by a ring-fenced allocation from the City Regions Sustainable Transport Settlement (CRSTS) funding, which focused on active travel and public transport rather than bypass schemes.

A Cabinet decision on 11 February 2026 acknowledged a forecast cost pressure and funding gap of at least £18,831,300, leading to the withdrawal of the Toft Hill and High Etherley Bypass scheme from the Levelling Up Fund programme. The Council retained its associated budget of £8.94 million for future use and planned to develop a local highway improvement scheme for the area, subject to further approval.

The report also touched upon the Council's capital budget setting arrangements, which involve annual exercises aligning with the Treasury Management Strategy and monthly monitoring with quarterly reporting to Cabinet. It emphasised that schemes are assessed against council priorities, financial capacity, and deliverability. The report also outlined project governance arrangements, including Thematic Capital Programme Boards and the involvement of external project resources for complex and high-risk schemes.

Lessons learned from the project included the need for evolving Major Projects Governance for complex schemes, strengthening gateway management, and increasing focus on optimism bias and scenario modelling. The report also stressed the importance of greater due diligence in advance of grant funding bids for high-risk schemes and advocated for a funding fed not funding led approach, where funding bids align with fully signed-off business cases. It was also suggested that multi-faceted schemes, including nice-to-have elements, could allow for de-scoping to meet budget pressures.

The Audit Committee was recommended to consider the findings detailed in the presentation and the identified lessons learned.