Solihull Bereavement Services
Business Case
To consider the options available for the
replacement of cremators at Robin Hood
Crematorium and potential service development
opportunities
September 2013
1. Purpose of the Document
This document is designed to ensure that:
Everyone involved understands the role and scope of the Robin Hood Crematorium
A clear Business Case exists
Business Case compliments the Bereavement Service 30-Year Strategy
Profile, Redesign and Opportunities are identified
Clear on what investment is required
Accountability and Achievability
2. Business Case Overview
Definition
The Bereavement Service Strategy sets out the Councils aims and
intentions for delivery of Bereavement Services across the Borough. This
includes the provision of a Burial, Cremation and Memorialisation service
for all bereaved families across Solihull borough and for families across
the wider regional area. The Strategy covers the period of 2012-2042.
Robin Hood Crematorium is 37 acres in area and is located within the
grounds of Robin Hood Cemetery and has provided cremation service
provision for residents of the borough since 1958. The crematorium chapel
was originally a cemetery chapel built in 1917 and was converted and
extended to accommodate cremation equipment in 1958.
Both the chapel and flower terrace were completely refurbished in 2004/5
to improve public facilities. The existing 3 cremators were installed in 1996
and are now nearing the end of their working life, and ideally should be
replaced in 2014/15.
The grounds of the crematorium provide a tranquil and peaceful setting
where the bereaved can walk or sit to spend some quiet and reflective
time. The grounds accommodate a wide range of memorial options for the
bereaved to commemorate the loss of a loved one. New memorial facilities
have recently been developed at this site and the range of memorial
products increased to provide the bereaved with a wide choice of
commemorative options following a cremation.
__________________________________________________________
Objectives
The objectives of the Business Case is to support the Bereavement
Service Strategy and are intended to ensure that:
We continue to provide high qualify facilities for the bereaved of
Solihull.
The service is sustainable and future proof
The service continues to operate with agreed budgets
Agreed savings are delivered
Authorisation for appropriate funding/investment is sought
Approval is given for the project to proceed
That it supports and contributes to Council Priorities – Putting
Solihull residents first, New ways of working (redesign and service
development, meeting the needs of the bereaved), The Solihull
Way
Key
Deliverables
__________________________________________________________
By completing the replacement of the Cremators and improvements to
facilities at Robin Hood Crematorium this will:
Provide the bereaved with improved facilities that will continue to
meet their current and future needs.
Ensure that the service remains ‘fit for purpose’ and ‘fit for the
future’
Understand the market demands in terms of future service demand
Ensure the service continues to be commercially viable
Be self funding
Timescale
-
___________________________________________________________
The existing 3 cremators at Robin Hood were installed in 1996 and
manufacturers indicate that a cremator has a working life of around 15 –
20 years depending on its use and maintenance. The 3 cremators are
currently over 17 years old and due to their age, condition, the increasing
cost of repairs and maintenance, and with many spare parts now
becoming increasingly difficult to source, it is now considered essential
that we plan for their replacement over the next 12 - 18 months.
In terms of other service improvements relating to the ‘Care of the
Deceased overnight’ and the construction of a new waiting room adjacent
to the entrance to the chapel entrance at Robin Hood. It would therefore
make operational sense to undertake this work at the same time as the
cremator replacement programme as this would keep any disruption and
any impact on service provision to a minimum.
3. Achievability
Profile
Our facilities at Robin Hood are in the heart of the local community and is
a place of peace and tranquillity where families can come to pay their
respects. We are committed to helping every bereaved family, offering
comfort through practical and compassionate support in every aspect of
our service and facilities. Since 1917 we have offered a highly valued and
respected service to the communities in and around the Solihull and our
professional caring staff are always available to assist the bereaved and
our promise to the bereaved is that we will provide the best possible care
and the best possible service, delivered with the best possible attention to
detail.
Solihull MBC has provided a burial service for the last 95 years and
provided a cremation service for the last 54 years. The service, together
with the facilities has continued to expand and develop as demand for
service provision has increased. This increased demand has led to the
development of Woodlands Cemetery in 1983 and Woodlands
Crematorium in 2000, Widney Manor Cemetery in 1992, the development
of these facilities have enabled the service to meet this increased demand
and enabled us to offer the bereaved additional capacity for burial and
cremation across the Borough.
As a result of improved health care, improved nutrition, and general living
conditions evidence has shown that people can expect to have an
improved quality of life and an increased life expectancy. This has resulted
in a significant decrease in the number of bereavements in recent years.
Although nationally the number of bereavements has fallen by around
60,000 p.a. in the last 10 years, the number of burials and cremations
undertaken by Solihull has remained fairly constant. In some areas of the
service, we have seen a year on year increase in the number of services
undertaken, particularly in relation to the number of cremations undertaken
at Woodlands Crematorium and this information is considered important in
the planning of future service provision.
Table 1
2637 2672 2539 2573 2583 2601 2599 2652 2642
2511 2636
3100 3210
2950 3000
2815 2850 2910
3340 3460
3643
2233
2340 2453
2190 2210 2280
2073 2062 2118 2114 1991 1960
2050 2080 2100 2120
2036
1957
1924 1921
1918 1882 1910
Robin Hood
Woodlands
21/22
20/21
19/20
18/19
17/18
16/17
15/16
14/15
13/14
12/13
11/12
10/11
09/10
08/09
07/08
06/07
05/06
04/05
03/04
02/03
1190
10601120
850 880 910 1000
830
800
779
770
732
681 579 649 662 644 681
449 518 523
01/02
160
00/01
4000
3500
3000
2500
2000
1500
1000
500
0
total
Crematorium facilities were developed in 1958, when the local demand for
cremation provision was evident. Prior to this, crematorium provision was
available in Birmingham at Yardley (1952), Selly Oak (1937) or at Perry
Barr (1903). In the first year of opening, Robin Hood crematorium
undertook 611 cremations, increasing to currently around 2000 cremations
carried out at Robin Hood and around 750 at Woodlands. Since opening
the service has conducted over 97,000 cremations at Robin Hood and
over 7,000 cremations at Woodlands.
In conjunction with Solihull Observatory, the task of predicting future
demand for burial and cremation service over the next 30 years has been
undertaken. This enables the service to identify what future development
of existing facilities will be required in order to provide the bereaved
families with future sustainable service provision.
_________________________________________________________
Redesign
There are a number of challenges to be addressed for the Councils’
Bereavement Service, these include:
If and how a future burial and cremation service provision is to
be provided based on current understanding of likely need
Identify and purchase land for future burial requirements
Development of existing cremation facilities
Meet changes in future legislative and environmental
requirements
Develop new and innovative service provision in order to meet
the needs of the bereaved and the wider diverse community.
In order for the service to meet future predicted demand it will be essential
to plan for investment and development of land, facilities and service
provision.
The Bereavement Service Strategy provides a structured and coordinated
implementation plan for the delivery of a sustainable Bereavement
Service, responding to a number of future challenges. The strategy
provides this Council with a long-term vision that defines policy and
establishes objectives and targets for delivery through the Council’s
Bereavement Service.
The Business Strategy is based on the current best estimate of future
demand trends for Cremation and Burial services. This is informed by
Government forecasts of national bereavement rates and local knowledge
provided by the Solihull Observatory. It will be important to monitor actual
demand for services against these assumptions and to adjust the business
plan accordingly to ensure that future investment takes place at the
optimum time.
__________________________________________________________
Options
considered
for Cremator
Replacement
Option 1:Do Nothing
The option to do nothing and not replace the existing 3 cremators and
continue to carryout maintenance to existing equipment has been
considered fully.
However, as previously stated the 3 cremators are now over 17 years old
and Manufacturers claim that a cremator has a serviceable life of between
15 – 20 years depending on use and serviceability. It is evident that the
current cremators are becoming increasingly more expensive to maintain
with many parts becoming obsolete and unsupportable by the
manufacturer.
As currently experienced, the option to do nothing would result in a
continuing increased cost to the Council in order to keep equipment
operational. Furthermore this option would also put the service at
significant risk due to inevitable and unforeseen breakdown. If breakdown
were to occur and the cremator/s could not be repaired in a timely manner
this could result in an unacceptable service failure with bereaved families
being directly affected by service delays or service cancellation. Any
breakdown which has a delay of more than 1 day could have a significant
impact on our ability to provide a full cremation service provision at this
site, particularly at or during busier periods when the service is operating
at or near capacity.
Furthermore, if the Council were to opt to do nothing, this could also result
in not being able to meet the future needs of the bereaved in terms of
cremation service provision. This is because the number of cremations
undertaken at Robin Hood has increased in recent years to over 2000 per
annum and based on future cremation forecasts, the number of
cremations are predicted to continue to increase year on year, see table 2
below. However, if the decision is to do nothing this does not future proof
the service in order to meet future predicted increase in demand as
identified in table 1 and 2.
The number of cremations undertaken at Robin Hood has seen an
increase of 8% in the last 2 years and it is predicted that this will continue
to increase by an estimated 3% - 4% annually.
Table 2
6000
5000
4000
3000
Predicted Future Demand for Cremations
4498
3643
2705
5260
2000
1000
0
2011/12
2021/22
2031/32
2041/42
Due to the identified significant and potential risks above, and to ensure
that the service is future proofed concerning predicted increase and
continued service provision it is not considered appropriate that the 3
existing cremators are not replaced.
Option 2:Replace the 3 existing cremators like for like with 3 new cremators
Although there are differing designs of cremators on the market the option
to replace the 3 existing cremators with 3 new cremators of different
designs can be accommodated within the existing footprint of the building.
Discussions with 2 leading cremator manufacturers has identified that this
can be achieved with the minimal disruption to service provision and with
the minimal impact on the existing buildings.
It is also necessary to consider the installation of at least 1 larger cremator
in order to accommodate the larger coffins. Current maximum size of coffin
which can be accommodated is 33 ins (840 mm) in width; a larger design
cremator could accommodate coffins around 40 ins – 44 ins (1000 mm+)
depending on choice of Manufacturer.
During the meetings with the 2 cremator manufacturers they both provided
an indicative replacement programme timeframe for the completion of all
required works. With 1 manufacturer indicating around 4 months and the
second manufacturer around 6 months. If the replacement programme
were to be undertaken during the Summer and Autumn months, the
service would continue to remain fully operational during the programme of
work. This would reduce any impact on service provision and our ability to
provide the bereaved with a cremation service during the replacement
programme. Consideration would also be given at the time of replacement
works if there is an need to increase the working day and service capacity
to further ensure that there will be no impact on our ability to provide a full
cremation service for the bereaved during this time.
It would be prudent therefore if the replacement was undertaken during
our less busy period May to October.
Current Legislation requires that Crematoria across the UK reduce
mercury emissions by 50% with effect from 1st January 2013, this can be
achieved in two ways:
1. Installation of mercury abatement equipment and remove all
mercury during the cremation process.
2. Do not install mercury abatement equipment and purchase 50%
through the national trading organisation ‘Crematoria Abatement of
Mercury Emissions Organisation’ (CAMEO).
Presently Solihull MBC complies with its legislative requirement by
purchasing the required 50% through the national CAMEO scheme.
If this was Members preferred option the Council would continue to meet
its legal obligation concerning achieving the 50% mercury abatement
requirement through the national trading organisation (CAMEO) scheme.
Option 3:Replace the 3 existing cremators like for like with 3 new cremators
with the installation of Mercury Abatement equipment
This option would include the replacement of the 3 existing cremators with
3 new cremators with the addition of the mercury abatement equipment.
Depending on the choice of manufacturer, Robin Hood Cemetery would
require a more challenging solution for the installation of mercury
abatement equipment. This has become evident from the discussions held
with the 2 cremator manufacturers. Both have indicated that a significant
extension to the existing buildings would be required.
Due to the existing design and footprint of the crematorium and because of
the current road system that encircles the chapel and buildings, there are
very limited options to extend the building. Although both manufacturers
have indicated at this time that it should be possible to extend the building
in such a way that would allow for the installation of all the mercury
abatement equipment required without a significant impact on the
surrounding road network. The impact on the current building in terms of
infrastructure and aesthetics is clearly not known at this time, and would
need to be developed further.
The current internal footprint of the operational area, which houses the
existing 3 cremators, is approximately 180 sq metres. Both manufacturers
have indicated that additional space of up to 70 sq metres would be
required in order to accommodate all the additional equipment for mercury
abatement, and because of the additional flue system required,
considerable works to the existing crematory roof would also be required.
1 Manufacturer has also stated that further investigation works would have
to be undertaken around the existing chimney to identify if this could
accommodate the additional flues required.
The decision for the installation of the mercury abatement equipment could
be considered on environment grounds and thus contributing further to the
national mercury emission reduction.
During the meetings with the 2 manufacturers both indicated that
replacement programme timeframe for the completion of all required
works. With one manufacturer indicating around 8 months and the second
up to 12 months. The service would continue to remain operational during
the replacement programme and installation works. However, the
Service
extended timeframe for the additional works for mercury abatement
Development equipment installation together with additional building works, would have
Opportunities a greater risk of impacting on service provision and extend the period
where a restricted service could be in place. This could increase the
impact on service provision and our ability to provide the bereaved with a
cremation service during the replacement programme.
Although as stated in option 2, it would be prudent to undertake the
replacement programme during our less busy period May to October, the
extended programme, of works up to 12 months would have an increased
impact on the bereaved during the project timeline. Although it is very
difficult to accurately predict the actual impact on service provision or the
loss of income at this time, it has been necessary to estimate this for
purposes of the Business Case.
__________________________________________________________
The Business Strategy has identified a number of opportunities to take
forward. These development opportunities will help deliver and
demonstrate our commitment to the bereaved that we aim to provide them
with the highest standard of service provision and high quality facilities.
Working arrangements
An opportunity will be taken to review the current usage and demand for
service times within the single chapel at Robin Hood. This is because the
chapel facilities at Robin Hood, during busy periods, can become full on
consecutive days at a time. An increased capacity can be achieved by
increasing the current number of service times (Monday to Friday only)
from the current maximum of 13 to 15/16 per day and offering Saturday
service times. This could increase capacity by up to 15-20 additional
service times per week. In order to achieve this it will require a review of
staff working arrangements, and the potential for a longer working
days/week
Waiting Room
The existing waiting room is used very little by mourners attending a
cremation service, this is due mainly to its location, relative to the entrance
to the crematorium chapel, as it not possible to see if the funeral cortège is
arriving or has arrived at the entrance to the crematorium chapel from the
location of the waiting room. The current capacity of the waiting room is
also very limited and can only accommodate around 20 mourners when
standing. Consequently mourners arriving in advance of the funeral
service, congregate on the lawned area directly opposite the chapel
entrance, by a small open sided shelter, whilst awaiting the arrival of the
funeral service. Clearly this has caused some distress and discomfort to
some mourners particularly during inclement weather conditions
However, it would be possible to construct a fully enclosed and standalone facility directly opposite the crematorium chapel entrance, which
could accommodate mourners arriving in advance of the funeral service,
where they could congregate in a dry and warm environment, avoiding the
need to stand outside during inclement weather conditions.
A new waiting room facility could be included within the works programme
and undertaken at the same time of the cremator replacement programme.
Therefore, minimising any additional impact on mourners or service
provision.
Care of the Deceased Overnight
In order to help meet the predicted future demand it will be necessary to
consider new ways of working, ensuring that facilities and equipment is
used in the most efficient and effective way
One consideration for new ways of working and alternative service
provision includes the option to ‘Care for the Deceased Overnight’ and this
should be considered carefully. (It should be noted however, that at this
time, there is insufficient space available to install appropriate equipment
for the ‘Care of the Deceased overnight’ at Robin Hood).
The principal behind this option is intended to provide the bereaved family
with confidence that at all times the deceased will be treated with the
utmost respect and dignity when in our care, whilst allowing the service to
plan more effectively and accommodate future increased service requests.
Assumptions
The option to ‘Care for the Deceased Overnight’ has been introduced at an
increasing number of Crematoria around the country and service providers
who operate a ‘Care of the Bereaved Overnight’ Policy claim that this
option is working effectively and has wide public acceptance. Over the last
10 years we have seen an increasing number with approximately 40%
(100) of crematoria now adopting this practice.
In order to identify if this option could be developed and introduced as part
of the cremator replacement programme at Robin Hood Crematorium it is
important that we undertake a full consultation process with our
stakeholders and the bereaved to accurately gauge what the bereaved
reaction would be.
As this could be a very sensitive and emotive issue for all involved, it will
be important that the consultation process is undertaken in a very sensitive
way. Therefore it is proposed to undertake an on line survey in conjunction
with consultation exercise with a focus group, this will be supported by the
Councils’ Communication team.
If the option to proceed with the care of the deceased overnight were
approved, the installation could be included within the works programme
and undertaken at the same time of the cremator replacement programme.
The cost of the installation of equipment and building works would
therefore be kept to the minimum, and have been estimated at £50,000.
_________________________________________________________
The following assumptions have been made:
Members support the outcomes of the business case proposals in
conjunction with the Bereavement Service 30-Year Strategy.
Bereavement service staff ‘buy in’, and targets/goals are aligned
accordingly
Corporate Directors/Heads of Service will support the opportunities
for service development and areas of the service subject to review,
including new ways of working .
Recognition that successful implementation of the Bereavement
service Strategy is in the main dependent on future investment.
4. Financial
There are 3 financial areas for consideration:A – Investment
B – Funding of investment
C – On going costs
A – Investment
The following 3 options detail the replacement and investment possibilities:1. Do not replace existing cremators
2. Replace 3 cremators with 3 new cremators and no mercury abatement equipment
3. Replace 3 cremators with 3 new cremators including mercury abatement equipment
Option 1 – Do not replace, and continue to run, existing cremators
The cost to run the 3 existing cremators is forecast to be £3.003m (£0.200m per annum)
over the next 15 years – this cost is broken down in figure 1 below. The cost below
includes general maintenance, part replacement costs as well as lost income due to the
cremators being inoperable during breakdown and repair.
Activity
Re-line
Re-Brick
Computer Change
General Breakdown
Total Cost
Frequency – Existing Cremators
2 Years
5 Years
One off
Additional 12 days per annum (Year 1+)
Cost (£m)
£0.766m
£0.754m
£0.100m
£1.383m
£3.003m
Figure 1
Installing new cremators means the frequency of repair is reduced significantly.
Depending on the manufacturer chosen, indications suggest re-lines may only need to be
performed every 5 years, re-bricks every 8-10 and a computer change would be
unnecessary. This all reduces the potential of lost income as there would be less down
time for each cremator.
There are several other non-financial risks associated with not replacing the existing
cremators, including;
- 2 or more cremators breakdown resulting in service demand not being met
- Replacement parts becoming obsolete so unable to obtain
- Increased costs due to specialist repairs being needed
Option 2 – Replace 3 for 3
This option replaces the equipment we currently have with a similar specification of
equipment including today’s technological advances. This option means SMBC will have
to continue to pay the CAMEO surcharge (see Options considered for Cremator
Replacement section) of around £23 per cremation (fee reviewed nationally annually) in
order to remain fully compliant with Mercury Abatement Legislation. This cost has been
added to the fees and charges and is recovered from external income.
The 3 new cremators cost approximately £0.550m – shown below in figure 3, as well as
some minor building modifications and redecoration works.
The cost to run the new cremators is estimated to be £0.924m and is shown in figure 2.
This represents a cost avoidance saving of £2.079m over the 15 years. This saving is
based on reduced repairs and breakdowns needed in comparison to the frequency of
activities in Figure 1.
Option 3 – Replace 3 for 3 with abatement
This option includes additional equipment on the cremators that means we are compliant
with national incentives for the reduction in mercury emissions. We would then not need
to pay the CAMEO fee of around £23 but would get paid a share of the contributions
made by other cremator facilities through that scheme. As more companies become
compliant with the abatement legislation the contribution to SMBC would reduce as a
result of simple supply and demand.
These 3 cremators (including the abatement equipment) cost approximately £1.050m –
shown below in figure 3, as well as some minor building modifications and electrical
upgrades.
The estimated cost to run the new cremators (with abatement equipment) is £1.149m and
is shown below in figure 2 and represents a cost avoidance saving of £1.854m over the
15 years. This saving is based on reduced repairs and breakdowns needed in
comparison to the frequency of activities in Figure 1.
Figure 2 below shows the maintenance cost for each option over the 15 year life of the
asset.
Replacement Option
Expected maintenance costs if no replacement takes
place
Maintenance costs on 3 cremators with no abatement
equipment
Maintenance costs on 3 cremators with abatement
equipment
Cost (£m)
£3.003m
Saving (£m)
£0.000m
£0.924m
£2.079m
£1.149m
£1.854m
Figure 2
The maintenance costs to run the existing cremators for another 15 years is
approximately £0.150m above the available budget. This position will continually worsen
as time goes on.
Detailed Options for Options 2 and 3
a. Cremators, equipment and standard modifications only
b. Cremators, equipment, standard modifications, waiting room and caring for the
deceased overnight
c. Cremators, equipment, standard modifications and waiting room
d. Cremators, equipment, standard modifications and caring for the deceased overnight
Replacement Cremators
Abatement Equipment
Electricity Upgrade
Building Modifications
Option a
Option 2 (£m)
£0.550m
£0.050m
£0.600m
Option 3 (£m)
£0.550m
£0.500m
£0.100m
£0.175m
£1.325m
Option a
New Waiting Room
Option b
£0.600m
£0.100m
£0.700m
£1.325m
£0.100m
£1.425m
Option a
Care for the deceased Overnight
Option c
£0.600m
£0.050m
£0.650m
£1.325m
£0.050m
£1.375m
Option a
New Waiting Room
Care for the deceased Overnight
Option d
£0.600m
£0.100m
£0.050m
£0.750m
£1.325m
£0.100m
£0.050m
£1.475m
Figure 3
B – Funding of investment
Finance Lease - fee per Cremation
The figures in this section have been provided by Furnace Finance, a company
specialising in assisting with the financing of cremators and mercury abatement
equipment. The figures have been reviewed by the Council’s internal Treasury
Management team and also Sector, external Treasury Management advisors to the
Council.
A lease agreement on a ‘per cremation’ basis has a variable annual cost. Therefore, it is
generally expensive due to the expected increase in cremations as per the published 30
year strategy.
There is also a risk of a penalty charge if the number of cremations exceeds the 2,000
which the costs have currently been based on. It is unclear whether the charge per
cremation would remain the same if cremations were to increase above 2,000. Similarly,
there is a risk that there may be a penalty charge if cremations were to fall below the
2,000 expected – although a fall below 2,000 cremations is unlikely based on current
predictions.
This agreement would be over 10 years. It is expected that costs could increase at the
end of 10 years as maintenance costs are likely to be higher due to the age of the
cremators. The total project costs from figure 4 are not inclusive of the increase in
cremations or the increase in ‘per cremation’ maintenance costs after 10 years as this is
difficult to predict. As part of this lease agreement, the Council will not own the equipment
at the end of the lease. However, this bears little significance as the cremator and parts
have a minimal scrap value at the end of their useful life.
The Finance Lease – fee per cremation could be provided by Furnace Finance over 10
years at a total cost ranging from £0.874m to £1.591m (figure 4). These costs exclude
rises in service demand which would increase this cost.
Finance Lease – fee per annum
The figures in this section have been provided by Sector, external Treasury Management
advisors to the Council.
A finance lease agreement on a fee per annum basis has an annual fixed cost (figure 6).
The Finance Lease – fee per annum option can be arranged by Sector. Figure 4 shows
the total project cost for this type of finance lease, the costs range from £0.846m and
£1.330m over 15 years.
Borrowing
The figures in this section have been provided by Sector, external Treasury Management
advisors to the Council.
To determine if borrowing was a suitable option, internal Council tests were carried out to
consider for example the payback period of the borrowing. The tests were based on the
estimated savings from replacing the cremators. All test results were within the target
criteria and borrowing is therefore an option for this project.
This option would be through prudential borrowing which has been calculated (for a
comparable option appraisal) using a 3.50% PWLB rate – the actual rate changes on at
least a daily basis but fluctuations are minor enough for them not to make a difference to
the outcome of this appraisal.
The total cost of borrowing range between £0.827m and £1.282m over the 15 year
borrowing term. These costs are shown in figure 4.
Summary of Funding Options
Figure 4 shows a summary of the expected project cost for each of the funding options
discussed above. The Finance Lease – Per Cremation Basis is likely to increase in line
with increases in service demand so costs are expected to be higher than the current
straight line cost completed for the comparable option appraisal.
Option 2
Project Cost
Option 3
Project Cost
£0.874m
£1.019m
£0.946m
£1.092m
£1.373m
£1.519m
£1.446m
£1.591m
Finance Lease – ‘Per Annum Basis’
a. Equipment & Building Modifications
b. Including New Waiting Room
c. Including Care for the Deceased Overnight
d. Including Waiting Room & Overnight Care
£0.846m
£0.987m
£0.917m
£1.058m
£1.118m
£1.259m
£1.189m
£1.330m
Borrowing
a. Equipment & Building Modifications
b. Including New Waiting Room
c. Including Care for the Deceased Overnight
d. Including Waiting Room & Overnight Care
£0.827m
£0.965m
£0.896m
£1.034m
£1.075m
£1.213m
£1.144m
£1.282m
Financing Options
Finance Lease – ‘Per Cremation Basis’
a. Equipment & Building Modifications
b. Including New Waiting Room
c. Including Care for the Deceased Overnight
d. Including Waiting Room & Overnight Care
Figure 4
The costs for the finance lease – per cremation basis are on a 10 year cycle as per the
information gathered from leasing companies who offer this arrangement. Options 2 and
3, however, are over 15 year leases and are still cheaper options for repayment.
C – On going costs
Maintenance
Maintenance costs for the 3 existing cremators are currently around £0.045m per annum
(excluding lost income due to breakdown) but this is inclusive of more frequent
breakdowns as a result of the cremators being 17 years old. If we do not replace, these
costs are expected to rise to, on average, £0.070m per annum (excluding lost income due
to the cremators being inoperable for a period whilst under repair).
Regardless of which option (1, 2 or 3) is chosen, the equipment is under warranty for the
first year so there would be no charge until year 2.
Maintenance Options
Including the maintenance charge in
the lease repayments
Separate maintenance on a ‘when
required’ basis
Saving through having a separate
agreement
Option 1
£0.070m
Option 2
£0.098m
Option 3
£0.106m
£0.070m
£0.025m
£0.050m
£0.000m
£0.073m
£0.056m
Figure 5
Figure 5, above, shows the cost of maintenance if we include the costs as part of the
finance lease –per cremation. It is clear that even if a Finance Lease per cremation route
is chosen, a separate maintenance agreement is cheaper by at least £0.056m.
Maintenance and repair budgets are currently £0.025m for the 3 cremators at Robin Hood
cemetery so to have a separate maintenance agreement with option 2 results in no
overspend on that area.
If the maintenance agreement is included in the lease payments then there is a benefit
that the costs are fixed and known which would be a safeguarded against any
unexpected major repairs being required. On the other hand, these costs are over double
what is expected if we had a separate agreement.
Funding the Annual Cost
Each of the funding option requires an annual repayment to the funder and these annual
costs are outlined below in figure 6. The options for repayment to be discussed are as
follows.
-
Funding through Revenue Budgets
Fund using Reserve balances
Fee Increase
Financing Options
Finance Lease per Cremation
a. Equipment & Building Modifications
b. Including New Waiting Room
c. Including Care for the Deceased Overnight
d. Including Waiting Room & Overnight Care
Option 2
Investment
Repayment
Option 3
Investment
Repayment
£0.087m
£0.102m
£0.095m
£0.109m
£0.137m
£0.152m
£0.145m
£0.159m
Finance Lease per Annum
a. Equipment & Building Modifications
b. Including New Waiting Room
c. Including Care for the Deceased Overnight
d. Including Waiting Room & Overnight Care
£0.056m
£0.066m
£0.061m
£0.071m
£0.075m
£0.084m
£0.079m
£0.089m
Borrowing
a. Equipment & Building Modifications
b. Including New Waiting Room
c. Including Care for the Deceased Overnight
d. Including Waiting Room & Overnight Care
£0.055m
£0.064m
£0.060m
£0.069m
£0.072m
£0.081m
£0.076m
£0.085m
Figure 6
Funding through Revenue Budgets
Funding for the repayments could only be met through the revenue budgets if efficiencies
were able to be made across Bereavement Services. This is unlikely, however, due to the
increasing service demand and ideally the service should be future proofed against
increases in demand.
Reserves
There is a Bereavement Reserve that will have a balance of £0.676m at the end of
2013/14 with a forecast contribution of £0.141m per annum. This reserve has been
earmarked for the purchase and development of land at Woodlands cemetery. This will
use up the majority of the reserve but there will be funding left over in 2015/16 onwards to
buy an additional cremator at Woodlands which is expected to be a high priority by that
time due to the age of the cremator.
Figure 7, below, shows the expected transactions on the Bereavement Reserve over the
next 3 years.
£
Current Balance
£0.535m
2013/14 Contribution
£0.141m
2013/14 Year End Balance
Purchase of Land
£0.676m
-£0.250m
2014/15 Contribution
£0.141m
2014/15 Year End Balance
£0.567m
Development of Land
-£0.400m
2015/16 Contribution
£0.141m
2015/16 Year End Balance
£0.308m
2016/17 Contribution
£0.141m
Purchase of Cremator
-£0.320m
2016/17 Year End Balance
£0.129m
Figure 7
It is not recommended that this reserve is used for the cremator replacement as it is
difficult to quantify any return on purchased/developed land in order to pay back the
borrowing and satisfy the borrowing tests.
It is worth noting, however, that using the reserve in any capacity to purchase new
cremators will drastically reduce the costs of leasing or borrowing.
Finance Lease per cremation– adds 46% to the cost of the investment (for every £0.100m
of reserve used, £0.046m of repayments are saved)
Finance Lease per annum – adds 41% to the cost of the investment (for every £0.100m
of reserve used, £0.041m of repayments are saved)
Borrowing – adds 38% to the cost of the investment (for every £0.100m of reserve used,
£0.038m of repayments are saved)
Fee Increase
SMBC could fund the replacement through bereavement services fee increases. The
required increase to fund the annual charge is between £19.69 (£0.055m / 2,800
cremations – annual cost for option 2a and borrowing) and £56.79 (£0.159m / 2,800
cremations – annual cost for option 3d and finance lease per cremation) per cremation –
see figure 6 above for all annual costs. 2,800 cremations have been used as this is the
number of cremations undertaken by SMBC in all cemeteries – the fee increase would be
applied to all cremations and not just the cremations at Robin Hood).
Conclusion
A – Investment
Option 1 (do nothing) is not recommended due to the on going maintenance cost being
forecast at £3.003m over the next 15 years.
Option 2 (3 for 3) investment ranges from £0.600m - £0.750m.
Option 3 (3 for 3 with abatement) investment ranges from £1.325m - £1.475m.
B – Funding of investment
Prudential borrowing is the recommended source of funding for the cremator replacement
via investment option 2 or 3.
Option 2 (3 for 3) total borrowing ranges from £0.827m - £1.034m.
Option 3 (3 for 3 with abatement) total borrowing ranges from £1.075m - £1.282m.
The funding of investment costs for option 3 is cheaper than the actual investment
required as a result of income, instead of expenditure, relating to the CAMEO agreement.
This cost reduction/income is partially netted off by increased maintenance costs.
C – On going costs
The on going costs would include the investment (borrowing) cost and also maintenance
of the cremators. It has been assumed at this stage that all running costs other than
maintenance would remain the same.
Option 2 (3 for 3)
- annual borrowing costs range from £0.055m - £0.069m
- additional annual maintenance costs will be £0.000m when borrowing
- annual total costs range from £0.055m - £0.069m
Option 3 (3 for 3 with abatement)
- annual borrowing costs range from £0.047m - £0.060m
- additional annual maintenance costs will be £0.025m when borrowing
- annual total costs range from £0.072 - £0.085
It is recommended service fees and charges are increased to support the on going costs
of the service. The necessary fee increase ranges from £19.69 (for option 2 – like for like
with no further service changes) to £56.79 (for option 3 – like for like with abatement and
a new waiting room and providing care for the deceased overnight) and would be applied
to all cremations at any cemetery in the borough.
Recommendation
Regardless of the investment option for the new cremators, it is recommended that
borrowing is pursued to fund this project as it is the cheapest form of funding available to
SMBC at the current time. The repayment fee is also fixed and not variable as
repayments would not be on a ‘per cremation’ basis. Borrowing is a possibility because
the relevant borrowing tests required have been completed and passed comfortably.
SMBC also has head room in the Partial Exemption on VAT and that makes borrowing
the cheapest option to pursue. Sector has advised that leasing should only be used if
borrowing is not an option.
The annual costs of the borrowing should be funded through a fee increase as the
revenue savings are not achievable to maintain the current service standard and reserves
have been set aside for other means. The fee increase is a legitimate fee to pass on
because it is a cost to SMBC providing the bereavement service.
Appendix 1 – Summary of all funding and repayment options
Detailed
Total
Investment
Option 2 – 3 for 3 Excluding Abatement
Borrowing
Maintenance
Total Cost
per annum
per annum
per annum
Options
£m
£m
£m
£m
Savings
(compared
to Option 1)
Total
Investment
£m
£m
Option 3 – 3 for 3 Including Abatement
Borrowing Maintenance
Total Cost
per annum per annum
per annum
£m
£m
£m
Savings
(compared
to Option 1)
£m
a)
£0.600m
£0.055m
£0.025m
£0.080m
£0.120m
£1.325m
£0.122m
£0.050m
£0.172m
£0.028m
b)
£0.700m
£0.064m
£0.025m
£0.089m
£0.111m
£1.425m
£0.131m
£0.050m
£0.181m
£0.019m
c)
£0.650m
£0.060m
£0.025m
£0.085m
£0.115m
£1.375m
£0.126m
£0.050m
£0.176m
£0.024m
d)
£0.750m
£0.069m
£0.025m
£0.094m
£0.106m
£1.475m
£0.136m
£0.050m
£0.186m
£0.014m