Key messages
Asset management in local government

Prepared for the Accounts Commission
May 2009

The Accounts Commission
Acknowledgements:

Audit Scotland prepared this report for the Accounts Commission for Scotland. We would like to thank:

•	All 32 councils for their helpful responses and in particular the five councils where we carried out detailed fieldwork: Clackmannanshire, Edinburgh, Fife, Highland and Renfrewshire.
•	Alan Tyler, Susan Robinson and David Bentley of the Federation of Property Societies for their help and support.
•	The study advisory group which comprised a range of experts from councils, the Scottish Government and other organisations, for providing valuable advice and acting as a sounding board for the project team throughout the study. Appendix 2 lists the members of the group.

The Accounts Commission is a statutory, independent body which, through the audit process, assists local authorities in Scotland to achieve the highest standards of financial stewardship and the economic, efficient and effective use of their resources. The Commission has four main responsibilities:

•	securing the external audit, including the audit of Best Value and Community Planning
•	following up issues of concern identified through the audit, to ensure  satisfactory resolutions
•	carrying out national performance studies to improve economy, efficiency and effectiveness in local government
•	issuing an annual direction to local authorities which sets out the range of performance information they are required to publish.

The Commission secures the audit of 32 councils and 41 joint boards (including police and fire and rescue services). Local authorities spend over £19 billion of public funds a year.

Audit Scotland is a statutory body set up in April 2000 under the Public Finance and Accountability (Scotland) Act 2000. It provides services to the Auditor General for Scotland and the Accounts Commission. Together they ensure that the Scottish Government and public sector bodies in Scotland are held to account for the proper, efficient and effective use of public funds.

Key messages
Background

1. Assets are anything owned by an organisation that have a monetary value. The assets owned by Scotland’s councils are valued at around £26 billion. Property makes up £21 billion (81 per cent) of councils’ assets. This comprises council housing (£8 billion), schools (£7.1 billion), investment properties (£1.2 billion), sports centres and pools (£0.9 billion), offices and administrative buildings (£0.7 billion) and £3.2 billion of other buildings, such as libraries and museums.1  

2. After employee costs, the largest cost to public sector bodies is what they spend on their assets – councils spent around £1.1 billion on property running costs in 2007/08. Good asset management is a vital part of an organisation being able to demonstrate that it is providing Best Value.

3. Effective management of council assets will benefit service delivery by making council buildings work better for staff and people using services, by ensuring buildings support current and future service requirements, and by providing a way to target investment.

The study

4. The overall aim of our study was to evaluate the extent to which councils manage their assets to ensure effective service provision and achieve value for money, and to make recommendations for improvement.

5. The study focuses on property, which makes up the majority of council assets, and addresses the following questions: 

•	What assets do councils own, what is their value and what information do councils hold about their condition and suitability?
•	How well are councils organised to ensure that service needs drive their asset management strategies?
•	Do councils’ asset management arrangements lead to increased efficiency?
•	Do councils have effective arrangements for managing the performance of their assets?
6. A range of methods was used to obtain evidence, including:
 
•	questionnaires to gather information from councils about their asset management arrangements 
•	visits to five councils (Clackmannanshire, City of Edinburgh, Fife, Highland and Renfrewshire) and interviews with elected members, senior managers and practitioners, and people using services.
Key messages

1Overall, councils own around 12,400 property assets. Councils report that 27 per cent are in poor or bad condition,
23 per cent are not sufficiently suitable for the services being delivered from them, and 14 per cent fail in both respects. 

7. Councils report that 27 per cent of their buildings are in poor or bad condition. The proportion of buildings reported to be in good or satisfactory condition varies from over 90 per cent in East Ayrshire and Angus, to under half in Aberdeenshire and Inverclyde. Five councils (East Dunbartonshire, Eilean Siar, Highland, North Lanarkshire, and Scottish Borders) do not know the condition of more than ten per cent of their buildings (Exhibit 1).

8. Even where buildings are in good condition, it is important that they are also suitable for the purposes for which they are being used. Exhibit 2 shows councils’ assessments of both the condition and suitability of council buildings. Overall, 6,878 buildings
(61 per cent) are reported as in good or satisfactory condition, and with good or satisfactory suitability. However, 1,557 buildings (14 per cent) are reported as poor (or worse) in both respects.

9. We surveyed 88 people using council buildings. They consider access to be a building’s most important feature, highlighting disabled access and facilities for people with disabilities as highly important. Other issues they regard as important are:

•	privacy (especially where services deal with money or housing issues) 
•	security for both staff and the public
•	clean and well maintained property and facilities
•	clear signposting, both inside and out.
2
Almost two-thirds of all councils report that their property maintenance backlog is increasing. Only 23 councils were able to report the size of their backlog; this totalled £1.4 billion, and £376 million of this is described as maintenance that is urgently required. Unless councils manage this backlog, there is a risk that buildings currently in satisfactory condition will deteriorate.

10. It is more economical to maintain buildings in a planned way than to wait until a problem arises. A 60:40 balance (or better) in favour of planned maintenance is accepted as an indicator of good practice.2 Across Scotland, the £136 million councils spent on property maintenance in 2007/08 was evenly split between planned and reactive maintenance. However, this varies considerably among councils; North Lanarkshire achieved over 80 per cent planned maintenance, while in Inverclyde over 90 per cent of maintenance was reactive. Overall, only nine councils report achieving the 60:40 good practice benchmark.

11. Capital investment in new buildings or refurbishment will reduce the backlog, as buildings in poor condition are replaced or upgraded; however, the existing estate (including any new buildings) will still need to be maintained. The maintenance costs of new buildings are not always included in future revenue budgets, and this could lead to further problems.

12. The current economic environment is likely to result in reduced capital income from the sale of assets, and councils may decide to retain properties until market conditions improve. This could lead to additional pressures on maintenance budgets. Capital projects relying on income from the sale of assets are also likely to face difficulties. However, increased competition among developers may result in opportunities for councils in taking forward some capital build programmes. 

3
More than half of councils do not have an approved corporate asset management strategy, although many are in the process of developing individual strategies and plans for their fixed assets.

13. An asset management strategy should plan for the current and future development of the councils’ assets. Councils’ asset management plans need to support service plans, which in turn should help to deliver council objectives and community plans. However, in many councils the linkages between these plans are not robust. Although councils are beginning to manage their assets more strategically, less than half of councils have a corporate asset management strategy.

14. We examined each councils’ arrangements for property asset management, based on their responses to our survey. Our analysis indicated that there were particular weaknesses in:

•	ensuring that strategies, policies and plans are up to date and coordinated
•	performance management 
•	implementing property asset management systematically.
15. Councils need to improve the links between current and anticipated service needs, the assets required to meet these needs, and the funds available for delivering these assets.

4
The majority of councils report good arrangements for collecting data about assets. Almost three-quarters of councils have up-to-date information across most performance areas, but good operational data is not always used to support decision-making.

16. Some councils use asset management information systems developed in-house, while others use commercial systems.

17. All councils hold basic information on their estate, but the level of detail held in property management systems varies. For example, around 40 per cent of councils do not know the condition or suitability of all their buildings and in some cases detail is lacking or the information is out of date. 

18. Information held on property management systems is also important for health, safety and risk management. Just under a quarter of councils’ asset registers lack full information on high-risk areas such as asbestos in buildings.

5
Elected members can play a vital role in taking strategic decisions about assets. Many councils do not have effective elected member scrutiny of property assets and only half of councils provide regular information to council members on property performance.

19. Buildings consume a lot of resources and councils spent £1.1 billion on property costs in 2007/08; this includes the costs of maintenance, energy, cleaning and security. There is also an ‘opportunity cost’ in occupying property where investment that could be used in other areas is tied up for long periods of time.

20. It is important that the way buildings are used by council services is continually challenged and reviewed. However, we found little evidence that building use was being scrutinised by elected members on a systematic basis.

21. Although councils are reducing energy use in their buildings, environmental sustainability is not a key factor in building design. Most councils are missing opportunities for incorporating environmentally friendly features into the design of new buildings.

22. Some councils gave examples of savings from rationalising office space, but few were able to provide details of significant efficiencies arising from property review and rationalisation.

23. Changes in service provision can be difficult to put into practice, especially where the public or elected members view the retention of particular buildings as symbols of commitment to service delivery in their area. Many councils have had to make difficult decisions about school or library closures, and this can lead to challenges for the political management of the council.

24. Elected members play a vital role in taking strategic decisions about assets, and in achieving a balance between local interests and good corporate management of assets. However, many councils do not have effective elected member scrutiny of property assets and only half of councils provide regular information to council members on property performance.

25. The following measures may help to bring clarity and objectivity
to this process:

•	better leadership and performance management
•	increased use of whole-life costing (where maintenance costs over the whole life of a building are included in the budget)
•	increased use of options appraisal (where the costs, benefits and risks of the different options available are considered systematically)
26. Many council members and senior managers feel there is a need to build greater consensus about the long-term strategy for assets across political groupings, to be able to make progress on the corporate management of assets.

6
Councils are beginning to work with community planning partners on joint approaches to asset management, but progress has been slow. 

27. Councils and health boards have a high-level commitment to joint working on property asset management. However, joint working does not appear to be widely embedded across services at a planning or operational level.

28. There has been some well planned joint working reported between social work and primary care services. Many joint property projects are developed in an opportunistic way, rather than as part of a long-term joint strategy. 

29. Issues arising in the councils visited included:

•	Differing funding regimes make joint working more difficult, and councils cite central control of NHS capital expenditure as resulting in slower decision-making. However, this only applies to capital expenditure of over £5 million (£10 million in NHS Greater Glasgow and NHS Lothian).
•	Informal networking and personal relationships are often seen as key to making asset management work between agencies. By their very nature these factors are difficult to replicate across all partners and over the long term.
30. Examples of joint property use between health boards and councils include GP surgeries located in the same building as social work offices, libraries and pharmacies; however, we found it difficult to identify many examples of good practice.

31. Councils are required to obtain ‘best consideration’ in the sale of their assets – normally interpreted as market value.3 In three out of the five councils we visited, this is seen as a barrier to joint working. For example, a health board may wish to use surplus council land for a community facility, but is not able to meet the market price.

32. However, councils can apply to Scottish Government ministers for permission to sell assets at less than market value in certain circumstances, and where this is for public benefit.4  More recent legislation allows ministers to make regulations that councils must follow when selling assets.5 The Scottish Government is currently considering draft regulations on these issues.

33. An approach which uses these processes and considers the overall value of a scheme to the public sector, rather than just aiming to achieve the highest price, could help deliver wider benefits and Best Value in the longer term. 

Key recommendations

Councils should:

•		work together to implement a consistent methodology for measuring building suitability
•		ensure they have effective asset management plans and strategies for their property, IT, vehicles, roads and associated infrastructure. These should: 
– set out how each type of asset will contribute to council objectives and service aims

– set targets for assessing progress, including the condition and suitability of each asset 

– describe an overall plan for achieving this

•		ensure asset information is up to date, complete, and held in a form which allows the production of appropriate management reports
•		establish robust monitoring and reporting procedures for asset performance, to assess progress against their strategies
•		formulate a long-term capital strategy, linked to achieving the aims of their asset management strategies; this should include a formal corporate approach to options appraisal for proposed capital projects
•		ensure that whole-life costs are taken into account in councils’ capital and revenue planning
•		consider issues of sustainability, such as CO2 emissions, in their whole-life costing model for proposed capital projects 
•		ensure that elected members and council officers have transparent mechanisms for scrutinising property use and the cost of holding property
•		where significant changes are planned to assets in an area, or to a particular type of asset, for example school buildings, ensure consultation with residents is open about the issues the council is facing and provides clear information about the options for change
•		agree with community planning partners arrangements for joint planning, management and property sharing. This should include identifying and tackling the barriers to strategic joint working around public assets and developing shared property databases to facilitate joint working. 
Councils, Community Planning Partnerships and the Scottish Government should:

•		make use of legislation which allows councils to sell assets at below market value if it is for public benefit, where this is consistent with a published policy objective, and would achieve Best Value for the public sector overall.  

1	Overview of the local authority audits 2008, Audit Scotland, February 2009.
2	Value For Money in public sector corporate services, Public Audit Forum, 2007.

Exhibit 1 
Value of council assets

	Value £bn
	% of total
	Cumulative %
	
Other land and buildings, including:
	£11.7
	46
	46
	
Schools
	£7.1
			
Sports centres and pools
	£0.9
			
Offices and administrative buildings
	£0.7
			
Commercial and industrial property
	£0.5
			
Public halls and community centres
	£0.5
			
Residential homes and day care centres
	£0.5
			
Museums and galleries
	£0.3
			
Libraries
	£0.2
			
Pavilions and public toilets
	£0.1
			
Other (eg, car parks)
	£0.9

Investment properties
	£1.2
	4
	50
	
Assets under construction
	£0.8
	3
	53
	
Surplus assets
	£0.5
	2
	55
	
Council dwellings
	£8.0
	30
	85
	
Vehicles, plant and equipment
	£0.5
	2
	87
	
Infrastructure assets (roads)
	£3.2
	12
	99
	
Community assets
	£0.1
	1
	100

Source: Overview of local authority audits 2008, Audit Scotland, February 2009

Exhibit 2
Councils’ assessments of building condition and suitability

	Suitability
	
Condition
	Good
	Satisfactory
	Poor
	Unsuitable
	
Good
	923 (8.1%)
	567 (5.0%)
	183 (1.6%)
	22 (0.2%)
	
Satisfactory
	1,430 (12.6%)
	3,958 (34.9%)
	845 (7.4%)
	185 (1.6%)
	
Poor
	224 (2.0%)
	1249 (11.0%)
	956 (8.4%)
	252 (2.2%)
	
Bad
	40 (0.4%)
	170 (1.5%)
	214 (1.9%)
	135 (1.2%)

Exhibit 3
Councils’ assessments of building condition and suitability

	Suitability
	
Condition
	Good
	Satisfactory
	Poor
	Unsuitable
	
Good
	923 (8.1%)
	567 (5.0%)
	183 (1.6%)
	22 (0.2%)
	
Satisfactory
	1,430 (12.6%)
	3,958 (34.9%)
	845 (7.4%)
	185 (1.6%)
	
Poor
	224 (2.0%)
	1249 (11.0%)
	956 (8.4%)
	252 (2.2%)
	
Bad
	40 (0.4%)
	170 (1.5%)
	214 (1.9%)
	135 (1.2%)

Source: Audit Scotland survey of councils’ building condition and suitability assessments 

1	Value for Money in public sector corporate services, Public Audit Forum, 2007.

4	Local Government in Scotland Act 2003, Section 11.