Hampshire County Council

Item

Buildings, Land and Procurement Panel

6 June 2006

Strategy For The Built Estate - Managing The Backlog Of Repairs and

Maintenance

Report by the Director of Property, Business and Regulatory Services

How the conclusion in this report fits with the Corporate Strategy

This scheme will impact on the delivery of the following Corporate Aims:

Aim 1 - maximising life opportunities - by providing well maintained buildings for the benefit of Hampshire's Communities.

Aim 2 - stewardship of the environment - preserving the Council's building assets for future generations to enjoy.

Aim 5 - improving services - by providing well maintained buildings that support and improve service delivery.

1.0

Summary

1.1

The Audit Commission has recently published the output from their Annual Audit and Inspection of Hampshire County Council for 2004-2005, which amongst other matters drew attention to the need for plans to be in place to tackle the building maintenance backlog.

1.2

The Panel had for many years, through the Strategy For The Built Estate an overarching set of plans for managing the backlog of repairs and maintenance. The main purpose of this report is to:

· Explain Hampshire's position in the context of the national trend;

· Refresh the understanding and thinking regarding the economics of buildings maintenance and the backlog of repairs;

· Restate some of the key plans and strategies for managing the backlog of repairs and maintenance for the Built Estate.

1.3

This report will also provide a formal response to the Audit Commission's Inspection for 2004-2005.

2.0

Hampshire's Position in Context of the National Trend

2.1

A national building programme for schools from 1946 to 1985 added more than 8 million school places, nearly half of which were added in the 1960s and 1970s. The Audit Commission has drawn attention to this vast public building programme and developed a model for predicting future maintenance needs in public sector estates, particularly at schools. Commonly known as "The Maintenance Time Bomb", the model identifies a national trend for a steeply rising maintenance need from the mid 1990s, which does not peak until around 2010. See illustrations 1 and 2 in Appendix 1.

2.2

Most of the County Council's Built Estate comprises school buildings, the majority of which were constructed post 1945 and is in line with the national building trend at that time. In Hampshire it is likely that this building programme was even more rapid than for many authorities due to the formation of `London overspill' towns at Basingstoke and Andover during the late 1960s and early 1970s. It would, therefore, be reasonable to conclude that the Audit Commission's Maintenance Time Bomb model is broadly indicative of the profile of maintenance needs now seen for the County Council's Built Estate.

2.3

According to the Audit Commission, the National Assistance Act of 1948 and the Mental Health Act of 1959 also led to a significant building programme for residential care homes and training centres in the community. Members will know from past and current reports to the Panel that these two sectors (schools and care homes) have featured strongly in the strategy for repairs, maintenance and refurbishment programmes for a number of years.

3.0

Profile of the County Council's Built Estate and the backlog of Repairs

3.1

The County Council's estate is compromised of some 6000 functional building units amounting to 1.6 million square metres of accommodation. Around 74% of the functional property portfolio is made up of schools, 90% of which were constructed post 1945, with a major SCOLA school building programme in the 1960's and 1970's accounting for around 35% of the floor area of the education estate. The County Council is believed to have around 25% of the national stock of SCOLA school buildings. Appendix 2 gives an age profile for the estate and a breakdown across functional uses.

3.2

An Asset Management Plan (AMP) has been established to record the condition liability for the Built Estate. There are three main components to the AMP, condition, suitability and sufficiency. This report is focused on the condition element of the AMP, which is a dynamic tool, the content of which is frequently changing to reflect the implementation of work programmes, new survey work, inflationary pressures and changes in the estate. The schools AMP currently shows a 5 year condition liability of £301 million. The average 5 year condition liability at a secondary school is in the order of £2.4 million and for a primary or special school the average 5 year condition liability stands at around £280,000. Overall the liability is broadly distributed evenly between secondary and primary schools, reflecting the large number of primary schools that make up the schools portfolio. Data for the non-education AMP is currently under review, but the predicted 5 year condition liability is estimated to be in the order of £100 million, giving a total estimated liability for the estate of around £400 million. In its simplest form this gives rise to a current annualised maintenance need of approximately £80 million a year for each of the next 5 years.

4.0

Understanding the Economics of Buildings Maintenance and the backlog of Repairs

4.1

The economics of building maintenance is an important part of understanding why there is a backlog of repairs and maintenance and why that backlog continues to grow, even though there has been an increase in expenditure in cash terms (principally New Deal for Schools (NDS) funding) over recent years. Key issues relate to the age profile and construction types of the property portfolio. These in turn are inextricably linked to:

· Design life cycles

· Historical expenditure patterns

· The mix of property running costs

· The balance of expenditure patterns

· The increasing demands from new regulations, health and safety legislation and environmental considerations.

Design Life Cycles of Building and Engineering Components

4.2

The concept of design life cycles for major building components is an important factor and its impact on the County Council's repairs and maintenance strategy requires some explanation.

4.2.1

Major components of a building have a design life cycle. For example it is generally recognised that boilers will last up to 20 years before they need to be replaced. When these components reach the end of their life cycle they require significant capital investment to replace them. Whilst it is possible to extend some components beyond their life cycle, by means of patch and mend strategies when this happens they become prone to more frequent breakdown and failure, often incurring consequential losses and consuming increasing amounts of revenue expenditure. Also when the life cycles of components become extended this is often coupled with a loss of efficiency which can then lead to increased running costs. Replacing major building and engineering components will often carry a premium due to the increased managerial and health and safety implications of working in occupied buildings. It is possible therefore that even when maintenance expenditure is increasing, buildings continue to deteriorate.

4.2.2

In respect of the County Council's Built Estate, a key point to make is that the estate underwent rapid expansion during the 1960s and 1970s, which added over 450 system built SCOLA school buildings (over 430,000m²) to the property portfolio. Nearly a quarter of these system buildings were added in the `London overspill' towns of Basingstoke and Andover. This rapid building programme saw the use of design and construction methods which had an estimated design life of up to 25 years. These buildings were constructed to a cost yard-stick, with little or no attention being paid to future life cycles and costs in use. The rapid construction process for these system buildings meant that site control was not always a strong feature of the construction process. (By way of example Members will recall the recent report concerning cavity wall tie defects in some SCOLA buildings.)

4.2.3

It can be seen that the events of some 30 to 40 years ago now give rise to an unprecedented scale of major components (boilers, wiring, roofing and cladding) that are coming to the end of their design life or in many cases beyond their design life of around 25 years. In some cases components will have already been renewed and into their second or third life cycle. A significant number of these components now require major repair or complete renewal as opposed to basic servicing and cyclical repairs.

Historical Expenditure Patterns

4.3

Appendix 3 provides an illustration of current and previous years capital expenditure patterns for the schools and non schools. The graphs in Appendix 3 also show the historical pattern of Revenue expenditure, a significant proportion of which is delegated to schools. Even with the Revenue funding the shortfall in expenditure in the built estate is nearly 50% of the annual expenditure needed to remove the backlog within the next 5 years.

4.3.1

The Government has recognised the maintenance time bomb for schools through its NDS and "Building Schools for the Future" (BSF) programme, which aims to rebuild or renew every secondary school in England over the next 10 to 15 years. The Government is also currently consulting on "Every Child Matters - Primary Capital Programme", which aims to rebuild or remodel at least 50% of Primary schools in the Country commencing from 2008. The present levels of Government NDS condition funding, if it continues, will enable the County Council to manage the schools repairs backlog until the outcome of the Primary Capital Programme is announced and the commencement of the Building Schools for the Future programme for Hampshire, which is not likely to be before 2011. This position needs to be kept under review because until the Government announce the output from their 2006 Spending Review it is uncertain whether the NDS funding will continue beyond 2007/08.

4.3.2

More worrying is the trend in the non education sector where there is a significant divergence between annual expenditure levels and growing liability. The non education sector of the estate includes a set of unique buildings, many of them being highly serviced or listed with associated higher than average maintenance costs. To consider this point further, take for example the unique set of buildings at the Royal Victoria Country Park. The Empire Rooms building has a very unusual timber shingle roof, which is leaking and at the end of its life cycle. The Victorian Chapel building (all that remains of the original Netley Hospital) is suffering major structural defects, parts of which have now had to be cordoned off. The estimated liability from these two buildings alone is around £750,000 and whilst they feature in the Landlord's priority repair programme the available funding has not allowed the full repair schemes to be progressed. This situation is now made worse because of the introduction by the Government of the Dedicated Schools Grant, which this year has shifted the balance of resources towards school buildings and away from the non education estate.

The Balance of Expenditure

4.4

Getting the balance of repairs and maintenance expenditure right is an important consideration in tackling the condition backlog for the Built Estate. As a guide, DfES Design Note 40 suggests the balance between overall capital repairs investment and day to day (Revenue) expenditure should be in the order of 70% to 30% respectively. From Appendix 4 it can be seen that the balance of repairs and maintenance expenditure for schools with NDS condition funding is within the desired ratio and emphasises the importance of the NDS funding and its positive impact on the schools estate. On the other hand the balance of expenditure ratio for the non education estate is 56% to 44% and would require an additional £4 million of capital investment per year to restore the balance. This indicator gives further credence to the growing concerns about the repairs and maintenance backlog in the non education estate.

Running Costs

4.5

Running costs are also an important feature in understanding the economics connected with managing the repairs and maintenance backlog. Tactically it will be important that running costs are kept as low as possible. Savings in money that is spent on vandalism, heating, cleaning, rates etc could potentially be better spent on building maintenance and help towards reducing the backlog of repairs. The illustration shown in Appendix 5 shows the relationship between expenditure on key running costs and repairs and maintenance for the estate. Some of the greatest running costs are for cleaning and caretaking and energy and water, of which a significant proportion will be delegated through statutory formula allocations to schools with little scope for adjustment. The Department has, however, developed long standing Management Partnership arrangements with schools to help support them in managing energy and water consumption and establishing effective caretaking and cleaning arrangements. Keeping expenditure to a minimum on rent and rates is an area which could have a beneficial impact on the available spending for repairs and maintenance. Regular rate reviews are therefore essential. Keeping vandalism expenditure under control is another important consideration.

New Regulations and Health and Safety Legislation

4.6

The impact on the Built Estate from new legislation, particularly health and safety regulations should not be underestimated. By way of example, changes around fire policy and most noticeably the introduction of a risk assessed approach to the installation of sprinkler systems will place increased demands on both the revenue and capital repairs budgets at a time when the backlog is rising steeply. New Buildings Regulations have introduced more stringent requirements for the conservation of heat and power in new and existing buildings (see separate report on the agenda). These new regulations will have a financial impact on the management of repairs and maintenance for the Built Estate, which have the potential to divert expenditure away from addressing the major repairs backlog.

5.0

Strategies for Managing the Backlog of Repairs and Maintenance Liability

5.1

The preceding sections in this report outline the scale of the issues affecting the repairs and maintenance for the estate. This section of the report outlines the strategies (many of which are long standing with the Panel) that are being practiced to help identify and manage the backlog position, including:

· Intelligence gathering and data collection

· Investment strategy: core properties and temporary buildings

· Funding strategies and joint funding opportunities

· Health and safety management

· Procurement initiatives

· Vandalism reduction strategies.

Strategy for Intelligence Gathering and Data Collection

5.2

Good data and intelligence about the Built Estate is essential for understanding and managing the backlog of repairs and maintenance. The County Building Record and AMP are two of the most important information systems used to manage the Council's property portfolio and require significant financial investment and professional time to set up and manage. The schools AMP for instance cost approximately £0.5 million to set up in 2000 with an annual cost of around £100,000 for technical and professional resources in order to manage and keep it up to date. Other important data systems include:

· Asbestos Management Record

· Engineering Plant Record

· Projects Management System

· The Corporate Risk Assessment For The Built Estate.

Core Buildings/Temporary Buildings Strategy

5.3

For a long time now the Panel has directed investment strategies at core properties within the estate. This has been achieved by close working with service departments on school amalgamations and rationalisation work. Reprovisioning for Older Person's Homes and the development of Discovery Centres are further examples of directing resources at core operational buildings. This strategy will inevitably need to remain central to managing the Built Estate and is likely to intensify as part of the Strategic Property Review agreed by the Cabinet in January 2006.

5.3.1

In the last 10 years, the overall stock of temporary buildings has been reduced by nearly 50% to 241 temporary buildings. This kind of strategy helps to maximise the available resources for directing at the permanent core buildings as well as improving the quality of the built environment.

Funding Strategies for Repair and Maintenance

5.4

Over the last 8 years (99/00 to 06/07) the Panel has approved revenue investment of nearly £72 million for day to day repairs and servicing. A further £90 million of Landlord's capital funding has been used for major capital repairs. Over the same period the Panel has recommended the investment of over £76 million of Government NDS condition funding in major building and engineering repairs aimed at addressing the backlog. In addition the Panel will be aware of over £60 million of investment in Adult Care Services for new Nursing beds and the refurbishment of existing Older Persons Homes over the last two years.

5.4.1

The Department also works closely with schools to help them make sound investment decisions using the devolved capital they receive from Government. This often leads to joint funded works to help maximise the efficient use of resources. Currently there are around 252 school projects a year. Many of these contribute to the reduction in the backlog of repairs and maintenance in respect of internal decoration, floor repairs and upgrading sanitary accommodation. The advantage of this approach is that schools receive best value support for their design and procurement initiatives.

Health and Safety Management

5.5

The Panel has always recognised the importance of property related health and safety and in 1998 adopted the Corporate Risk Assessment (CRA) for the Built Estate, as a means to identify and prioritise health and safety investment. A report elsewhere on the agenda puts the CRA expenditure for 2006/07 at £9.24 million. Much of this expenditure is aimed at servicing and inspection and keeping buildings safe to occupy and does not directly address the backlog position.

Procurement Initiatives for Repairs and Maintenance

5.6

The Panel has supported a number of framework arrangements and new procurement initiatives aimed at getting best value from available resources and improving the quality of outputs and performance from the industry. These new arrangements now cover:

· Term Engineering Contracts

· Roofing Framework

· Two trial small works (SME) framework contracts

· Two pilot framework contracts for day to day building works

· Preferred supply chain arrangements for the development of SCOLA re-cladding systems

· Preferred contractor selection for external redecoration packages.

5.6.1

The preferred external redecoration contracts has led to the reduction of professional time in managing the programme, high quality finished work with prices held steady for the last 5 years. Customer feedback is also very good. The SCOLA re-cladding programme is also linked with achieving efficiencies in the recurring costs associated with external redecoration. As a result, the external redecoration programme now is around £750,000 per year less than it otherwise would have been and is a major tactical achievement in helping to manage the backlog of repairs.

Vandalism Reduction Strategy

5.7

The impact of vandalism, both financially and socially should be factored in the repairs and maintenance strategy for the Built Estate. Although only 2% of the annual running costs for the estate, vandalism expenditure amounts to about £1 million a year. In opportunity cost terms this is the equivalent of recladding 2 SCOLA primary schools or the external redecoration of up to 16 properties.

5.7.1

The Panel continues to support a number of strategies to help keep vandalism to a minimum including:

· Joint funded security patrols with schools;

· Invest to save initiatives for CCTV, secure fencing, rapid response arrangement;

· Design of new buildings to help reduce their vulnerability to vandalism;

· Work with crime reduction officers.

6.0

Conclusions

6.1

The vast majority of the County Council's building stock is post 1945 and as such the Panel can expect to see the backlog of repairs and maintenance go on rising steeply for at least the rest of this decade. This is in line with the national trend and the Audit Commission's prediction for a "Maintenance Time Bomb" and will affect authorities.

6.2

The Government has recognised the maintenance time bomb and maintenance needs for schools through the introduction of their NDS and BSF programmes.

6.3

As far as schools are concerned the strategies outlined in this report have put the Panel in a good position to manage the repairs and maintenance needs over the next 5 years providing the Landlord's and NDS funding continues to at least the present levels. By 2011 it is anticipated the County Council will feature in the Government's Building Schools for the Future programme, which will be the next major opportunity to significantly reduce the repairs and maintenance backlog of schools for the foreseeable future. Subject to the outcome of consultations over the Government's "Every Child Matters - Primary Capital Programme", there will be further opportunity for Hampshire to receive investment for Primary schools.

6.4

This report draws attention to concerns in the non education sector of the estate. Although there are fewer buildings in this sector they are unique in that many provide specialist accommodation, are highly serviced or listed buildings with associated, above average maintenance costs. The challenge ahead will be to find ways of addressing the backlog in the non education estate. The solution to this issue will come from a range of strategies, including potential rationalisation of the estate (Strategic Property Review) and alternative ways of working that generate less dependency on, or greater utilisation of fewer property assets, and a growth in the budget for repairs and maintenance specifically for the non education estate.

6.5

The Panel should therefore conclude that the County Council has a set of effective strategies in place to meet the increase in liabilities. Key to these strategies is the need for a stable (or even better) an increasing level of resources for capital and revenue repairs. In the current financial climate the latter may be difficult so maintaining pressure (through our procurement strategies) to secure best value remains paramount.

6.6

Where the opportunity arises to increase resources for maintenance the argument is clearly in favour of more resources being directed at the non-education estate.

7.0

Recommendations

7.1

That the Buildings, Land and Procurement Panel advises the Executive Member for Policy and Resources that approval be given to:

1. The strategies adopted to manage the backlog of repairs.

2. Continuing the current levels of repairs and maintenance funding for school buildings until at least the Building Schools for the Future programme commences for Hampshire in 2011 and the outcome from the Government's consultation for Every Child Matters - Primary Capital Programme is known.

3. Identifying future levels of capital repairs funding for the non education sector to alleviate the repairs and maintenance pressures.