Building standards - building warrant fee model: research project

3. New Building Warrant Fee Model

3.1 Introduction

3.1.1 There are three main building blocks to the new building warrant fee model which are shown in Figure 3.1.

Figure 3.1: Building Blocks of Building Warrant Fee Model

• 1. Funds Required to Deliver Service
• 2. Sources of Funds e.g. Fees, Funds already in System
• 3. Building Warrant Fee Modelling Tool

3.1.2 The first stage of the model is to estimate the total cost of delivering the verification service including future changes arising from the work of the Futures Board. The future costs will cover the three-year period 2024/25 to 2026/27.

3.1.3 The second stage of the process must identify if all of the costs have to be covered through changes (i.e. increases) to the fee rates or if there are any other sources of funding available e.g. any ‘surplus’ funds in the system.

3.1.4 The final stage of the process is the development of the modelling tool which will be used to determine future fee rates.

3.2 Components of the Building Warrant Fee Model

3.2.1 Building warrant fees have to cover, as a minimum, the future cost of delivering the verification service. The main components of the services are shown in Boxes 1 to 4 in Figure 3.2. The model needs to have the flexibility to include the costs of formal enforcement or statutory duties if these costs require to be covered by building warrant fees (Box 5 in Figure 3.2).

Figure 3.2: Components of Building Warrant Fees Model

Future Fee Rate by Value of Work/Fixed Fee

(1) Current LA and BSD Activities plus Inflation Changes

(2) Additional LA Activities

(3) New Futures Board Activities including Hub

(4) High-Risk Buildings

(5) Formal Enforcement/Statutory Powers (Optional)

Box 1: Current LA and BSD Activities plus Inflation Changes

3.2.2 The first component of the model is the fee rates associated with delivering the current verification service. This includes current local authority verification activities and support provided by BSD^[3]. As the model has to estimate future costs, an inflation adjustment has been applied to the current cost of delivering the verification service. Inflation adjustments have been made to the fixed fee component of costs and discounts and the BSD element of funding to bring these costs from 2017 to 2022 prices. Future inflation adjustments have also been made. An allowance has also been made for additional funding for BSD in the future years to cover the costs of auditing local authority verifiers and certifiers, enhanced performance and monitoring of the implementation of the strengthened building standards system for Ministers, ongoing support for workforce development, Compliance Plan implementation and to support digital transformation.

Box 2: Additional Activities for Local Authorities

3.2.6 The second component covers any additional activities which authorities will be undertaking for non-HRB projects as a result of the work of the Futures Board. Additional activities which could add to their cost base include:

• Greater procedural compliance through authorities receiving more CCNP notifications and stricter compliance procedures which could increase workload.
• Increased soft enforcement to ensure compliance (considered further in Section 7).
• Potential post completion certificate (CC) changes/powers which would enable local authorities to intervene in matters following submission of the CC.

Box 3: Futures Board Activities

3.2.7 The third component relates to activities emerging from the Futures Board which require additional financial support. One of the key changes will be the establishment of a central building standards Hub. The Hub will deliver some of the building standards system services previously undertaken by LABSS, provide access to specialist services and develop and co-ordinate other Futures Board recommendations around learning and development and digital transformation.

Box 4: High Risk Buildings (HRBs)

3.2.8 The fourth component of the model covers the costs to verifiers of the new compliance plan approach to HRBs. This will place an additional cost burden on local authorities including additional costs to cover:

• Pre-applications meetings with the CPM and applicant.
• Pro-active enforcement to check that:
  • work has not started before approval of the warrant (at each warrant stage); and
  • the building is not occupied or in use without permission.
• Potential additional site visits/verification work in line with the compliance plan.

Box 5: Formal Enforcement/Statutory Powers

3.2.9 Building standards departments also fulfil a number of statutory duties including formal enforcement and maintaining the building standards register. These activities are currently intended to be funded by a revenue grant from the Scottish Government. The model will offer the flexibility to include the costs of statutory duties, should the decision be taken that they need to be recovered through fees.

3.3 Funds Required to Deliver the Verification Service

3.3.1 Table 3.1 provides a summary of the current (2021/22) and future costs of the existing verification service. It covers the costs incurred by local authorities and the funding for BSD activities related to building standards. The local authority costs are broken down by verification staff costs and overhead costs. Within KPO5, overhead costs are assumed to be a 30% uplift to verification staff costs.

3.3.2 The appropriateness of the 30% uplift has been reviewed during this research with the analysis presented in Section 6.2. This analysis shows that 30% may be slightly high as an uplift factor and that 20% may be more appropriate. Table 3.1 also provides a summary of current and future costs of the existing verification service if overhead costs are assumed to be 20% of staff costs.

3.3.3 To estimate the future cost of local authority verification services, information from BSD’s workforce supply and demand return has been used. The data show that between July 2021 and July 2024, the number of building standards staff is forecast to increase by 49 from 632 to 681. A further increase of 8 is anticipated between 2024 and 2026.

3.3.4 The future cost of the local authority verification service has been estimated using the following assumptions:

• 681 and 689 building standards staff are required for 2024/25 and 2026/27 respectively.
• Verification staff numbers are estimated by assuming 88%^[4] of local authority staff time will be spent on verification activities.
• Average building standards staff costs are increased by 5.4%^[5] between 2021/22 and 2022/23 and by 3% per annum thereafter.
• Overhead costs are shown for two scenarios representing 20% and 30% of staff costs.

3.3.5 The increase in staff costs between 2021/22 and 2024/25 is considerable and reflects the increase discussed in paragraph 3.3.3. It is assumed that the forecast additional workload is primarily required to deliver the current service i.e. it is not the forecast increase required to deliver new future activities. The increase in costs also assumes that building standards salaries increase in line with inflation.

3.3.6 The level of funding required for BSD building standards activities is also included in the Table. Inflation adjustments have been made to bring the 2017 funding level (£1.5 million) to current prices. A further allowance has been made for future inflation and for the potential cost of future auditing/monitoring^[6].

3.3.7 In 2024/25 the total cost of providing the existing verification service is estimated to increase to almost £38.6 million and then rise to £41.3 million in 2026/27 if overheads are assumed to be an uplift of 30% of staff costs.

Notes:

1: Data from KPO5 return to BSD for 2021/22.

2: Based on medium term (2024) and long term (2026) workforce demand data from BSD.

3: Includes inflation increases.

3.3.8 If the overhead uplift is reduced to 20%, the estimated cost of delivering the existing verification service in 2024/25 is £35.8 million, rising to just over £38 million in 2026/27. Hence, the effect of reducing the overhead uplift to 20% reduces the cost of providing the existing verification service by £3 million.

3.3.9 Table 3.2 provides a summary of the costs associated with boxes 2 to 4 in Figure 3.2 for both the 20% and 30% uplift assumption. These are costs which are not currently incurred and have been estimated as follows.

3.3.10 Box 2 – Additional Local Authority Activities: The Part 1 research found that 75%^[7] of respondents to the survey felt that more CCNP notices would add between 10 to 50% to their workload. Adopting the midpoint of this range (30%) and applying it to the non-plan checking element^[8] of verification workload^[9] yields an estimate of an additional cost of £3.3 million in 2024/25 which rises to £3.5 million in 2026/27. This is based on the 30% uplift.

3.3.11 If the overhead uplift is assumed to be 20%, the cost of these additional activities is estimated to be £3 million in 2024/25, rising to £3.2 in 2026/27.

3.3.12 Box 3 – Future Board Activities including the Hub: The cost of delivering Futures Board activities (including the Hub and initiatives to be to be handled by the Hub) are estimated from the Business Case Report (BCR) for the Hub. The cost of the Hub and associated activities is estimated to increase from £0.9 million in 2024/25 to £1.1 million in 2026/27.

3.3.13 Box 4 – HRBs: The compliance plan approach to HRBs will also add to local authority costs. Section 6.3 considers the potential additional costs associated with HRBs in detail with a summary included in Table 3.2. The costs associated with HRBs are estimated to be approximately £2.2 million per year if overheads are assumed to be a 30% uplift. If overheads are assumed to be 20%, HRB costs are slightly lower at £2.1 million.

3.3.14 All costs for each future year in the model can be changed by BSD by amending some of the key assumptions e.g. the percentage uplift to workload for additional local authority activities, the proportion of time spent on plan checking and other inspection/reasonable inquiry.

3.3.15 The costs associated with additional local authority activities and HRBs are both affected by the assumptions regarding overheads. Using the 30% uplift assumption the total cost of future new activities is estimated to be £6.3 million in 2024/25, raising to £6.8 in 2026/27. The costs are slightly lower with the 20% overhead assumption - £6 million in 2024/25, rising to £6.5 in 2026/27.

3.4 Current and Future Costs of Verification Service

3.4.1 Combining the future costs in Tables 3.1 and 3.2 shows that the cost of providing the verification service, as envisaged, in the future is estimated to be almost £44.7 million in 2024/25 (an extra £12.6 million or 39%) rising to almost £48 million in 2026/27. Details are shown in Table 3.3. The majority of additional costs relate to the resources required to deliver the existing verification service (i.e. existing LA/BSD activities).

3.4.2 Table 3.4 provides the total cost of the providing the verification service using the 20% overhead uplift assumption. The Table shows that while the absolute costs are lower in Table 3.4, the additional funds required are broadly similar – only £1 million lower in 2026/27.