Calculating Allowances for TMOs

1. Calculating Allowances for TMOs NFTMO Annual Conference June 2011

2. Back to basics • 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) NFTMO Conference June 2011

3. The Allowance Calculation • Based on Council’s costs for services TMO wants to provide • Supervision and management and running costs –actual costs • Responsive repairs and planned maintenance – historic costs • Exceptional repairs- estimated costs • Programmed repairs and improvements – estimated and actual costs • Committee administration and training – setformula • Leaseholder allowance – advance on L/H service charges adjusted annually Page 11 of Good Practice Guide NFTMO Conference June 2011

4. Reviewing allowances • 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 NFTMO Conference June 2011

5. Process of negotiation • 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 NFTMO Conference June 2011

6. TMOs Experiences • 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 BP NFTMO Conference June 2011

7. Your experience NFTMO Conference June 2011

8. Case Studies • 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. NFTMO Conference June 2011

9. 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. NFTMO Conference June 2011

10. 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. NFTMO Conference June 2011

11. Tips for TMOs • 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