Second review of the capital programme 2011/12

Report: 5
Date: 20 October 2011
By: Director of Resources on behalf of the Commissioner

Summary

This report provides details of the second review of the capital programme 2011/12.

The first revision of the capital programme 2011/12 was approved by the Finance & Resources Committee on 21st July 2011. This second review is required to ensure that budgets are suitably adjusted to reflect known and material changes to project profiles and recent agreements from ACPO TAM.

The report also highlights the revised funding mix and profile.

A. Recommendations

Members are requested to:

1. approve the revised capital programme 2011/12 to £205.2m gross and budget of £187.0m, reflecting the latest view of projects in progress, the proposals for new starts and the management of over programming. Appendix 1 details the Programme level proposal.
2. approve the revised funding proposals (paragraph 9 and Appendix 2 refers)

B. Supporting information

Background

1. The Borrowing and Capital Spending Plan for 2011/12 to 2017/18 was approved at the MPA Full Authority meeting on 31st March 2011 as a component of the Policing London Business Plan.

2. The initial approved level of capital expenditure for 2011/12 was £222.3m against available funding of £177.2m. The over programming sum of £45.1m was regarded as manageable and necessary to accommodate natural delay in delivery of a complex programme.
3. The first review of the programme for 2011/12 requested of Finance and Resources Committee on 21st July revised the gross programme to £227.2m, with over programming reduced to £40.9m and a funding ceiling of £186.3m reflecting the out turn of 2010/11.

4. This second review embraces the movement in approved projects within the current year plus new demands not originally planned including those of 3rd parties and ACPO TAM. The basis for this review is actual expenditure up to and including 2011/12 Period 5 - August.

Second Review of Capital Programme 2011/12

5. The provisioning departments, DoI, Property Services and Transport Services continue to monitor and control delivery of the programme routinely with latest forecasts at project level. Due consideration has been given to the continuing impact of change programmes affecting programme deliverers and the need to deliver essential change pre-Olympics.

Revised Project Profiles for 2011/12

6. Appendix 1 shows the 2011/12 programme as maintained in Capital Management System of MetFIN. This format is used for monitoring and control of 2011/12 and beyond. The programme budget represents the controlling affordable budget for the MPS. Within this budget sums are allocated to individual projects.

7. Table 1 shows material changes in proposed expenditure during 2011/12 for the major programmes/schemes of investment included within the Borrowing and Capital Spending Plan 2011/12 to 2017/18. Within the approved programme individual projects require agreed business cases to be approved with due governance before they are individually allocated a controlling budget; a pre-requisite for committing any expenditure.

Table 1 Significant changes between Q1 and Q2

8. The Messaging Programme was commercially evaluated and the cloud based solution, Messaging as a Service, found to be more cost effective. Revenue costs of contract start up in 2011/12 are to be funded from the Service Improvement Programme. Future revenue costs are included in the Medium Term Financial Plan.

9. The Improving Police Information programme was cancelled in 2010/11 but the value originally planned for 2011/12 was initially kept in the programme in case a substitute application was necessary. This is no longer the case and the value can be released.

10. Olympics estimates are first estimated with a high element of contingency, known as optimism bias. As project design and procurement matures the estimating accuracy improves and the optimism bias can be reduced or removed. As Olympics is grant funded this is net neutral to the MPS cash position.

11. There are a number of new projects seeking entry to the capital programme both in the current year and future. These are in the process of being prioritised and should any of these merit delivery in the current year the addition will be reported to Finance & Resources within the monthly management report. Notwithstanding the above, the forecast does not anticipate seeking any additional funding. New entries for the future programme will be explained in the Capital Programme submission to be made in November 2011.

12. Table 2 compares the detailed financing proposal approved for 2011/12 and a revised position as a result of the roll forward. Appendix 2 contains more specific detail of the components rolled forward. The net funding position remains stable but there has been a switch between the reduction in the project values funded from Revenue Contribution and Olympics Grant offset by an increase in Third Party and Counter Terrorism funding.

Table 2: Funding the Capital Programme

Revised Budget Figures for 2011/12

13. Table 3 compares the approved budget to the proposed revision following the roll forward of the programme. Progress during 2011/12 will continue to be monitored by the Capital Programme Steering Group and consideration will be given quarterly to any requirement to revisit the programme and its funding.

Table 3: Proposed Revised Capital Budget 2011/12

Impact on 2012/13 and beyond

14. The movements in the programme can be quickly recognised from a capital expenditure perspective but the analysis of impact to future revenue, for example the operating costs of assets brought into service, offset by anticipated revenue savings needs to be analysed and factored into the revised revenue forecast and the draft Policing London Business Plan 2012-15. Changes are in the process of being mapped and will be reflected in the November submission where material.

Present Economic Climate

15 The funding of the capital programme is dependent on asset disposals yielding £40m of receipts. This must be recognised as a risk given the present economic climate. However, current disposal forecasts remain optimistic that £40m is achievable.

Appendices:

Appendix 1: Out line Programme Changes
Appendix 2: Revised funding for the Capital Programme

C. Other organisational and community implications

Equality and Diversity Impact

1. There are no specific race, equality or diversity implications arising from this report regarding the capital programme. Individual projects are impact assessed as part of their business case submitted for approval.

Financial Implications

2. The financial implications are discussed in the main body of the report. Decisions on capital investment are all reviewed with respect to impacts on revenue of either needing additional revenue to run and maintain the new assets or the revenue reductions expected due to increased efficiency the new assets facilitate.

3. The Service is reviewing the deliverability of the 2011/12 revenue budget including the impact of capital delivery causing revenue changes. The overall impact on revenue will be kept under close review and reflected in the monitoring of the Policing London Business Plan 2011-14.

4. The Capital Programme continues to hold a significant number and value of unfunded projects (the Reserve List). There will be a review of their continued need or aspirations in order to reduce unachievable or unaffordable aspirations.

Legal Implications

5. This capital programme has been revised in accordance with current priorities, objectives and assumptions which are detailed within the body of this report. The preparation of the capital programme is delegated to the Director of Resources on behalf of the Commissioner, and in consultation with the Treasurer it must be presented for approval by the Authority.

Consideration of MET Forward

6. The capital programme is fully supportive of the delivery of Met Forward as it enables the renewal and improvement of the asset base to ensure MPS can meet it’s obligations as outlined to the Authority in the Policing London Business Plan, 2011-14.

Environmental Implications

7. Pressure on capital funding for MPS programmes of work can have significant sustainability implications, both positive and negative. Scarcity of capital can limit the opportunity to implement mitigating measures for building energy and water efficiency, waste minimisation and recycling which have an associated initial capital investment, even though they may generate future revenue savings. However within the capital budget there is significant investment in the property estate e.g. CRE programme where every opportunity will be taken to incorporate improved environmental performance as a key design feature. MPS processes require that all business cases are reviewed for environmental and sustainability implications.

Risk Implications

8. The risk implications to the service surrounding the capital programme are mentioned specifically within this report however key risks are;

• Delay in delivery of projects may have a negative impact on revenue savings or environmental benefits
• The programme is based on best estimates which may prove incorrect during project procurement phases especially with indications of increasing inflationary pressures on the UK economy
• The costs of borrowing will fluctuate and the prospects in the medium term are indicating the likelihood of rate increases in the latter part of 2011/12
• The number of action plans and strategies under development but not yet mature may necessitate rapid review of the capital programmes intentions e.g. TP Development Programme, CO Improvement programme

D. Background papers

• Policing London Business Plan 2011-14
• First review of the Capital Programme 2011/12 - report to Finance & Resources Committee 21st July 2011

E. Contact details

Report authors: Anne McMeel, Director of Resources, MPS

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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