​​Operating expenditure costs (OPEX)

There are three basic categories of costs or ongoing operational expenditure:

• fixed
• variable, and
• additional costs.

Fixed operational costs include services and items that have a predictable and consistent value, including:

• the building management team, eg shared reception and admin staff
• maintenance contracts - for cleaning, plants, water filtration and printers, for example
• insurance for the property and assets available for use by all agencies
• depreciation for fixed assets
• depreciation for all furniture and equipment in the property.

Variable operational costs include services and items that vary depending on the occupants usage levels, including:

• utilities, like power and data
• office consumables, like printing and stationery
• catering consumables (tea/coffee, milk, sugar, milo)
• repairs and maintenance
• health and safety training and assessments for the building
• shared ICT costs, as per the shared services pricing model
• individual agency specific security requirements (i.e. SCIF management)
• other miscellaneous building running costs that change each month. These will be charged back and detailed to participating agencies at the quarterly wash-up.

Additional costs per agency include services or items that are generally of a fixed nature, but excluded from the overall area allocation. This includes dedicated car parks for fleet cars or individually provided parks.

Exclusions typically include any services or items that it’s agreed will not be provided by the lead agency, but that might normally be expected to be provided in a co-location - like insurance for agency-owned equipment and fittings.

OPEX principles

Agencies commit to the occupancy for the full term of the agreement

When participating agencies commit to the full term of the agreement, the lead agency is protected from any cost impact of participating agencies leaving or reducing their space requirements during the tenancy period.

If a participating agency leaves, or reduces their space during the tenancy period, they can avoid continued costs by:

• negotiating an alternative arrangement with an existing occupant, or
• sourcing a new occupant that the other participating agencies agree to.

Where there is a 'make good' requirement at the end of a tenancy, the lead agency will limit its exposure to the exiting agency’s portion of costs by implementing a 'make good' provision, or a non-cash accounting estimate. GPG can help source new occupants, and work alongside both the exiting agency and the incoming agency. The lead agency is not involved.

• Participating agencies sign up to commercial terms with the lead agency, based on key commercial terms in the head lease.
• The co-location agreement addresses the rent review process and the area allocation change process.
• When an agency exits early capital is not returned. The replacement agency buys out the exiting agency.
• The lead agency will recover the 'make good' provision from participating agencies.

OPEX cost recovery is based on co-location area allocation

Operating costs will be recovered from co-occupants on the basis of their agreed co-location area allocation - which is based on FTE and desk numbers, plus their part of any shared spaces, for example. When area allocation changes, these costs will also proportionally change.

• Lead agencies agree to cost recovery on the basis of co-location area allocation.
• The lead agency will establish an appropriate internal finance process and billing mechanism for cost recovery.

Establish a shared services appropriation for lead agencies (OPEX)

Services to other agencies that involve facilities management and cost recovery through leasing do not fit within the scope of existing departmental expenditure appropriations.

Establishing a shared services (or similar) appropriation ensures authority for providing these services. Similar appropriations exist in Treasury (Central Agency Shared Services) and IRD (Services to Other Agencies).

• The lead agency will ensure a shared services appropriation (or similar) is established as appropriate
• Treasury supports a revenue dependant appropriation (RDA), on the basis of revenue being certain but expenses less so.
• The lead agency will set up internal financial processes and billing and payment mechanisms.
• You should outline your co-location’s financial processes and mechanisms in the co-location agreement.

Any benefits from the co-location should be allocated equitably

The lead agency must work with participating agencies to understand the overall benefits from the co-location project. Any model that is used should equitably allocate benefits among parties.

For example, one agency may face an OPEX increase, but as they’re participating in a co-location the project as a whole makes a saving. Part of the savings should be passed back to that agency.

• Agencies who are achieving a benefit - like lower rental - will see a baseline adjustment for future years.
• Agencies who are not achieving a benefit - due to higher rental - could receive a cash transfer equivalent to its portion of the overall benefit.

Case study: The Christchurch Integrated Government Accommodation (CIGA) programme

The CIGA co-location model has been applied across all buildings accommodating multiple agencies. It’s based on a lead agency 100% ownership model which covers both the build (development agreement) and ongoing (lease) commitments. Under this model, the participating agencies have committed to the full term of the lease agreement, and the lead agencies have taken full ownership and responsibilities for capital and operating expenditure.

Based on the lead agency’s circumstances, some CIGA co-locations have had all participating agencies contribute their share of the capital cost by transferring assets - in cash, in kind, or both - up front. The lead agency will return accumulated depreciation on any transferred capital to the participating agencies at the end of the lease period.

Other co-locations in CIGA have had the lead agency contribute 100% of the capital investment upfront. Depreciation on the capital is recovered from participating agencies as OPEX over the life of the asset.

In all co-locations the operating costs are recovered on the basis of area allocation. These are managed through a co-location agreement and the establishment of a shared services appropriation for lead agencies.