Strategic review of capital programme

Report: 18
Date: 13 February 2003
By: Commissioner

Summary

The current capital programme contains projects that were a strategic objective at the time of compilation but due to operational imperative and changed policing priority, are no longer considered an accurate reflection of current need. This report seeks to update members on the overall position with the object of agreeing strategy for the way forward and to note schemes that are, on preliminary assessment, unlikely to proceed.

To adjust the programme a review has taken place to realign the projects against a revised set of criteria and approval is sought to this interim approach.

Finally a full review of the capital investment needs of the organisation is discussed and endorsement sought to this "asset management" way forward.

A detailed report of impacts will be available at the next Committee cycle once Authority views are known as a result of this report.

A. Recommendations

1. That the revised approach to the next two years of the Property Services capital programme be endorsed and appropriate approval reports be submitted as required.
2. That, subject to further reports, the strategic review of the programme and the identification of potential funding sources be endorsed.
3. That the timescales involved be noted.
4. That consultation on these revisions be undertaken as appropriate having due regard to commercially sensitive information.

B. Supporting information

Introduction

1. This report reviews the strategic position of the current capital programme and explores opportunities and difficulties identified as a result. This report is intended as an introduction to the detailed paper that will follow in the next Committee cycle.

2. The construction of the capital programme took place some time ago and much has since changed in the policing priorities and demands of the organisation. Initiatives such as Safer Streets and the demands placed on the Estate as a result of extra officer numbers, civil staff and Police Community Support Officers (PCSOs) were not predicted in the original programme and as a result the programme is out of alignment with current priorities.

3. Upon review it has also been established that the programme was heavily weighted towards the construction of new police stations and major refurbishments. As a consequence the more mundane, but essential, capital spend on the existing estate has been deferred and buildings are struggling to stay fit for purpose as the impact of increasing officer numbers to be accommodated is felt.

4. The identification of the major building projects, in the original programme, was a result of a wider strategy to renew the estate over a period of 30 years through to 2020. This policy dated from the late 1980’s and audits at that time. Such a long term programme was predicated on the constraints of direct funding and by definition was potentially unresponsive to changed priorities.

5. The cumulative effect is that the current programme is out of line with revised need and a thorough review is required to reflect new funding avenues now available or potentially available to the Authority. In some instances demand on the estate (e.g. the Training Estate at Hendon) means there is no available window to vacate sites and carry out works originally envisaged.

Other impacts supporting a review

6. The Property Services management team, in conjunction with the Director of Procurement, has conducted a preliminary review of construction procurement methods currently used. There has, previously, been a preference for multi stage partnering contracts with varying degree of cost certainty. In practice these contracts have allowed relatively swift execution to meet changing priorities but only at an overall marginal price uncertainty premium. Costs have hence escalated and current desire for cost certainty has been diminished down stream. To bring back greater cost control and out turn certainty revised forms of contract are now being put in place for new projects and the discipline of requiring business sponsors (outside Property Services) for projects has been adopted. This will minimise project scope creep and reinforce stronger control mechanisms in line with current best practice. In addition Property Services is now reporting on an out turn cost basis as well as present day cost basis.

7. In design terms there has also been a tendency to adhere to historic standards without reviewing and challenging the impact these have on cost and affordability. Revised procedures and stronger reporting approaches have already been adopted to ensure best value is achieved, projects are kept within original budgets where ever possible and affordability is being given greater assessment weighting in the design stages.

8. Action is also being taken to reflect standardised elements of construction which will be beneficial in cost terms and will also speed design processes by writing out the concept of continual “custom build” for each project or location.

9. Property Services is in discussion with the Department of Information (DoI) to rapidly adopt the use of project collaboration extranets to enhance audit trails with professional teams and contractors during both the design and the build process.

10. The capital programme is currently constructed on costs at the date of the report. Consequent cost inflation is not reflected and, therefore, out turn costs are always likely to be higher than budget book figures. As overall capital allocation does not grow in line with construction inflation there is an in-built inability to deliver within the envelope of available funds. Solutions to this conflict between accounting standards and construction reality are being sought urgently with Finance.

11. The time pressures to develop the early capital programmes also meant that many projects were based on preliminary and subjective / best available estimates rather than a thorough appraisal. While every effort is being made to keep projects within original budgets there will inevitably be cases where this is not feasible – particularly for larger projects.

12. Financial procedures around capital projects have also been reviewed to write out “slippage” factors and ensure more thorough analysis and reporting. The Treasury Green Book and related OGC techniques are also now being applied for new projects. This further enhances the move from the previous “cash accounting” regime under The Receiver to the “accruals” approach for local authorities.

13. All of these factors, combined with those mentioned in the Introduction section, mean the original Budget Book projects cannot, necessarily, be delivered to the budgets stated or indeed at all as the existing buildings cannot be vacated. This further supports the need for a thorough review.

Impact on Capital Programme 2002/03 and 2003/04

14. In 2002/03 the review of projects (to achieve best value and affordability or fitness for need) has led to the rephasing of a number and the deferral of others. Some have also been delayed due to site purchase problems and related ownership or tenure issues. In their place projects have been brought forward to deal with current pressures and policing priorities while also seeking to achieve prudent spend and best value.

15. In 2003/2004 it is clear, with the benefit of hindsight, that some projects are no longer focussed on today’s policing priorities and some cannot be delivered due to increased occupancy levels in the estate. Work is ongoing to clarify the situation and a further detailed report will be brought forward for approval as quickly as possible once the Committee's views on this report are known.

16. In future years key priorities are being focussed on:

• Previously unidentified capital investment in the existing estate. These projects are generally “thematic” rather than major scheme projects and include, or will include, renewal of emergency generators, custody / cell refurbishment, works in support of improved utilisation, renewal of Heating and Engineering installations, meeting Vulnerable Witness Programmes, CPT priorities and the like. The number of projects is large as a result and hence difficult to report upon in fine detail. The objective is to achieve maximum overall coverage mixed with policing location priorities.
• Front Office schemes that are affordable and deal with staff security and Disability Discrimination Act matters. These are now being considered against the overall statutory requirements on the MPA rather than meeting an MPS adopted approach (e.g. one compliant station per Borough).
• Moving smaller schemes of improvement away from a spread across London to a focus on policing priority areas (e.g. Safer Streets Boroughs).
• Key pressure areas identified by the use of utilisation analysis (benchmarking against BWT) – which already shows under funding of facilities for Serious Crime and Special Operations.

Strategic review of Capital Programme

17. While the current review is focussed on the immediate future the Mayor has also asked the MPA to extend the programmes horizon from 3 years to 5 years.

18. Given the scale, age, size and demands placed on the MPA estate (24/7 operation etc.) it is considered that to just look at time spans of this duration is inadequate in determining a policing focussed programme. At the same time the past 30 year approach based on renewal is clearly also limiting.

19. It is recommended that a fuller needs based assessment is essential and that this is not driven solely on available direct funding from the MPA budget. Action is being planned to establish need based upon:

• Affordable “templates” of provision type with the aim to foster innovation in design.
• Opportunities within the estate and the open commercial property market.
• The “devolved” view of need from Boroughs and other OCUs balanced by a central overview that drives best value, affordability, utilisation and sound procurement methods.

20. To better explain this approach a framework document is in an advanced stage of preparation for the Committees consideration – “ Building towards the Safest City” which will ally the capital programme to the priorities established in the published framework “ Towards the Safest City”.

21. Once this framework and approach is approved it will be necessary not just to carry out a “root and branch” review of need but also to consider and suggest innovative funding solutions. Such solutions will require consideration of many funding solutions including (but not exclusively):

• PPP / PFI.
• Service driven property solutions that are a mix of leasing and serviced offices but not PPP.
• Extended contractor liability for repair and maintenance.
• Resources from the MPA capital programme.
• Commercial opportunities that can be levered from the existing estate ownership.
• Innovative funding sources such as securitisation or bonds.
• The impact of the potential move to Prudential Code accounting.
• A Service wide challenge culture to free up fuller exploitation of estate opportunities.

22. This approach will also integrate a long term view of need and funding options on a costed and affordability tested basis, deliver a balanced view not driven solely by a renewal approach and enable best value tests to be applied. The solutions will probably be a mix of the alternatives mentioned above and will enable the MPA to plan ahead with both a solid analytical base and most importantly flexibility driven by ever changing policing needs.

23. To make this step change in the approach to the capital programme will require a great deal of new detailed work and will not be quick. The scale of the task and the estate issues involved suggest the need for an analysis based upon a 35 to 50 year time period. Adopting such an analytical timescale will also enable the MPA to identify and resolve building renewals presently unidentified and rationalisation opportunities capable of being seized / planned for.

24. Much of the data required to carry out this task is not currently available. This is partly due to the previous renewals approach to strategy and partly due to data ownership issues with outsourced property service providers. The proposal is to rectify this as proper data, that is capable of “due diligence” enquiry, will be essential in determining the best value funding solutions. It is currently estimated that this work will take 18 to 24 months to complete and a detailed programme to achieve this objective will be brought to the Committee as soon as possible.

25. This revised approach will mark a turning point for the MPA as it moves the Estate Capital Programme from a spend / renewal approach to the suggested “investment / fully funded” approach based on asset management.

26. Already commercial opportunities are being identified and actioned aggressively. The OCUs concerned have shown a flexible and positive response to the cases in question.

27. In the meantime the adjustments to the current and next years capital programme, previously suggested, will ensure that best use is made of available funds and that capital funds are not expended on potential projects that are could subsequently be shown to be out of step. It will reinforce and support a best use / utilisation approach in the interim.

28. In the interim, detailed work will be required to deliver a realistic, but time limited alternative, 5 year plan for the Mayor.

Conclusions/overview

29. The current estate is estimated (revaluation in hand for 2003) to have a value of c £ 750m and comprises over 600 buildings on some 280 sites. Overall it totals nearly 600,000 sq.m. This report does not cover the residential or section house estate which will be subject to a separate policy review report.

30. While policing needs change quickly, and often unexpectedly for a variety of reasons, the provision of property has a long lead time and is unavoidably inflexible. This will always create tensions, ambiguities and delivery time lag as property seeks to respond to need. Future capital programmes need to be constructed on a flexible basis respecting this ambiguity. Balancing immediate need from OCUs while also developing a flexible estate strategy compatible with policing and property realities will be a great challenge – but the issue needs addressing and a new approach is considered essential. In London the dense urban fabric and high intrinsic land value, driven by alternative use values, will always create a relatively unique UK challenge for the MPA.

31. The current directly funded PFI and ring fenced Home Office projects grant funded (such as C3i) capital programme are excluded from this report. But it should be note that 2003 will see over £ 152m worth of PFI provision coming on stream.

32. At any one time projects under management in Property Services (excluding PFI and C3i and ring fenced grant funded schemes) can be of the order of £33m. Following OGC and C3i experience Property Services is continuing the plan to move to engage more external project management resources and withdraw from direct involvement in this area – that is to move to the “smart client” model.

33. Given the age, mix and 24/7 use of most of the estate the available benchmarks suggest a minimum capital reinvestment, just to refresh the estate, of c£40m per annum. The challenge is to more fully analyse need and funding solutions that are not renewal or available direct MPA capital driven.

34. In the meantime there is much back log capital investment needed in the existing estate and while the strategic review continues it is recommended the revised focus be adopted.

Impact on schemes in Budget Book 2002/2003

35. Certain schemes are potentially unaffordable within current funding envelopes. The future open capital programme reports will need to be less scheme specific as it is considered that financial disclosure could compromise competitive procurement.

36. Dependent upon the reception of this paper a revised capital programme will be presented to the next Committee cycle.

C. Equality and diversity implications

1. No impacts are generally anticipated but the focus on meeting statutory requirements will improve the ability of the MPA estate to meet need on a wider basis than contained in the current capital programme.

D. Financial implications

1. The detailed impacts of this revised approach at a project level will be reported in the next Committee cycle if this report is adopted.

2. It is too early to judge the wider impacts of the strategic review but as details emerge the Committee will be updated regularly.

3. The costs of the strategic review are widespread and whilst most will be containable within current budgets some costs may require additional funding. Reports to approve these costs will be brought forward as necessary.

4. In overall financial terms the approach recommended should enhance the achievement of best value, affordability and deliver a police estate that is flexible and focussed on policing priorities.

E. Background papers

• Past strategies
• Prior Capital programmes - all in Members library

F. Contact details

Report author: Mr A Croney, Director of Property Services, MPS.

For more information contact:

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

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