Vehicle Recovery, Examination and Storage Service: Acquisition of new facility

Report: 12
Date: 15 December 2011
By: Director of Resources on behalf of the Commissioner

Linked to exempt item 23

Summary

In support of the ongoing operational requirement of the MPS Vehicle Recovery Examination and Storage Service (“VRES”) this paper recommends the acquisition of a new VRES facility in South East London.

A. Recommendations

That members:

1. Approve the acquisition of land and the construction of facilities in order to enhance delivery of service in regard to the Vehicle Recovery and Examination Service (VRES);
2. Approve the extension of the existing leasehold arrangements at the Charlton site to December 2014 on the same terms and conditions as the existing lease;
3. Note that the design and costing works will be carried out through a pre-construction contract procured through the Improvement and Efficiency South East second generation framework (“IESE 2”) as approved by the MPA Finance Committee in September 2010;
4. Approve the delegation of authority to the Chief Executive of the MPA and Director of Resources of the MPS, to agree the final terms of the acquisition and lease extension, and through the IESE 2 framework enter into necessary construction contracts up to a value of £9.2 million.

B. Supporting information

1. VRES (then called Vehicle Recovery and Storage Service (“VRSS”)) was created in November 2002 to provide an in-house capability to deliver best value and to improve performance in relation to Crime Reduction Rates, DNA retrieval, quality of evidence, collision investigation and the removal of illegally parked vehicles. Previously, much of this service had been delivered by external companies who failed to provide a reliable or cost efficient service.

2. The original business model proposed the operation of four car pounds in each of the geographic quadrants of London with a review to be carried out after the second was opened to evaluate the need for a third or fourth pound. At this time the MPS had responsibility for policing and clearing Red Routes and the income generated from such activity was to make a significant contribution to the overall cost of VRES. The first car pound in Charlton was acquired in 2002 and started working in April 2003.

3. In June 2005 the MPA (Finance Committee) approved the acquisition of a second site in Perivale in north-west London. The need for the second site was based on the growth in vehicle recovery and storage, increasing forensic examination of vehicles and the on-going support to the policing of Red Routes.

4. This supported increased business requirements including changes in legislation in July 2005 which would allow Police Services to seize uninsured vehicles. An early pilot scheme in South Yorkshire (pre the legislation) showed a significant disruption in crime by seizing uninsured vehicles. It was anticipated that up to 5000 uninsured vehicles would be seized each year.

6. The balance of the VRES work has changed over time with the loss of policing of Red Routes supplanted by the massive increase in seizing uninsured / unlicensed vehicles, known as D6 vehicles (“Operation Reclaim”). Numbers rose from c.15,000 vehicles in 2007 / 08 to c.35,000 in 2009 / 10. The increase in seizures also increased the surplus to the MPS from the charging of removal and storage fees and benefiting from scrap value in respect of those vehicles not re-claimed by their owners. In 2010 / 11 VRES generated a surplus of £2.5m which was directed to operational policing.

Table 1: 2010/2011 pound vehicle volume

7 Strategically, VRES are looking to increase the volume of D6 vehicles seized from c.33,500 up to 45,000 pa within current pound capacity requirements. This will significantly disrupt more crime by seizing an additional c.11.5k D6 vehicles pa whilst generating an estimated £700k of additional funds for reinvestment into the Metropolitan Police Service (MPS). Capacity wise, the current operation can process a total of c.52,000 (excluding the use of contractor pounds for additional storage) vehicles per year.

8. If there is any further growth in the number of D6 vehicles recovered by VRES then contractor pounds would have to be used to provide additional capacity. Furthermore, additional staff would be required by VRES to process the additional vehicles. An increase to 60,000 D6 vehicles a year would require c. 20 additional staff but would generate additional surplus funds to the MPS.

9. The lease of the Perivale site expires in 2021. The lease expiry of the Charlton facility in December 2012 (there are renewal rights) has initiated a review of the present VRES requirement for accommodation and considered alternative solutions in accordance with the MPS Corporate Real Estate principles, including the acquisition of an alternative site which would be large enough to support an increased number of vehicles being seized, and reduce the reliance of external contractors.

10. The present pound at Charlton is 6.3 acres in size. It is an irregular site which limits the maximum capacity of vehicles which may be stored there to c. 550. A baseline assumption has been made that the overall number of D6 vehicles to be handled by VRES each year will rise to c. 45,000 through an increase in Operation Reclaim activity. This would be an increase of some 34% compared to the number of vehicles handled in recent years and would require a commitment from Territorial Policing to deliver such numbers. This reflects the present maximum capacity of Charlton and Perivale.

11. An element of the option review is the possible acquisition of a new freehold site to replace the Charlton facility, with differences in site size to reflect the present total capacity of 45,000 Reclaim vehicles a year or an increase to 60,000 Reclaim vehicles a year. This would be an increase of some 79% compared to the number of vehicles handled in recent years and would require a significant commitment from Territorial Policing to deliver such numbers on an on-going basis.

12. With the VRES facility at Perivale in north west London held by way of lease until 2021 the location requirement for a possible replacement facility for Charlton was determined as being south of the Thames but close to the Dartford river crossing as a significant number of vehicles are recovered from the north east London boroughs.

13. Property searches were carried out to identify sites in the required location and a number of potential sites have been identified. Prices reflect the different quality of the land but indicative values for freehold land ready for development is c. £650k per acre so a site of c. 8.0 acres would cost c. £5.0m plus Stamp Duty Land Tax (“SDLT”), at 4%, of £200k. The results of the site search are detailed in Exempt Appendix 1 and the preferred option at present is site number 4.

14. High level budget costings for the construction of a new facility have been obtained which show total project costs of c. £8.5m to £9.2m, depending on size. The build up of the project costs are detailed in Exempt Appendix 2. This would provide new facilities of sufficient size to eliminate the need to use external contractors to deliver any part of the VRES service thus delivering future revenue savings.

15. The provision of a new freehold site and facilities to replace the existing facility at Charlton would cost c. £13.0 million in total and match the present capacity of 45k Reclaim vehicles. A site large enough to provide capacity for 60k Reclaim vehicles would cost c. £14.2 million in total, reflecting the larger land requirement of c. 8 acres as opposed to c. 7 acres.

16. Due to its size and the limited size of the buildings on site, Charlton cannot accommodate all vehicles which require forensic examination or provide long term storage for vehicles which require retention for evidential purposes. The annual cost of meeting these two requirements through external contractors is c. £377k.

17. Access at the Charlton site is challenging and there are issues with a single entrance / exit point creating congestion with large vehicles manoeuvring in close proximity to queuing members of the public. There are also limitations on any further development on the site due to restrictions in the freehold title which are reflected in the occupational lease. If the site were to be retained longer term further spend would be required to bring various elements up to standard to meet demand.

18. The various options considered in financial terms were:-

1. Renew lease at Charlton, continue to deliver 33.5k Reclaim vehicles a year;
2. Renew lease at Charlton, increase to deliver 45k Reclaim vehicles a year;
3. Outsource the replacement of Charlton;
4. New, freehold facility to deliver 45k Reclaim vehicles a year;
5. New, freehold facility to deliver 60k Reclaim vehicles a year

Each of the options has been analysed over a ten year period to show the annual costs/benefits and the Net Present Value (“NPV”). Full details are shown in the table in the Financial Implications section below.

19. Based on this analysis the acquisition of a new larger site with a capacity to deliver 60k Reclaim vehicles a year shows the highest return over the period. The calculations include an allowance for the additional staff and removal costs required to process 60k Reclaim vehicles.

20. Neither of the options to renew the lease, long term, at Charlton include any additional costs of further investment that would be needed at the site. Considering such factors would not change the order of the options in the NPV analysis but would reduce the value of both options as a percentage of the highest NPV return.

21. On this basis it is recommended that a new site (Detailed in Exempt Appendix 1) is acquired of sufficient size to enable delivery of 60,000 Reclaim vehicles a year. This would minimise the future reliance and use of contractors’ facilities. In accordance with Corporate Real Estate principles these facilities could also support other business group requirements including those of SCD in their responsibilities for stolen vehicles.

22. If approval is given, and to enable sufficient time for the new facility to be acquired and built it will be necessary to extend the lease of the existing facility at Charlton for approximately two years and this lease extension will be dealt with in the usual manner through delegated powers.

23. Following approval at the Finance and Resources Committee in September 2010, a tender process was carried out to appoint eight contractors under IESE 2 to deliver all projects with a value in excess of £1.0 million. The award in respect of IESE 2 was made in June 2011.

24. The procurement process under IESE 2 framework makes provision for the award of a pre-construction agreement (“PCA”) in advance of any main contract award. The PCA mechanism delivers detailed design and cost certainty prior to the award of the construction contract.

C. Other organisational and community implications

Equality and Diversity Impact

1. A new VRES facility as recommended will be fully compliant with all current legislation and provide more appropriate facilities for both staff and members of the public than are presently provided at Charlton.

Consideration of Met Forward

2. A new VRES facility as recommended will provide modern fit for purpose accommodation and demonstrates value for money when compared to remaining in the existing facility at Charlton. The additional capacity to process higher numbers of Reclaim vehicles will also support the disruption of crime.

Financial Implications

3. The summary details of the NPV calculations are as follows:-

Capital and Revenue Costs / Benefits of Each Option

The service is currently examining how the additional income that would be delivered under the preferred option would feed into the budget planning process.

The revenue contributions that would be delivered within Property Services, are already built into current budget assumptions.

NOTE: The calculations include:-

• The construction costs of £9.2m used in option 1 are detailed at Exempt Appendix 2
• The revenue costs of using contractors to provide some additional resource at present.
• The additional staff / removal costs if 60k Reclaim vehicles are processed.
• The value of the freehold asset in year ten if either site acquisition option is progressed
• The calculation of surplus income is based on current (October 2011) scrap metal / auction prices.

Capital

Project costs are detailed in Exempt Appendix 2.

The capital investment for this project is included in the Corporate Real Estate provision within the approved programme and budget. Some reprofiling of expenditure may, however, be necessary which will be managed within the overall budget.

Revenue

Future property costs are reduced by £700k pa by acquiring a new site when compared to the existing site at Charlton.

A new larger site will enable up to 60k Reclaim vehicles pa generating a surplus of c. £3.95m pa as opposed to the maximum surplus of £2.8m pa which may be generated using Charlton at maximum capacity.

Details of the revenue costs are provided in Exempt Appendix 3.

It is proposed that any dilapidation related costs in regard to the exit of the Charlton facility are met through dilapidations’ reserve.

4. Based on this analysis the acquisition of a new larger site with a capacity to deliver 60k Reclaim vehicles a year shows the highest return over the period. The calculations include an allowance for the additional staff and removal costs required to process 60k Reclaim vehicles.

5. On an NPV assessment the out source route provides the second ranked option, at 82% of the highest return, over the period but has been discounted due to the 2002 decision to retain management of the review of documents and payment of fees within the MPS. Use of a contractors’ pound would require MPS staff on site and IT connectivity to enable delivery of service. Splitting the delivery of VRES between an MPS facility at Perivale and an out sourced facility would require additional management time and control to ensure consistency of service and provide an audit function.

6. The third highest return on an NPV basis, at 58% of the highest return, is a new freehold site delivering 45k Reclaim vehicles a year. The calculations reflect the lower capital and revenue costs and the reduced surplus due to lower vehicle numbers.

7. The fourth highest return on NPV basis, at 46% of the highest return, is a renewal of the lease of Charlton and increasing the number of Reclaim vehicles to 45k a year.

8. The lowest return on an NPV basis, at 8% of the highest return, is a renewal of the lease of Charlton and maintaining the present number of Reclaim vehicles at 33.5k a year.

9. Neither of the options to renew the lease, long term, at Charlton include any additional costs of further investment that would be needed at the site. Considering such factors would not change the order of the options in the NPV analysis but would reduce the value of both options as a percentage of the highest NPV return.

Legal Implications

10. By virtue of s146A of the Local Government Act 1972, the MPA has the power to purchase property for the purpose of any of its functions under S120 of the Act, and also dispose of any land held by the MPA in any manner it wishes under S123 of the Act as it if were a “principal council”.

11.. The MPA must in exercising its discretion to purchase or dispose of land have regard to its obligation to do so fairly having regard to established policy and procedure and the requirements contained in the MPA’s standing orders, in particular, Part F.

12. The proposed construction works will need to be procured in accordance with Part E (The Contract Regulations) of the MPA standing orders, and the Public Contract Regulations 2006. Procurement Services will be engaged to ensure compliance with the above procurement regime.

13. The recommendations set out in the report are subject to contract. External lawyers will be instructed through MetLaw (DLS) to complete the conveyance and ensure the MPA’s interests are protected.

Environmental Implications

Risk (including Health and Safety) Implications

14. A new purpose built facility will reduce the risk of accidents involving members of the public as there will be separate entrances for vehicle collection and vehicles being delivered to the pound. Enhanced facilities for members of the public, such as a larger waiting room and more payment counters, should reduce frustration from long queues and protect members of staff from verbal / physical abuse.

15. If a new facility is not provided VRES will not be able to deliver more than 45k Reclaim vehicles pa without resorting to using additional contractors’ facilities at additional revenue expense and management complexity.

D. Background papers

• Acquisition of a second site for vehicle examination and forensic analysis: MPA Finance Committee - 23 June 2005

E. Contact details

Report authors:  Jane Bond, Director Property Services; Caroline Mortimer, Director Customer and Commercial Services

For more information contact:

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

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