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​​Agency funding arrangements

​A co-location is broadly an example of a pooled funding arrangement.

Pooled funding is where a small group of agencies pool funds to share the cost of an initiative in order to achieve a common goal. A full description can be found in Treasury’s cross-agency funding framework.

Cross-agency funding framework

Pooled funding arrangements are:

  • often supported by cross-agency governance, to help with joint decision making
  • often supported by in-kind contributions from agencies, such as staff, resources and assets
  • partnership relationships between agencies
  • where agencies source funding from within their baselines.

Co-locations are an example of a pooled funding model with one exception – one agency needs to act as lead agency to manage the relationship with external parties, eg landlords. The introduction of the lead agency concept affects the operation of a typical pooled funding model by having one agency take on the legal and commercial risk on behalf of all participating agencies. In light of this, Treasury and GPG have developed capital expenditure (CAPEX) and operational expenditure (OPEX) principles that support a pooled funding model specifically for co-locations.

Formal partnership agreements are entered into at the beginning of the project, usually before any party enters into a relationship with a landlord – unless an agency is using a co-location as a way to get rid of surplus space.

The formal partnership agreements lock all agencies into meeting their share of the legal and commercial obligations for the life of the project and the tenancy. Changes to an agency’s share of the legal and commercial obligation throughout the tenancy are possible, but have conditions.

Financial principles

Co-location projects have both capital funding (CAPEX) and ongoing operational expenditure (OPEX) components.

The co-location model aims to reduce the commercial risk placed on the lead agency by:

  • ensuring parties assess their compatibility to co-locate before committing to a legally binding contract with a landlord. This includes assessing their ability to meet the financial and commercial obligations proposed
  • having all parties enter into formal agreements before beginning the project that share the obligation to meet rental and commercial terms among all co-locating parties
  • requiring an agency who is leaving the co-location, or reducing space in the building, to continue to meet their financial obligations until an alternative arrangement is agreed.

In order to establish the financial governance, process and billing mechanisms, the co-location operating model should operate on the basis of four financial principles.

  1. All parties must have funds available to meet the required CAPEX and expected OPEX before entering a formal agreement.
  2. The lead agency will take the responsibility of head lessee, with 100% ownership of the fit-out.
  3. All parties commit to the same commercial terms (including tenure) and are equally bound by those commercial arrangements once the MoU and the co-location agreement is signed.
  4. All parties pay an equitable share of establishment costs and operating costs, based on their area allocation.
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