Medium term capital programme 2002/03 to 2005/06

Report: 12
Date: 18 April 2002
By: the Treasurer and Commissioner

Summary

This report seeks approval of the capital programme for 2002/03 to 2005/06. It takes account of (i) the capital settlement for 2002/03 announced by the Home Office; (ii) the medium term funding limits for business groups as approved at the meeting of the Committee in July 2001; and (iii) adjustments to the expected cost of major capital schemes since the draft programme was viewed by the Committee at its January 2002 meeting. It also sets out the revenue implications of the proposed capital programme 2002/03 to 2005/06 and provides information on capital projects which it is intended will be funded from specific grants and capital receipts additional to the main capital programme.

A. Recommendations

The Committee is invited to:

1. approve an increase of £4.7m for 2002/03 and £5m for 2003/04 and the subsequent two years in the Property Services Department allocation to allow building improvement and development works to be given early priority (paragraph 6).
2. approve a sum of £0.5m for IT communication and security works at the new MPA headquarters building at 10, Dean Farrar Street (paragraph 8).
3. approve the utilisation of £1m savings in transport revenue and capital costs be carried forward through reserves to offset the capitalisation of vehicle equip for service costs in 2002/03 (paragraph 10).
4. approve an increase of £1.6m for 2002/03 and £2.6m for 2003/04 and the subsequent two years in the Transport Services Department allocation to allow for the capitalisation of vehicle fleet equip for service costs (paragraph 10).
5. approve the retention of certain of the additional monies received through the increase in the capital settlement to meet unforeseen developments (paragraph 13).
6. approve the medium term capital programme for 2002/03 to 2005/06 (paragraph 19 and Appendix 1)
7. note the reasons for adjustments being made to the draft medium capital programme seen by the Committee at its meeting on 17 January 2002 (paragraph 5).
8. note the adjustments made to the capital property programme in respect of (i) major refurbishment schemes; (ii) rephased schemes; and (iii) new projects (paragraph 14 to 16).
9. note those property schemes which have been brought within the medium term capital programme for 2002/03 (paragraph 16).
10. note the revised funding arrangements for the medium term capital programme 2002/03 to 2005/06 (paragraph 18).
11. note that consideration is being given to enter into a public private partnership regarding the refurbishment of Maurice Drummond and Norman Kendall Section House (paragraph 26).

B. Supporting information

There is one appendix to this report:

Appendix 1: Booklet showing medium term capital programme 2002/03 to 2005/06. (see Supporting material)

Background

1. Details of the draft medium term capital programme 2002/03 to 2005/06 were seen and noted by the Committee at its meeting on 17 January 2002. It was not possible to give final approval to the programme at this time as details of the capital settlement were still awaited.

2. Information in respect of the capital settlement for 2002/03 was provided to the Committee on 21 February 2002. It was confirmed that the Metropolitan Police Authority has been awarded capital grant of £22.803m and supplementary credit approvals (SCAs) of £21.708m. (A credit approval permits an authority to pay for capital expenditure from credit e.g. borrowing rather than cash.)

3. The settlement provides a total allocation for 2002/03 of £44.511m. This represents an increase of £8.788m, or 24.6%, on the 2001/02 figure. Capital grant awarded to the Authority remains unchanged. The increase is totally reflected by increased SCAs. The Home Office has also indicated that this increased level of funding will be maintained over the medium term planning period.

4. In preparing the draft medium term capital programme for 2002/03 to 2005/06 it was necessary to base planning assumptions on the level of funding likely to be made available from internal and external sources. The Home Office had indicated during the Summer of 2001 that significant movement in capital settlement levels was unlikely over coming financial years. Therefore, it was thought reasonable for 2001/02 settlement figures for capital grant and SCAs to be used as indicative figures for external funding purposes over the medium term planning period. The increased SCAs notified through the 2002/03 settlement ensures that the planning assumptions underpinning the draft capital programme can be supported. It also means careful consideration needs to be given to how the additional £8.788m should be utilised.

5. As part of the report providing details of the capital settlement, The Committee was advised of areas worthy of further consideration for additional funding. These were (i) necessary improvements to the operational estate, including refurbishment of front offices, locker rooms and shower rooms as part of "Operation Cleansweep"; and (ii) IT communications and associated security works in respect of the new MPA Headquarters at 10, Dean Farrar Street. It was also recognised that pressures existed due to (i) increased costs beyond initial estimates for major amelioration projects; and (ii) uncertainty over funding of the C3i Project pending information on the success of the bid to the Home Office for specific funding of the project. Other factors have now arisen which also need to be addressed. These relate to (i) the requirement to achieve £60m of savings within the revenue budget for 2002/03; and (ii) the implications of Government legislation such as the Disability Discrimination Act.

Medium Term Programme Capital Programme 2002/03 to 2005/06

6. It is recognised that many properties within the Authority's Estate are in a poor condition and merit early attention for improvement and development works. The additional funds made available through the increase in the capital settlement are regarded as providing an ideal opportunity to advance proposed schemes. This proposal received support at the most recent Resource Allocation Committee (RAC) Meeting and approval is therefore sought for an additional £4.7m in 2002/03 and £5m for subsequent years to be added to the Property Services Department allocation. (The slightly smaller sum set aside for 2002/03 recognises the lead in time associated with refurbishment projects and reflects advice received from Property Services Department on its capacity to advance schemes at short notice.)

7. From within the proposed increase to the Property Services Department capital allocation it would be expected that monies be set aside to fund "Operation Cleansweep". This involves improvements to front offices, locker and shower rooms and follows a comprehensive condition survey of Borough stations. Amelioration of these areas will improve officer morale. £0.4m will be made available for each financial year within the medium term capital programme. This differs from the figure of £1m per annum initially suggested as appropriate to be devoted to this initiative from the capital programme. However, examination of the areas noted for improvement identified that a significant element of the proposed works were revenue in nature. Analysis of the medium term revenue programme has revealed certain maintenance schemes associated with major refurbishment projects that through variations in work specifications could be reclassified as capital expenditure. This has been done and releases sufficient funds within revenue budgets to complement the capital allocation for "Operation Cleansweep" to ensure that £1m in total it devoted to the initiative.

8. The MPA Coordination & Urgency Committee considered and approved the IT, communication and security works required for the Authority's new offices at 10, Dean Farrar Street. The works are presently costed at £0.5m which can be met from the additional funding of £8.788m.

9. The revenue budget for 2002/03 requires that savings of £60m be achieved. This was necessary to achieve a balanced budget. Two areas where savings have been identified impact on the capital programme. These are (i) the external cost of equipping for service the vehicle fleet; and (ii) consultancy costs associated with implementation of the C3i Project. These areas of expenditure will be capitalised and brought within the medium term capital programme.

10. In line with payments to external contractors during 2001/02 it is expected that an allocation of £2.6m will be required to cover the cost of capitalising the equip for service fees. However, as a result of initiatives overseen by the MPS Star Chamber Committee circa £1m of savings were achieved in transport revenue and capital costs during 2001/02. It is recommended that this sum be carried forward through capital reserves to be made available to contribute to the equip for service costs in 2002/03. Accordingly, a sum of £1.6m would need to be taken from the additional funding made available by the increased capital settlement to meet equip for service costs. For each subsequent year the full cost of £2.6m will need to be found.

11. Funding of the capital costs of the C3i Project is expected to come primarily from a special grant to be awarded by the Home Office. The Authority's obligation from other sources is expected to be limited to the £10m contingency sum held within the 2001/02 capital programme and any unspent funds from the £1.7m allocated to the scheme as part of 2001/02 allocation. Consultancy costs of £4.9m had previously been included within the revenue budget for the project. It had been expected that the Authority would be funding such costs. As part of the revised business case it is deemed appropriate for such costs to be capitalised and met from capital funds to be provided by the Home Office. Information at the present time suggests that a decision on the level of funding to be made available by the Home Office is imminent. Representation has been made that the Authority does not have sufficient capital reserves beyond those already identified to provide support to the project. Therefore, it would be expected that full funding of the Home Office bid as set out in the business case was forthcoming.

12. The following table summarises how the additional funding made available through the capital settlement is intended to be used over coming years.

13. It is deemed prudent to retain some element of the additional funding to meet unforeseen developments. Members will recall that future funding of the medium term programme will see a significant reduction in the overall level of capital reserves. The draft programme seen by the Committee noted that the projected level of reserves to be held at the end of financial year 2005/06 was £4.4m. This is regarded as insufficient cover for (i) Government initiatives such as the Disability Discrimination Act, which upon implementation will have far reaching consequences for our operational estate; and (ii) escalation of costs in respect of major capital schemes. In view of this, it is proposed that the remaining element of the additional funding provided through the increased capital settlement be held in abeyance, passing to capital reserves if not required.

14 A number of reports in respect of major amelioration schemes have recently been presented to MPA Committees. Many of these show significant increases in project costs. These arise due to preliminary estimates being placed within the capital programme before customer requirements are fully defined. Figures become more precise as exact needs are articulated and the full scope of a project is determined. More accurate works estimates are then determined by the consultant quantity surveyors. It is necessary to adjust the medium term capital programme to accommodate the revised figures. Major schemes recording increased project costs to those noted within the draft capital programme are as follows.

Similarly other projects are projecting cost reductions in outlay for 2002/03 onwards. The most significant of these are shown in the table below.

15. Management of the capital programme is a dynamic process. With costs increasing in respect of one or more projects it is necessary to make corresponding savings elsewhere within the programme. This ensures that forecast expenditure and available funding remain in balance. This is achieved through (i) notified savings being utilised to offset increases; and (ii) rephasing of projects over a longer time frame. An increase for one project may have implications for a number of other schemes. Consequently, it is not always possible to categorise in a simple manner the direct impact of increased costs for a major project on the rest of the capital programme. Projects within the Property Services Department allocation which have had significant rephasing of their expenditure profiles during 2002/03 to allow the schemes noted in the preceding paragraph to proceed are summarised in the following table:

16. The additional funding made available to Property Services Department has enabled the following projects to be brought within the medium term capital programme for 2002/03.

Allocations and Funding Implications of Final Capital Programme

17. Utilisation of the additional funding made available through the favourable capital settlement has increased the allocations to be made available to business groups to those previously reported to Committee members. Revised allocations based on the proposed distribution of available funding are noted in the table below. This table also takes account of £1m savings achieved in transport costs during 2001/02. It is recommended that this be utilised in 2002/03 to fund the capitalisation of equip for service costs.

18. Five sources of funds have been noted as financing the medium term capital programme. In prioritisation terms external funding sources will be utilised first before calling on internal sources. Therefore, police grant and SCAs will be used in preference to in year capital receipts or usable capital reserves. With funding having increased by £8.788m due to increased SCAs being awarded to the Authority, the impact of not utilising the full amount for additional spending purposes will be to reduce the demand to support capital expenditure through the use of capital reserves. This position is summarised in the following funding table.

19. Details of schemes within the medium term capital programme 2002/03 to 2005/06 are shown at Appendix 1. This follows the format agreed at the Committee meeting held on 17 January 2002. Figures noted in respect of expenditure incurred before 2002/03 include forecast outturn information in respect of 2001/02 together with notified 'slippage' sums to be carried forward through reserves. Once actual outturn information is known, and carry forward sums are ratified, the capital programme will be updated. It is not expected that significant variations to overall project costs will occur. However, until actual figures are available the total capital value shown for each project cannot be taken as definitive.

Capital Expenditure Programme 2001/02

20. The 2001/02 capital programme is forecast to underspend in respect of a number of projects. The reasons for the underspends are varied and will be reported as part of the outturn review report to be placed before the Committee in June of this year. However, much of the underspend is attributable to (i) management negotiations with suppliers to ensure that value for money is achieved; and (ii) management reassessment of system design and migration strategy. This is particularly so in respect of the IT Infrastructure Renewal Programme and the Information Strategy Implementation.

21. In many cases project teams will be requesting that significant elements of sums noted as "slippage" be carried forward through reserves to be reallocated to schemes in 2002/03 and future years. Approval for the redistribution of such sums will be sought as part of the capital outturn review report.

Directorate of Information

22. As noted at paragraph 20, difficulties were experienced during 2001/02 in respect of delivery of the IT Infrastructure Renewal Programme and the Information Strategy Implementation. Steps are in hand to ensure that "lost time" is made good during 2002/03. However, this places considerable pressure on the Directorate of Information (DoI), and in particular on its capacity to support other schemes given that it is not possible to provide any additional funds to its notified revenue budget for 2002/03. As IT capital projects demand a high level of revenue support this has delayed consideration of those schemes that should receive priority for inclusion within the medium term capital programme. Therefore, the undertaking given at the January meeting of this Committee to report back in March on full utilisation of the DoI allocation has had to be delayed. Further deliberation will take place on the best use of remaining funds. Proposals will be put forward to the Committee in due course

Capital Projects Funded From Additional Sources

23. Details of capital projects to be funded from specific grants and capital receipts additional to the main capital programme 2002/03 to 2005/06 are shown at page 16 of the Capital Expenditure Booklet at Appendix 1.

C3i Project

24. The business case for the C3i Project is presently being revised to take account of updated operational needs and specification adjustments. In view of this the project costs noted at Appendix 1 are the figures seen by the Committee in January, with the exception of an additional £4.9m noted in respect of consultants costs for 2002/03. This recognises the recommendation to capitalise such costs – paragraph 11 refers. The amended expenditure profile for the project will be presented to the Committee in the near future.

Airwave

25. In recognition of the important changes being made to the C3i Project expenditure profile, revisions are also being made to cost requirements for the related Airwave Project. Figures within Appendix 1 remain as previously notified. Amended information will be provided as soon as it becomes available. It continues to be understood that implementation and running costs for Airwave will be funded by special capital and revenue grants to be provided by the Home Office.

Sale of Trenchard House

26. Agents handling the sale of Trenchard House have been appointed and prospective purchasers are viewing the building. Members will recall that the refurbishment costs of Maurice Drummond and Norman Kendall Section Houses have previously been notified as being funded from this disposal. However, following costings provided by quantity surveyors it is clear that the sums set aside for these works would only provide for an upgrade of the present shared facilities and not en suite accommodation as envisaged. In view of this consultation is taking place with developers to explore the potential for a public private partnership. This would involve the sale of the buildings to a developer with an agreement for a major refurbishment of the accommodation to be undertaken. A lease back arrangement for a specified number of years would operate. This raises the potential for capital funds to be released for other projects but the amount of credit cover required in respect of the lease arrangement would need to be quantified. Discussions are at any early stage and members will be kept aware of developments.

Improvements to Police Estate and Communications Technology

27. As part of the capital settlement it was reported that £20m was being held by the Home Office for improvements to the police estate and communications technology. Full details on how this facility will operate are still awaited. Overtures are being made to the Home Office to provide this information as a matter of urgency. This would enable relevant paperwork to be completed swiftly. It would also ensure that a feasible chance existed of funds being awarded sufficiently early in the financial year for them to be fully exploited.

28. An Authority response to the bidding process will be prepared once comprehensive information on how the £20m "pool" will be allocated. It is intended that every effort will be made to secure a sizeable element of this funding. It should be recognised that this could impact on projects within the capital programme, possibly freeing up funds to be utilised for other purposes. Committee members will be kept aware of developments.

C. Financial implications

Financial implications are discussed in the main body of the 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

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