Capital costs (CAPEX) in property co-locations will apply when a new fit-out is required for the building.
Costs will typically be captured at the project level on an ‘as incurred’ basis and then allocated to agencies based on their share of the agreed area allocation. Pending the project, a lead agency may have available funds to completely cover CAPEX requirements.
In a property project, a standard fit-out cost is made up of four components.
1. Main contractor hard fit-out (MCHF)
This includes things like:
2. Sub divisional hard fit-out (SHF)
For example:
3. Soft fit-out (SFO)
This includes:
4. Consultancy fees for design, engineering, project management, and legal
Costs associated with negotiation, design and delivery services need to be capitalised.
MCHF and SHF are normally written off – fully depreciated – over the initial lease term. SFO is typically written off over six years. This is consistent with current accounting policies and practices.
The lead agency is the head lessee and has 100% ownership. It controls the management, repair and replacement of the fit-out, which includes the furniture, fixtures and equipment.
If an agency exits a co-location during a tenancy, their contribution can only be recovered if a replacement agency joins and contributes the outstanding capital.
It’s expected that the exiting agency will settle the costs incurred to date and committed to under the MoU and co-location agreements, in place for any work completed prior to the replacement agency joining.
Total fit-out costs for each agency will be based on agreed co-location area allocation. This can be based on FTE or desk numbers, plus the proportion of all shared spaces and, as relevant, any specialist areas provided specifically for one agency’s use.
This template is to assist with working out and communicating the area allocation and associated operational costs of the co-location agreement.
Where possible, reusable assets will be used. These assets will be transferred to the lead agency balance sheet at Net Book Value, along with the corresponding accumulated depreciation.
At the end of the lease period, the lead agency returns any transferred capital from the accumulated depreciation on the asset.
If a participating agency exits early (part way through the lease period) there is no return of capital by the lead agency. The incoming agency buys out the exiting agency. This is consistent with the principle of minimising risk on the lead agency.
To successfully facilitate CAPEX principles with participating agencies, lead agencies will be responsible for:
Lead agencies and participating agencies will need to engage with their own internal finance teams and Treasury vote analysts to ensure approvals and agency due process is followed.