Calculating Allowances for TMOs

NFTMO Annual Conference June 2011

Management and maintenance allowances Council pays allowance to the TMO to enable it to

provide the services that the TMO will/has taken over◦ As set out in the management agreement

Principle – TMO receives what it would have cost the council to provide the services◦ No more/no less

If TMO is efficient providing cost effective services – it makes a saving

Savings = surplus which can be reinvested into community (in accordance with TMO rules)

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Back to basics

Based on Council’s costs for services TMO wants to provide

a) Supervision and management and running costs –actual costsb) Responsive repairs and planned maintenance – historic costsc) Exceptional repairs- estimated costsd) Programmed repairs and improvements – estimated and

actual costse) Committee administration and training – set formulaf) Leaseholder allowance – advance on L/H service charges

adjusted annually

Page 11 of Good Practice Guide

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The Allowance Calculation

Annual review◦ Inflation or other mutually agreed index◦ Overall changes in HRA expenditure

If significant then should be a full periodic review Periodic review

◦ Where there has been significant change to Council/TMO expenditure

◦ Use Council costs on directly managed properties as basis for calculation Comparator area identified and agreed with TMO

Significant variation (over 5%) phased in over 3 years TMO must be notified of allowances 3 months before

year start

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Reviewing allowances

Developing TMOs◦ Indicative allowances at Exploring the Options 2 stage◦ Detailed allowances in Feasibility/Development using workbooks in

Calculating Allowances guide ◦ Evidence of negotiations/discussions for competence assessment

Council must clearly present the figures keeping it simple with full explanations – appropriate officers involved

Use workbooks provided in statutory guidance Need for transparency and a clear audit trail back to the

council’s actual costs Encouraging a negotiation process and full understanding of

how the allowances have been calculated Council to provide all background info requested by the TMO

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Process of negotiation

Some councils pay little attention to statutory guidance

Easy to lose sight of the wood for the trees◦ Get caught up in fine detail and lose sight of bigger

picture Need to focus on the bottom line and then work

backwards if budget seems unreasonable Need to understand where/how figures calculated Some cross checks

◦ Leaseholders and tenant service charges (if estate based)◦ Salaries/no. of staff being transferred (TUPE) to TMO

TMO business plan must stack up financially ◦ Allowances need to cover cost of services to be provided

by TMO now and for life of BPNFTMO Conference June 2011 6

TMOs Experiences

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Your experience

Council A - several TMOs – review of allowances with new MAs ◦ R & M allowances provided did not include identified element for voids.

Subsequent detailed analysis by TMO indicated voids element £200 to £300 per void. Council actually spending average £1200 per void. Further negotiations resulted in agreement by TMOs to receive £1100 per void adjusted annually for actual no. of voids.

Council B – several TMOs – review of allowances with new MAs◦ Council adamant wanted to follow good practice . Set up TMO working group

and employed accountant to extract info. But soon got lost in detail with lengthy debates about some overhead costs which would have minimum impact on overall allowances. Needed to refocus on getting bottom line figures to TMOs once they had understanding of how allowances were being calculated.

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Case Studies

Council C – developing TMO◦ Council provided figures with reference to where figures extracted

from. On analysis TMO identified that certain budgets like cleaning and grounds maintenance were not enough to accommodate the number of posts being transferred by council/contractor. In addition leaseholders costs indicated a higher cost for these services. Further negotiations and Council increased budgets significantly.

Council D – operational TMO – allowance review◦ Council reviewed allowances and ‘informed’ TMO – significant

reduction. 2 years later TMO renegotiated MA and looked again at the allowances. Found out that Council had used a comparator are that bore no resemblance to their estate. Comparator had pitched roofs and UPVC double glazing, mostly leaseholders. TMO had flat roofs, wooden windows which both caused problems. TMO complained and new comparator identified which TMO visited to make sure similar structure and problems. Allowances increased.

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Case Studies

Council E – developing TMO◦ Council provided breakdown of repairs figures. TMO knew they had

real drainage problems 2 years previous but not reflected in figures. TMO pressed council who insisted no works with a cost had taken place. TMO obtained leaseholder service charge bill for relevant period which included cost for works. Council investigated and revised allowances. Drainage works had been coded elsewhere.

Council F – operational TMO – allowance review◦ Council/ALMO reviewed allowance. TMO unhappy with grounds

maintenance element and challenged ALMO/council who refused to budge. TMO looked at finance report to ALMO Board which included much higher grounds maintenance figures. ALMO/council subsequently increased allowance.

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Case Studies

Make sure you understand how allowances have been calculated – what are base figures for each element based on

In TMO development - press the council to provide allowance info in bite sized chunks e.g. repairs allowance when you are negotiating chapter 2 of MA Repairs and Maintenance

Cross reference where you can (service charges/TUPE costs/local knowledge/published council & ALMO info)

Do not get lost in the detail especially on overhead costs ◦ You can end up spending days when it may only make a difference of a

few pounds either way Get to the bottom line for each budget head and then work

backwards if you need to If an allowance review, make sure the comparator area has

similar structure, tenure mix, issues Use your local knowledge – if you know there is a big repair

issue then look for it to be reflected in the allowances NFTMO Conference June 2011 11

Tips for TMOs