Medium term capital programme (2002/03-2005/06): impact of C3i funding decision

Report: 4
Date: 07 May 2002
By: the Commissioner and Treasurer

Summary

This report sets out the implications for the medium term capital programme (2002/3-2005/6) arising from the recent decision of the Home Secretary to fund the C3i development to a cash limited maximum of £140 million. The report asks the Committee to approve an appropriate revision to the programme.

A. Recommendation

The Committee is asked to:

1. Note that the capital funding shortfall for C3i can be met from within the authority's estimated capital resources.
2. Agree that, nevertheless, in order to provide resilience the capital programme should be reviewed to ensure that planned capital reserves do not fall below £10 million during the programme period.
3. Approve the inclusion of C3i expenditure and funding within the mainstream capital programme for the years 2002/03 to 2005/06
4. Note that the detailed year on year impact of the expenditure and funding flows relating to C3i be the subject of a revised capital programme report to the July Finance Planning and Best Value Committee.

B. Supporting information

1. Members will be aware of the significant level of capital funding required to support the C3i development and that, in the context of the overall level of capital funds available to the Authority, a business case had been submitted to the Home Office bidding for additional resources to allow the project to proceed.

2. At the full Authority meeting on 25 April 2002, the Treasurer reported that the Home Secretary had agreed, subject to the agreement of a protocol, to supply capital funds up to a cash-limited maximum of £140 million against the full cost of the C3i project. This sum includes a contribution of £15 million towards the contingency provision in the C3i business case which will depend on the extent to which the contingency has been applied to meeting price increases. The protocol has now been agreed with the Home Office, with the Chair of the MPA's concurrence, and has been approved by the Home Secretary. It follows the lines accepted by the Authority. A copy will be circulated separately to members.

3. The size of the capital funding gap identified by the business case upon which the Home Office bid was predicated is £147.5 million. Accordingly even with the additional funding offered by the Home Secretary, there remains at least £7.5 million unfunded in total over the life of the project (2002/3 to 2005/6). The shortfall will increase to the extent that the Home Office contribution towards the project contingency falls below £15 million.

4. At the meeting on 18 April 2002, Finance Planning and Best Value Committee received an update of the medium term capital programme for the years 2002/3 to 2005/6 (paper FPBV/02/56 refers). That report proposed increases to the capital programme for those years resulting from the more favourable capital funding settlement made to police authorities for 2002/3 (and recurring thereafter). While much of the additional funding was allocated for specific purposes, it was agreed that a tranche of funds would remain unallocated to meet unforeseen developments.

5. The capital financing strategy of the Authority recognises that external funding sources are utilised before internal sources are called upon. Therefore, police grant and SCAs will be used in preference to in year capital receipts or usable capital reserves. With the increase in external funding through the 2002/03 settlement the impact of not using the full amount for additional spend purposes will be to reduce the demand to support capital expenditure through the use of capital reserves.

6. Finance Planning and Best Value Committee at its January meeting were informed of the projected levels of capital reserves at the end of 2001/02 and the four year period of the medium term programme (Para 8, Report FPBV/02/09, 17 January 2002 refers). This projection can be updated with the impact of higher external funding:

7. The capital funding shortfall of £7.5m identified at paragraph 3 may be addressed in two ways. Assuming that with further refinement of the costs of C3i and through the competitive procurement processes that the expenditure quantum does not reduce, C3i funding could be increased at the expense of other strands in the capital programme or available capital reserves may be ear marked for the project. The table at paragraph 6 indicates sufficient resources are available for this latter course of action.

8. The key point to note is that the shortfall in capital funding for the project can be accommodated within the overall resources available to the Authority with management effort, not least of which is a robust regime of project and financial control associated with all capital schemes and C3i in particular. However it should be noted that a decision to meet the funding shortfall completely from available reserves would leave the Authority and the Commissioner with no financial capacity to deal with unforeseen developments over the life of the programme. Accordingly it is considered appropriate to reprioritise the capital programme so as to ensure that over the life of the medium term programme planned capital reserves do not fall below £10m

9. Officers are working with Home Office officials to determine the mechanism and detail of how these additional capital resources will be accessed. Concurrently work is underway with the C3i project to refine the total quantum of the development and importantly the profile of capital expenditure during the projects life. The protocol recognises the need for the grant payments to match the expenditure profile as far as possible.

10. If there is a mismatch between the timing of large tranches of capital expenditure against the flow of capital funding from the Home Office, a bridge funding strategy will be required to ease the pressure between years. MPA and MPS finance officers are already developing such a plan and are confident that this particular pressure can be managed.

11. It is intended to provide a formal revision of the capital programme to Finance Planning and Best Value Committee once the C3i capital expenditure profiles and details of the funding stream from the Home Office have been clarified and proposals for reprioritisation as indicated in paragraph 8 have been completed.

C. Financial implications

See report.

D. Background papers

Existing Committee reports referred to above.

E. Contact details

Report author: Bob Alexander, Director of Finance, MPS.

For information contact:

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

Send an e-mail linking to this page

Feedback