2011 STEADY STATE REVIEW FINAL REPORT

Transcription

1 2011 STEADY STATE REVIEW FINAL REPORT 07/03/2012

2 PURPOSE OF STEADY STATE To understand core waterway maintenance costs A bottom-up model to ensure transparent and fair waterway budget distribution in future To move BW away from historical waterway and central budgets and allocations, to a position whereby these budgets are based on need. To help define target expenditure in relation to actual Waterway assets and attributes To assist in highlighting any long term funding issues For an aggregated model to produce a high level view

3 ORIGINAL DEFINITIONS OF STEADY STATE MAY 2004 Understanding of core maintenance costs is essential to move away from historical budgets, and to define target expenditure for each waterway in relation to its asset base and waterway attributes. Steady State is our terminology for a future state where our longstanding Arrears of Maintenance to principal assets has been eliminated and core waterway maintenance can be delivered on a fully planned cyclical basis. Steady State is a bottom up model, built from our detailed knowledge of our assets and maintenance activities, their costs, service levels and lifecycles.

4 2011 STEADY STATE REVIEW PRESENTATION - AIMS To fulfil requirement to deliver routine periodic review of Steady State model To provide a final report on the 2011 steady state review with recommendations To explain the model, its philosophy, development, methodology and terminology To bring the model up to date (with new term contracts cost and activity data) To utilise latest asset, cost and contract data and better SAP analysis To summarize model outputs for England and Wales To form the basis for communication to CRT Trustees and other stakeholders

5 TERMINOLOGY OF STEADY STATE STEADY STATE REVIEW 2011 Routine Repair short term or small scale reactive repair on annual or short term basis (generally 1 to 5 years). Involves repairs to ensure short term asset service level but unlikely to result in improvement in condition grade. Unit costs generally 1k to 10k. Examples: Failed paddle repair, resetting damaged coping, local welding and spot painting of steel structures, removal of structural vegetation, leak stopping, hole filling in towpaths, resetting of parapet masonry following bridge strikes, decking repairs, drain unblocking, pump breakdown repairs. Planned Preventative Maintenance (PPM) fully programmed and planned maintenance on very short to short cycles (weekly, monthly, annually) driven by Maintenance Plans and PMO issue from SAP. Occurs regularly throughout asset lifespan. Unit costs 0.1k to 1k. Involves regular maintenance to sensitive, service related and moving parts of structures. Does not result in improvement to condition grade but arrests further deterioration or failure in use. Examples: regular greasing, painting, cleaning, jetting, spot welding, trash screen or weir crest clearance, testing of lighting and security arrangements, checking of H&S equipment, pump maintenance.

6 TERMINOLOGY OF STEADY STATE STEADY STATE REVIEW 2011 Intermediate Repair repair that occurs many times during asset lifespan, on medium cycle of 10 to 50 years. Involves repairs to restore asset service level but may not result in improvement in condition grade. Unit costs generally 10k to 100k. Examples: lock gate replacements with local repointing of the lock walls, cill reconstruction, quadrant repairs re-setting of copings, repainting steel bridge, local deck repairs, M&E refurbishment, grouting to reduce leakage, rebuilding accommodation bridge parapet or wingwall. Major Repair major refurbishment or partial reconstruction. Normally occurs near end of asset lifespan, on long cycle of 50 to 250 years. Unit costs 50k to > 1m. Involves substantial repairs to large parts of the asset, and local replacement. Usually results in improvement to condition grade and substantially. extends asset service life. Major repair contains elements of intermediate repair done during cycle. Examples: full replacement of culvert with new one, lock gate replacement with wholesale rebuilding of parts of civil structure (walls and/or the invert), tunnel repair to large areas of lining, reservoir spillway reconstruction, bridge saddling bridge with substantial rebuild of spandrels/wingwalls.

7 HISTORY OF STEADY STATE MODEL STEADY STATE REVIEW First full version of Steady State model (national) utilising asset specific data. Use for allocation of Waterway budgets Iteration for inflationary effects 2006 Iteration for inflationary effects 2007 Iteration for inflationary effects 2008 Second full version of Steady State model (national) employing a sub-division of asset types to ensure better definition and cost attribution. Use for allocation of Waterway budgets 2009 Iteration for inflationary effects 2010 Iteration for inflationary effects. Use of model in 2005 Central Rating List Appeal (business rating ) and examination of potential maintenance costs and liabilities on future transfer of EA navigations to CRT 2011 Third full version of Steady State model (split into England, Wales and Scotland) including examination of reduced overhead costs due to 2009 restructure efficiencies and better analysis of supporting data

8 HOW THE STEADY STATE MODEL IS BUILT UP - The Steady State Model is an activity based model - A hierarchy of activities is identified STEADY STATE REVIEW For each activity at the lowest level, the following are defined: - Unit of Measure - Number of Units - Applicable % the proportion of total units for which the activity is undertaken - Frequency how often the activity is performed - Omission Cycle how often the activity is replaced by an alternative activity (e.g. Major Repairs replace Intermediate Repairs) - Unit Cost how much it costs to complete one unit of activity - The Annualised Cost is then calculated as: Number of Units x Applicable % x Unit Cost Frequency - This is adjusted for the Omission Cycle where necessary - Lower level activities are then summarised and aggregated together to get a total cost per year of maintaining the waterway network

9 Soft Towpath Management Wearing Course Surface Renewal Patch Repairs Annualised Cost of surface renewal = Metres of towpath x % of towpath surface renewed x Cost of renewal per metre Frequency of surface renewal How the Steady State Model is Built Up - Example

10 EXPLANATION OF STEADY STATE REVIEW METHODOLOGY Two internal expert groups identified, working independently and in combination over 6 months. Experts in both teams providing value judgements with input from other engineers, experts and Waterway Managers as appropriate Group A dealing with infrastructure engineering cycles and costs. Group B dealing with core waterway activities, customer service and routine maintenance Comprehensive review of previous models data in light of better data and analysis Maximum use of known hard data on asset numbers and dimensions, frequencies of repairs, cycles of activity Rebuild model from bottom-up but similar breakdown structure to allow for comparisons Factoring of current condition grade data, and post Arrears of Maintenance (to principal assets) condition profiles Maximum use of unit costs data from recent and historical projects, from analysis of actual waterway PMO costs and timesheet data in SAP, and from actual costs data from term contract arrangements Sense checking of figures with external costs data Sense checking of aggregated outputs with actual costs from SAP Ensure no double counting in model between groups Minimise use of subjective information Acknowledge any assumptions required

11 BACKGROUND TO 2011 STEADY STATE REVIEW AND SPECIFIC GROUP OBJECTIVES explain conceptual model of SS and effect of Arrears of Maintenance review, validate and update the SS Model for 2011 produce parallel models for E&W and Scotland resolve overheads and eliminate any identified double counting identify priorities for expenditure and any critical funding gap effects identify any contribution from Enterprise to SS model estimate 5m document all assumptions and degrees of confidence given scenario of under-expenditure against SS, define within the model those items may/may not be building up into an accumulating Arrears of Maintenance cost (the cost of returning the principal asset grade profile to an acceptable level in terms of risk overall 15% remaining in grades D and E)

12 GROUP A COVERAGE Intermediate (medium term cycles) and major (long term cycles) repair expenditure Principal infrastructure assets including linear earth structures, feeders, waterway walls and bank protection Operational Buildings Dredging Inspections (statutory and AIP2008) Energy Costs SCADA costs SSSI management Dowry Sites GROUP B COVERAGE Routine (short term cycles) repairs and PPM to assets Water Control Facilities Maintenance Towpath Maintenance Vegetation Management Customer Service Access Management Overheads and unattributed costs

13 KEY ASSUMPTIONS STEADY STATE REVIEW 2011 Arrears of Maintenance eliminated and assets in acceptable condition in terms of risk exposure No unexpected changes in legislation affecting costs, but allowance for those where there is a significant likely change (WFD, Reservoirs Act, Waste Disposal costs etc) Pragmatic standard of repair and maintenance - no gold plating Mean costs are applicable at this level. Not to be used for individual or small groups of assets. Some exceptional costs will lie beyond the mean. Legal and compensation costs excluded as unpredictable and partially insured Where required to update unit costs, Group A used construction inflation of 10% 2008 to 2011 Group B used term contract specifications for standard and level of service required Dredging cycles not yet scientifically established. Cycles used based on engineering judgement and existing knowledge from hydrographic survey and dredging teams Assumptions made on tree numbers under vegetation management costs, as tree surveys not yet completed Fountains costs from London/SE established as low, therefore corrected before use Assumed 20% uplift in energy prices (actual uplift now established 19.6%) SSSI management costs new to 2011 model Assumed Enterprise contribution to Steady State of 60% of 3 rd party funding

14 KEY SENSITIVITIES, RISKS AND UNCERTAINTIES Assumed dredging cycles may be incorrect. On-going work to establish these. New dredging strategy document, use of different MOC dimensions to calculate dredging need, potential to introduce cyclical linear spot dredging may affect model Re-tender of Fountains contract may affect costs Re-tender of Property MTC and MEICA contracts should reduce costs by c10% New round of statutory S.10 RIE inspections could result in increased work at reservoirs Climate change effects assumed to be long term and no immediate impact Likely impact of WFD re water supply, abstraction licenses, fish pass installations not yet known Actual numbers of non-principal earth structures will increase. Ongoing work to establish actual numbers Future efficiencies resulting from mobile working and technology improvements not yet established Current work to drive down outstanding notifications should result in longer term savings in repairs costs Enterprise contribution to Steady State could be less than assumed 60% which would increase funding gap

15 INFLATION INDICES For Group A, where required to inflate historical asset repair unit costs, published BCI indices used to calculate overall construction inflation 2008 to 2011 (10%) Effect of economic turn-down and effect on 2009 and 2010 cost inflation taken into account in unit costs used Partially balanced by increases in fuel and energy costs Group B used latest actual costs therefore no inflation adjustment required in most cases. Previous year energy costs inflated by 20% (later actual inflation proved to be 19.6%)

16 Steady State - Movement from 2009 to 2011 MODEL OUTPUTS Group England & Wales Scotland Figures in m Steady State 2009 Group Scotland E&W Direct Costs (inc. Manned Structures, Energy) (9.7) 91.4 Dowries Unattributed Costs * 24.5 (4.0) 20.5 Total (13.7) Duplication of Activities in the Model (Feeders, Swing Bridges, Locks) (2.9) Teams moved to Central Services in the 2009 Restructure Heritage and Environment (1.4) 0.1 (1.2) Safety (1.1) 0.1 (1.0) (2.4) 0.2 (2.2) 2009 Model Restated Direct Costs 88.6 Dowries 3.8 Unattributed Costs 18.3 Total Real Change (National Contracts, Better Ways of Working, Efficiencies) Direct Costs (4.6) Dowries 0.0 Unattributed Costs (2.4) Total (6.9) Steady State 2011 Direct Costs 84.0 Dowries 3.8 Unattributed Costs 15.9 Total * Operational Buildings, Craft, Plant and Equipment, Unattributed People Costs (e.g. Training)

17 OUTPUTS COMPARISON 2009 TO 2011 (ENGLAND & WALES) Note 1: Repairs and PPM to Principal Assets are sub-sets of Major Repairs, Intermediate Repairs and PPM figures (see next slide for example) Note 2: Unattributed Costs are those that cannot be directly attributed to an activity. Eg Nonproductive time (travelling, training, meetings), vehicle costs, plant servicing /repair, rents, business rates, telecomms, insurance, depreciation of plant, Personal injury/property claims, cost of Works Planner, Contracts Manager, Contracts Supervisor and Maintenance Manager

18 Steady State OUTPUTS COST Cost OF of MAJOR Major Repairs REPAIRS to Principal TO PRINCIPAL AssetsASSETS (ENGLAND & WALES) Figures in k England and Wales - Annualised Cost Principal Asset Type 2011 Model Bridge 3,768 Lock 3,419 Embankment 1,942 Weir 1,457 Culvert 977 Aqueduct 689 Tunnel 685 Dock 399 Cutting 188 Pumping Station 180 Sluice 145 Other ,075

19 England and Wales - Annualised Cost ( m) Overheads 2011 Model 2009 Model Movement Central Service cost (heritage; safety; Waterway unit (4.1) management cost; water team overhead) Engineering and Project Management cost in 2009 model - Waterway asset engineering teams only in 2011 model Management costs includes fixed cost element of bank staff salaries, waterway management team, claims Operational Buildings, Plant and Equipment, SCADA, (3.4) Depreciation, Insurance Manned Structures Sub-total before cost re-categorisation (1.6) Manned Structures cost included as Steady State activity (2.4) (2.5) (0.1) and not overhead Central Service cost (heritage; safety; Waterway unit (6.3) management cost; water team overhead) cost shown within Central Services which is outside Steady State for modelling purposes Total after cost re-categorisation Following the 2009 Business re-organisation, Central Teams were created for specialist functions with staff costs re-allocated to Central Services which sits outside the Steady State model There has been a change in reporting on Steady State areas which has also lead to a changing cost breakdown. Overhead costs are now allocated to direct Steady State activities wherever possible Overhead costs in the 2009 model were reported in a different format to the 2011 model which leads to the movement between sub-areas above

20 CRITICAL FUNCTIONALITY GAP STEADY STATE REVIEW 2011 Critical Functionality Activities are those activities identified that would lead to an accumulation of costs if not undertaken. The Critical Functionality Gap is the shortfall in spending against Steady State on these activities. We expect critical activities to be fully funded from 2015/16 onwards Activities not fully funded if the Critical Functionality Gap is not closed, and their gap value are as follows: Dredging - 6.0m Tree Management and Vegetation - 2.5m Towpath Management (not funded by Enterprise) - 1.0m Boundary, Car Park and Mooring Maintenance - 1.4m There would also be Non Critical activities that are not fully funded, eg: Some Grass Cutting Litter Management Antisocial Behaviour (graffiti removal, fly tipping, etc.) Pest Control Signage

21 80.0% Principal asset condition profile August 2011 Condition Grades E&W Jan % 40.0% 20.0% 0.0% 3.5% A - Very Good 22.1% 57.5% 15.3% 1.6% B - Good C - Fair D - Poor E - Bad Condition Grade Note: This graph relates to Principal Assets only. The profile of condition grades is directly affected by expenditure on Principal Asset repairs

22 CONCLUSIONS Steady State Group achieved objectives in reviewing and rebuilding model for England and Wales Full review of all aspects of model undertaken All activities given % score to improve prioritisation in event of reduced funding (eg statutory must be high %, low risk activities may be lower %) Identified those activities whereby underfunding could lead to an accumulation and an uncontrolled increase in Arrears of Maintenance (consequences of inactivity) By 2015/16 as result of improved funding security to CRT we estimate that we will be at 95% of calculated Steady State funding. Model now improved and more robust. Higher degree of confidence in outputs Based on much improved analysis of data, and improved asset and dimensional data Reported funding gap reduced due to better analysis, more comprehensive data, better cost and time recording Also reduced due to efficiencies from 2009 restructure and increased use and management of contracting out Better distribution of overheads/unattributed costs in model (cost neutral overall) Still have Arrears of Maintenance and therefore not yet at Steady State. Estimate this could be achieved by 2020 given defined funding levels in CRT Must continue to improve asset and dimensional data to improve accuracy

23 RECOMMENDATIONS FOR FUTURE REVIEWS STEADY STATE REVIEW 2011 Director sponsor, and identify designated owner/responsibility for review process Communication of basis for model to all stakeholders Process of identifying expert team for future reviews should continue Methodology for undertaking review now well established and appropriate Major reviews to be planned on specific cycles and dates say 3 years, next This will have advantage of a developed cost history for the new term contracts Next review to be undertaken immediately prior to possible transfer of EA navigation assets Minor reviews and inflation updates should be undertaken annually Work to continue on aligning SAP coding, accounting and reporting with model Steady State model to become a key driver for business plans when current work on reducing high priority (P1) Z4 notifications is complete Work to continue on establishing scientific basis for dredging cycles Dredging strategy to be finalised to give cost security Development of PPM mandatory standard (ongoing) to drive consistency into PPM Conclusion and delivery of mobile working will assist in driving further operational efficiencies Waterways to become more effective in analysing PPM times and costs