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ITEM CG7

EXECUTIVE - 20 JULY 2004

REVIEW OF PROPERTY ASSETS

Report by Director for Resources

1. In July 2003 the Executive approved the business case and success criteria for the Review of Property Assets. The success criteria are given in Annex 1. In January 2004 the Executive considered progress on the Review and possible approaches to meeting its objectives. The report concluded that the rationalisation of office property in to fewer large office hubs and smaller satellites, and the clustering of services on fewer sites, could be effective in meeting the success criteria.
2. The report recommended further work to identify the optimum number and location of hubs and satellites; opportunities for clustering services, the extent to which the success criteria would be met and that a financial appraisal of the preferred options should be undertaken. It was proposed that this work was done on the northern part of the County initially. It was also recommended that reviews of smallholdings, staff housing, traveller sites and leasing policy were undertaken. The Executive accepted these recommendations, invited the Corporate Governance Scrutiny Committee to consider and comment on this work and asked for the outcome to be reported to the Executive in July 2004.
3. This report sets out the:

• findings of the work on the hub/satellite and cluster options and the conclusions reached and recommendations made
• proposals for reviewing our approach to the maintenance of the Council’s buildings
• findings of the reviews of smallholdings, staff housing, traveller sites and leasing policy and the recommendations made
• further work required and a timetable for that work

4. Following the resolutions of the Executive in January the following work has been undertaken:

• collection of information on office staff numbers, locations, ways of working and views of service directorates on potential options for reorganisation
• interviews with representatives from service directorates investigating the potential for grouping or clustering non-office uses
• investigation of opportunities for office and non-office uses to co-locate
• development of options that best meet the success criteria and allow effective service delivery
• a financial appraisal of the options
• assessment of the impact on the success criteria
• consultation with directorates on the proposals

5. It has been concluded that the emerging strategy amounts to the co-location and integration of property in a way that best meets the success criteria and allows effective service delivery.
6. The work has identified opportunities for reorganising offices in the northern part of the County, but has been less successful in identifying opportunities for change with non-office uses. The report therefore firstly sets out the findings for offices and then identifies hypothetical opportunities for non-office uses and proposes a series of locally based seminars as a way of identifying further opportunities.

Options for Office Properties

7. Four options for reorganising office property in the northern area have been developed. A detailed breakdown of the options, showing the offices included, staff numbers and implications for the release or re-use of space are available in the Members’ Resource Centre. Offices included are primarily those that are stand alone offices. Those closely related to a service use, for example a school office, are not included.
8. Some offices have been excluded, for example the Highways Offices in Kidlington as they serve Oxford as well as the northern part of the county and are ideally located and the Registration Service which will be considered as service properties.
9. Annex 2 (download as .doc file) shows a summary of the options. The options involve 328 staff in fifteen offices and are:

Option 1 – Banbury Office – One office of 328 staff

Option 2 – Banbury & Witney Offices – A Banbury office of 259 staff and a Witney office of 69 staff

Option 3 – Banbury, Witney and Bicester Offices – A Banbury office of 240 staff, a Witney office of 69 staff and a Bicester office of 19 staff

Option 4 – Banbury, Witney, Bicester and Chipping Norton Offices – A Banbury office of 227 staff, a Witney office of 77 staff, a Bicester office of 19 staff and a Chipping Norton office of 3 staff.

Evaluation of Options

10. The options have been evaluated by considering the effect on service delivery, the cost of the proposals over a fifteen year period and extent to which the success criteria are met. The findings are set out below.

Effect on Service Delivery

11. The options have been built up from an analysis of how the various office teams operate, the type of service delivered, the area serviced, the views of the managers running those services and the views of senior managers. The options primarily affect the Social & Health Care and Learning & Culture Directorates, although all directorates have some office accommodation in the northern part of the County.
12. Social & Health Care Senior Management Team has indicated that option 3 best suits their operational requirements but that before a reorganisation is progressed to the implementation stage there would need to be more detailed consideration of some of the proposed office moves.
13. The management team has also indicated the need to address pressing property issues in Witney and it may therefore be necessary to develop an interim solution to those needs, pending a more comprehensive solution. The management team has indicated an intention for Social & Health Care to continue to invest in staff and property through the Time to Change Programme.
14. The Learning & Culture Directorate has office staff in Banbury, Bicester and Witney, all of which, for operational reasons should remain in those towns, therefore option 3 is likely to be the most suitable in terms of service delivery.
15. There will be benefits such as ease of management, improved working conditions and the possibility of sharing with partners, which may be important in terms of the Children’s Act.

Costs and Savings

16. The costs and savings of the options are set out below. All figures are shown at Net Present Value to allow them to be compared. The approach taken is to calculate the borrowing requirement for each option and then to compare the costs of borrowing and the revenue costs of the new offices over 15 years with the existing revenue costs of the existing offices over 15 years. These figures are shown in Tables 2 and 3. Table 2 assumes that all repair and maintenance assessed needs are addressed on the existing and new offices. Table 3 assumes that only 10% of the assessed need is addressed on the existing and new offices as this more accurately reflects current practice.
17. Table 1 shows the land and construction cost of each option and the capital receipts that would arise from property disposals are then deducted. This gives the capital borrowing requirement.

Table 1: Capital Borrowing Requirements

	Land Cost £000	Construction Cost £000	Capital Receipts £000	Capital Required £000
Option 1 1 Hub	700	4,055	2,650	2,105
Option 2 2 Hubs	750	4,309	2,650	2,409
Option 3 2 hubs & 1 satellite	800	4,388	2,650	2,538
Option 4 2 hubs & 2 satellites	850	4,386	2,650	2,586

Table 2: Assumption 1 - 100% Repairs and Maintenance

				Option 1	Option 2	Option 3	Option 4
				£000	£000	£000	£000
Cost of Capital Borrowing				1,915	2,191	2,308	2,351
Revenue Costs of New Offices				1,468	1,490	1,524	1,546
Total Costs of Options				3,383	3,681	3,832	3,897
Current Revenue Costs adjusted to reflect 100% R & M				-3,784	-3,784	-3,784	-3,784
Net Cost/Saving(-)				-401	-103	48	113

Table 3: Assumption 2 - 10% Repairs and Maintenance

				Option 1	Option 2	Option 3	Option 4
				£000	£000	£000	£000
Cost of Capital Borrowing				1,915	2,191	2,308	2,351
Revenue Costs of New Offices				1,168	1,179	1,201	1,212
Total New Costs				3,083	3,370	3,509	3,563
Current Revenue Costs adjusted to				-3,049	-3,049	-3,049	-3,049
reflect 10% R & M
Net Cost/Saving(-)				34	321	460	514

18. The costings provided show that only Options 1 and 2, using the assumption that current offices are brought up to a high standard of maintenance, and that the new offices are maintained to a similar standard, demonstrate savings to the Council. Other options are estimated to show increased costs.
19. The cost estimates must at this stage be treated with caution as they are based on assumptions which will need to be refined as further work is done to move towards the implementation phase.
20. Some costs are excluded at this stage, for example IT costs would need to be identified and this would depend on what existing equipment could be re-used and on the extent of flexible working. IT and telephony costs at the new Social & Health Care office at Foxcombe Court, Abingdon are estimated to be approximately £1,000 per person, giving a total cost of £330,000 for this reorganisation. Moving costs and the provision of furniture are also not included at this stage.
21. The sizes of the new office assume Modern Workstyle are implemented with 8 desks for every ten members of staff. The total office sizes for the proposals are approximately 28% lower than current provision. This is because Modern Workstyle is not used in the majority of the existing offices and new open plan offices would allow much more effective use of space. These assumptions are adequate at this stage but will need to be checked against actual requirements at a later stage. The costs assume medium office quality, with the provision of sufficient facilities such as meeting rooms and are based on County Council owned and procured new build offices.

Implementation

22. The implementation of a project this size would require substantial staff resources and need commitment from all Directorates to plan the project, communicate and consult with staff, procure the new buildings, dispose of surplus buildings and where appropriate work with partners. The timescale for implementation will depend on whether the proposal is integrated with partner needs and non-offices uses and on the funding mechanism.

Effect on the Success Criteria

23. Effect on Repair and Maintenance Backlog – The proposed reorganisation would only remove £180,000 of assessed need. This is a very small proportion of the total backlog and this reflects the small number of properties involved. This reduction is the same for all options.
24. Size of Portfolio – The options would reduce the number of buildings and the floorspace as shown in the table below.

	Existing Number of Offices	Proposed no. of offices	Existing Floorspace (sq. metres)	Reduction in floorspace (sq. metres)
Option 1 – Banbury Hub	15	6	3290	910
Option 2 – Banbury/ Witney Hubs	15	7	3290	895
Option 3 – Banbury/ Witney Hubs & Bicester Satellite	15	8	3290	890
Option 4 – Banbury/ Witney Hubs & Bicester/Chipping Norton Satellites	15	9	3290	880

Note: Proposed no. of buildings – 5 of the 15 existing offices will be retained, but there will be space release for other uses.

25. It is difficult to objectively assess the impact of the options on the other success criteria at this stage, but it is possible to make some initial comments and these are set out below. The effect of the options on the success criteria is compared with a baseline option, which is referred to as "incremental change", that is a continuation of the current approach of addressing service needs as they arise and doing smaller scale asset reviews based on geographical or service areas.
26. There are several advantages of carrying out a large scale reorganisation as opposed to incremental change. These can be summarised as:

• Enabling a significant positive change over a shorter timescale
• the opportunity to identify significant release of property to raise funds for reinvestment
• the opportunity to identify savings on ongoing costs and using these to fund property improvements
• Ensuring that change is considered in a strategic way that helps the County Council to meet its objectives
• Taking a comprehensive approach that can make the most of opportunities for sharing between directorates and with partners

27. Quality of Portfolio and Working Conditions – All of the options would substantially improve the quality of office accommodation and would allow a step change in quality as opposed to an incremental approach to change, which would be more likely to involve the improvement of existing offices, or moves to existing office accommodation rather than new build accommodation.
28. Flexibility – All of the options would provide accommodation which is more flexible and fit for purpose.
29. Modern Workstyle – All of the options would provide good facilities for Modern Workstyle in modern, open plan offices. It is likely that an incremental approach would seek to make more effective use of office space, including the introduction of Modern Workstyle, but this would be over a longer time period and would often have to work within the constraints of existing buildings.
30. Sharing Internally and with Partners – All options would provide some opportunities for sharing between directorates. It is not know at this stage which options would be preferable in terms of partner opportunities but this will be established during the next stage of work.
31. Public Access to Services – The options could theoretically have differing impacts on access to services. However, the intention is to ensure that the strategy is integrated with the emerging Customer Services Strategy, to ensure that whichever option is chosen, access to services is improved. Fewer, better quality offices could lead to improved visibility and profile, but the location of offices will determine how accessible they are to public visits. The proposals will aim to ensure that in cases where offices become less accessible to public visits, there will be an alternative point of contact available such as a one stop shop and this will only happen where this allows effective service delivery.
32. Environmental Performance – The provision of a reduced number of new offices will lead to an improved environmental performance, for example through reduced energy consumption. This is illustrated in the costs for the options which show energy costs as 30% to 40% lower under the proposed options when compared with current costs. Option 1 has the greatest benefit, and option 4 the least benefit, but the difference between the options is not significant. The environmental performance of buildings is unlikely to be significantly improved if an incremental approach was adopted.
33. Travel – The impact on travel is difficult to assess until the locations of the new offices are known. For example a new Banbury office could be located in the town centre, close to public transport links or in offices on the edge of the town. It is clear however that option 1 would increase travel by staff both to and at work. Options 3 and 4 could have less of an impact as most office moves would be within a town, rather than between towns, but again this would depend on the location of the new office. This will need further analysis throughout the review.

Views of Corporate Governance Scrutiny Committee

34. The Corporate Governance Scrutiny Committee considered initial work on the strategy on 4 March 2004 and commented as follows:

• General support in principle. In relation to office hub and service cluster options, the Scrutiny Committee considered that consultation should be undertaken with members on sites; the isolation of small groups should be avoided; close attention should be given to the delivery of services in terms of resourcing, buildings and contact with the public; and noted the value of multi-agency discussion on the use of premises, particularly libraries.

35. The strategy was considered again by the Corporate Governance Scrutiny Committee on 20 May 2004. The Scrutiny Committee commented to the Director for Resources as follows:

• Conditional support for the principle of hub and satellite proposals, subject to a strong consultation process for local members on proposals in their own Divisions, such consultation to include the integration of services and dual use of property;
• The plan circulated at the meeting purporting to show the potential distribution of service hubs and service satellites needed to be clearer.
• The paper for consideration by the Executive on 20 July would be considered by the Scrutiny Committee on 15 July, the paper having been circulated to members by 9 July;

36. As a result of the discussion at the Scrutiny Committee and the resolution, the presentation of the proposals has been changed to make them clearer. The Scrutiny Committee will consider this report on 15 July and any comments will be reported orally at the meeting.

Conclusions

37. The conclusion is that the options for office reorganisation would make a significant contribution to achieving most of the success criteria. The proposals affect about 25% of the total County Council office portfolio and are therefore significant in this context. The next stage of work is to identify opportunities for office reorganisation in the southern and City areas and therefore the proportion of the office portfolio affected is likely to be significantly higher once all opportunities have been identified.
38. Although there is little difference between the options on the extent to which most of the success criteria are met, all of the options would all be more effective in achieving these aims than taking an incremental approach. The exception is reducing travel, where it is possible that options 1 and 2 in particular could increase travel.
39. In terms of effective service delivery, option 3 is the preferred option at this stage.
40. Despite having a higher cost than options 1 and 2, it is concluded that overall, option 3 is to be preferred at this stage because it would allow for effective service delivery and is likely to be the most effective overall in meeting the success criteria. This will need to be reviewed in light of the findings of the further work on the City and southern parts of the County and on the outcome of the workshops to identify non-office and partner opportunities. It is possible that partner needs and the need to work more closely with partners could impact on these conclusions.

Opportunities for Non Office Properties

41. As stated earlier in this report, the work to identify opportunities for non-office properties to co-locate, either with other services or with office uses has identified hypothetical, but no actual opportunities. A table showing potentially compatible users is included at Annex 3 (download as .doc file). This has been developed from initial work with the service directorates.
42. It is proposed that a series of locally based workshops are held in September with officers, local members and partners to seek opportunities for the co-location of services and to allow local member input. A proposal for the workshops is given at Annex 4 (download as .doc file) .
43. This success or otherwise of this stage of the review will to a large extent determine how successful the review will be as the vast majority of the portfolio is in non-office use.

Improving the Condition of the Council’s Property

44. The project success criteria include the need to address the Council’s maintenance backlog and to improve working conditions. The Council’s Assessed Need in 2003/4 for non-delegated maintenance work is £52.5m million, with a further £24.5 million for delegated repairs to schools.
45. The strategy of co-location set out above would only address the condition of those properties affected by a reorganisation, but would not address the remainder of property, in particular schools, which account for most of the need.
46. The current approach to property maintenance is to assess and prioritise Repairs & Maintenance (R&M) needs annually. This assessment is based on a short term outlook (up to 5 years but focussing on years 1 and 2). The priority for the programme is based on keeping buildings safe, wind and water tight and open for operational use.
47. The R&M budget is split between planned works and urgent works. In most years the urgent works budget overspends, which means that less can be spent on planned maintenance. It is far more cost effective to spend on planned maintenance.
48. The research carried out for the review (based on 55 non-school properties in the northern area) has concluded that this short term approach has been successful in keeping buildings operational and could continue to do this for another five years. However this approach means that major repair and replacement works, such as replacement of ceilings, roofs and mechanical and electrical works are repeatedly delayed and temporary repairs undertaken. This is more costly in the long run and means that many of the items are now approaching the end of their life.
49. The analysis of the 55 properties in the northern area shows that if spending on those buildings continues at the current level of £470,000 for the next five years, then an additional £1.6 million a year will need to be spent on those 55 buildings for the following five years to carry out major repairs and replacements.
50. The analysis also shows that the repair and maintenance budget should be increased by 25% (compared with the average budget over the last 5 years) to prevent reactive works compromising the planned works programme.
51. Building Schools for the Future could provide a solution to a significant part of this if funding is provided (this funding is for secondary and special schools only). However there is clearly a need to continue to treat the maintenance of our buildings as an urgent and high priority and to plan for increased costs.
52. It is proposed that a fundamental review is carried out of the way repair and maintenance of our buildings is conducted at present. A brief for this work is included at Annex 5 (download as .doc file) and it is proposed that progress on this is reported to Corporate Governance Scrutiny in November and the Executive in December.

Specific Reviews

53. The reviews have been carried out as part of the Review of Property Assets but separately from the main review as each topic relates to a relatively self contained part of the property portfolio that raises issues of principle about why and how that property is held or managed.
54. The conclusions of each review are briefly summarised below. The full reports are available in the Members’ Resource Centre.

Traveller Sites

55. The review has considered whether County Council ownership of permanent traveller sites is appropriate and/or desirable. It investigated whether there is an obligation for the Council to retain ownership of the sites and considers the advantages and disadvantages of retaining, disposing of, or leasing out the sites.
56. Consultation has taken place with the Oxfordshire Traveller Management Unit (OTMU), Legal Services and Atkins. Wider consultation has not been undertaken at this stage, due to the sensitivities of the issues involved. The OTMU is a unit set up by the County Council and Thames Valley Police and consists of the County Council’s Traveller Liaison Officer and a Police Inspector. The unit reports to the County Council (Community Safety).
57. The Council owns six traveller sites at:

• The Furlong, Standlake;
• Woodhill Lane, East Challow;
• Ten Acre Park, Sandford;
• The Sturt, Oakley Wood;
• Middle Ground, Wheatley; and
• Redbridge Hollow, Oxford.

58. All sites are managed by Westgate Managed Services (WMS) under a five year contract which expires on 31 March 2005.
59. There is a wide variety of site management arrangements across the country. According to ODPM Guidance, the most common pattern is for sites to be owned and managed by the same authority (63%), followed by the site being owned by one authority and managed by another (24%). A minority of local authority sites (13%) are managed by a non local authority body.
60. The options considered were:

• disposal of the sites
• retention of ownership and management in-house
• retention of ownership and contracting out management (the current arrangement); and
• retain ownership and grant leases

61. The advantages and disadvantages of each approach are set out in Annex 6 (download as .doc file).
62. In light of this review, the recommendations are that:

• ownership of the sites should be retained as this assists the Council in providing traveller services and no significant advantages would arise from disposal,
• leases should not be granted as the conditions are not right, but that this should be kept under review, and
• future arrangements for management should be reviewed by the Director for Community Safety.

63. The whole of the smallholdings estate was declared surplus to the Council’s requirements in 1992 and since then approximately 2,000 acres have been sold, with 1,000 acres remaining. The current arrangement is for phased disposal of parts of the estate when it is appropriate to do so. This is usually when land is allocated for development or when the Council receives suitable offers for land from third parties, for example from housing associations. The Council is currently negotiating further disposals of this type.
64. The options considered were continuing with phased disposals or disposal of the whole estate now. Worst and best case estimates of potential receipts over the next ten years if phased disposal is continued with are £750,000 and £7,500,000 (at today’s values). There may be opportunities for significant receipts from disposal of land in the next five years at Chipping Norton, Eynsham, Cassington, Leafield, Bampton and Benson. There would be further receipts from the remaining holdings over following years.
65. Disposal of the whole estate now would raise an estimated £2,500,000. Covenants could be placed on the land to seek to secure further payments if the value of land increased in the future.
66. In light of this review the recommendation is that:

• phased disposal of smallholdings is continued, as in the medium and long term this will maximise capital receipts for the Council.

67. Progress on the review of staff housing was reported to the Corporate Governance Scrutiny Committee in March. The full reports are available in the Members’ Resource Centre. The Fire and Rescue Service are in the process of formulating their Integrated Risk Management Plan and the impact on its portfolio, working practices and staff are as yet unclear. The Fire and Rescue Service Housing has therefore been excluded from the review.
68. The Scrutiny Committee asked in March that further work be done to consider the possibility of transferring some staff housing to a Housing Association and that this should assess the advantages, disadvantages and financial implications. This further work was reported to the Scrutiny Committee in May and the conclusions reached are set out below.
69. A large scale transfer would be a mixture of:

• Transfer of the freehold with the retention of nomination rights in perpetuity
• Granting of long leases with the retention of nomination rights in perpetuity
• A contract for management only for all staff housing

70. The overall advantages and disadvantages of transferring the portfolio and the specific advantages and disadvantages of the three approaches listed above are given in the full report available in the Members’ Resource Centre.
71. The conclusions are:

• that there is not at this stage a clear enough financial or service benefit to the Council to justify transfer of the housing stock
• that a transfer may not represent good value for money in the medium term and would reduce the Council’s flexibility in dealing with its property and
• that there are some obstacles to a transfer, such as:
• the need to transfer tenants to a housing association on assured shorthold tenancies, when the majority are currently service tenancies
• the need to allow housing associations to let properties to their tenants if the Council could not identify a tenant. If the house is within an operational site this may not be acceptable to the Council

72. The recommendation is therefore that at this stage staff housing should not be transferred to a housing association and that:

• more emphasis should be given to the strategic management of staff housing with more clarity about the reasons for holding the housing and the purpose it should serve
• operational management arrangements for staff housing should be reviewed to achieve more strategic, co-ordinated and proactive management
• a review of provision of housing for caretakers should be undertaken with Learning & Culture and schools
• five staff housing sites that have been identified through this review as potentially suitable for redevelopment should be pursued and where appropriate schemes should include replacement staff housing and/or key worker housing
• the possibility of a transfer are re-considered when the review of caretaker housing has been undertaken

73. The review of leased and composite sites considered current Council practices, with the intention of improving future management arrangements.
74. It is recommended that:

• new management arrangements should be put in place for what have been known as composite sites
• property management arrangements should be simplified and set out in writing
• management practices should be changed to reduce costs associated with managing low value leases which comprise the majority of lease agreements

75. The report includes an action plan showing the actions that need to be taken to make these improvements, who takes lead responsibility and a timescale.

Views of Corporate Governance Scrutiny Committee on Specific Reviews

76. The Scrutiny Committee on 4 March 2004 agreed to make the following comments to the Director for Resources on the proposals arising from the four specific reviews:

Traveller Sites:

The recommendations were supported subject to the involvement of the travelling community in the management of sites.

Smallholdings:

The proposals were supported.

Staff Housing:

There was support for the proposals. Resources directorate officers responded to questions and comments including staff sensitivity, links with key worker housing, the location of staff housing and alternatives to wholesale transfer of the Council’s housing stock.

Leased/Composite Sites:

The proposals were supported.

77. The Scrutiny Committee considered a further report on staff housing on 20 May 2004. The proposals were supported and there was discussion around staff sensitivity, links with key worker housing, the need for more information on the location of staff housing and alternatives to wholesale transfer of the Council’s housing stock.

Future Work on the Review

78. It is recommended that the following work is carried out:

• detailed analysis of office provision in the southern and City areas (as has been carried out for the northern area) including reviews of Yarnton House, the Cricket Road Centre and the provision of learning & development venues
• a series of workshops in September across the whole county to identify opportunities for the co-location of non-office and partner needs
• a review of the approach to repair and maintenance of our buildings
• development of a property asset strategy and outline implementation plan for the whole county to be reported to the Corporate Governance Scrutiny Committee in November and the Executive in December 2004

79. The Executive is RECOMMENDED to:

1. indicate support for the approach to the review of offices in the northern area and that option 3 should be the preferred option at this stage, subject to the findings of a review of offices in the City and southern area, and to the outcome of the workshops intended to identify non-office and partner opportunities and facilitate local member input;
2. agree the proposal for reviewing the Council’s approach to repair and maintenance as set out in Annex 5, the review to include how need is assessed and priorities set, a risk assessment and an assessment of options for addressing the backlog;
3. agree the recommendations set out in the report on traveller sites, smallholdings, staff housing and leased/composite sites;
4. agree to detailed analysis of office provision in the City and southern areas of the County, as has been carried in the northern area, including reviews of Yarnton House, the Cricket Road Centre and provision of corporate learning and development facility; and
5. request a further report in December 2004 setting out the conclusions of the work arising from the above recommendations, including a proposed strategy and outline implementation plan for the whole county, and request the Corporate Governance Scrutiny Committee to consider the conclusions of this work in November 2004.
   
   

JOHN JACKSON
Director for Resources

Background papers:

Contact Officer: Mark Tailby, Projects Officer, Resources, Tel: (01865) 816012

July 2004

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