The second phase of the £1B Paradise office development in Birmingham needs extra public sector funding.

An official report by Birmingham City Council leader Ian Ward to the council's audit committee revealed the real extent of concerns about the 1.8M SF scheme, which first surfaced in September.

The scheme needs extra funding, whilst it was stated that there had been "a significant breakdown in communication between builders, the city council and the Greater Birmingham and Solihull Local Enterprise Partnership," the Birmingham Post reports.

"The project is now in limbo with no budget currently available to deliver Phase Two," the Post added.

A councillor described the project as "a financial mess and a risk to our city," the Post reported.

A full webcast of the debate is available here.

The collapse of contractor Carillion, the effects of devaluation and cost inflation has helped drive up costs, meaning both the Phase 1 and Phase 2 funding allocations were spent in Phase 1, an overspend of £29.1M. Talks are underway with the local enterprise partnership about securing extra funding. KPMG have been working with the council to develop a business case. New overage terms have been offered by the developers.

The council and LEP originally agreed to provide up to £87.8M, split between three phases. Funding was to pay for demolition and infrastructure.

The second phase is due to include the 280K SF One Centenary Way, Three Chamberlain Square and a new 4-star hotel.

The Paradise development partnership, which embraces Hermes and the Canadian Pension Plan Investment Board and their development managers Argent, said the reports were not correct.

“Costs for infrastructure work for Phase One of Paradise Birmingham have not increased by £50M or £100M," a statement to Bisnow said.

"The increased scope of off-site works for Phase One of Paradise, together with a combination of construction inflation and the collapse of Carillion, led to an increase in costs of £29M."

"Private sector funding is in place for our next building, One Centenary Way, and we are awaiting the outcome of the LEP’s considerations regarding a compulsory purchase order and infrastructure costs relating to Phase Two.”

The project was one of the first in the U.K. to explore tax-incremental funding, using the uplift in business rates to lever the development.