I often get asked what work should be classed as capital and what should be maintenance. Today, I'm exploring the methodologies used by councils to determine capital projects and maintenance work.
Welcome to the Iamdata Solutions Asset Management Newsletter - 1 October 2023
Infrastructure development plays a pivotal role in ensuring the functionality and growth of communities. In local government settings, councils face the crucial task of distinguishing between capital projects and maintenance to allocate resources efficiently.
Defining Infrastructure projects - what is Capital, what is Maintenance
Infrastructure projects can be broadly categorised as either capital projects or maintenance work. Capital projects usually involve the construction or acquisition of new assets, while maintenance work involves the relatively lower costs associated with repair or renewal of existing assets. Making this distinction is essential for effective budget allocation and long-term planning.
What are the factors that influences the classification of Capital and Maintenance?
Cost Threshold
Probably the most common way councils determine what they consider a capital project and what is a maintenance project is to set a cost threshold. Projects that exceed this threshold are classified as capital projects, while those below it are deemed maintenance. If we consider the cost threshold is set at $1 million, then a road project that costs $3.5 million would be a capital project, whereas pothole repairs costing $500,000 would be maintenance work.
Project Scope and Scale
Councils often classify projects based on their scope and scale. If the project involves substantial construction, expansion, or acquisition of new assets, it is typically considered a capital project. For instance, building a new community centre with multiple amenities would be a a capital project, but the repainting and repair of an existing community centre may also be a capital project due to it's scope, scale and cost. Regular maintenance of the existing community centre would be classified as maintenance work.
Useful Life
Infrastructure projects with a longer useful life are more likely to be considered capital projects. Projects that enhance or extend the life of existing assets also fall into this category. Constructing a new bridge that is expected to last for several decades would be classified as a capital project. Also, a project to oil the wooden decking on all your bridges could be classed as a capital project because this work is extending the useful life of the bridge. Periodic repainting and repairing of an existing bridge would be maintenance work.
Regulatory Requirements
Certain regulations and funding sources might have specific criteria for distinguishing capital projects from maintenance work. Compliance with these regulations is crucial for securing funding. It's often the case that a grant program may require that only capital projects are eligible for funding, while routine repairs and maintenance may be excluded.
There are many good reasons for setting a Capital vs Maintenance threshold in your organisation.
Decision-Making Process
Council Approval
Councils typically have committees or departments responsible for evaluating and proposing infrastructure projects. The final decision rests with the council, taking into account the recommendations and justifications provided by these entities.
Public Input
Engaging with the community and stakeholders is crucial in determining priorities and needs. Public input can help identify which projects align with the community's long-term goals. Councils often run questionnaires for their residents and this would be a good source of information to help determine priorities.
More Capital Project Examples:
The construction of a new public library in a growing neighbourhood with a cost estimate of $3.5 million. The new library will cater to the increasing population and provide educational and cultural resources for years to come.
Repairing and resurfacing the road network that has experienced wear and tear over the years, with an estimated cost of $800,000. The work will extend the road's lifespan and ensure safe and smooth transportation for the community.
More Maintenance Examples:
Regular maintenance of city streets and roads involves activities such as filling potholes, resurfacing damaged sections, and repairing cracked footpaths to ensure smooth and safe transportation.
Maintenance work on bridges includes repairs, graffiti removal and painting to maintain their structural integrity and extend their service life.
Regular maintenance of public parks and playgrounds involves tasks like mowing grass, trimming trees, repairing play equipment, and ensuring overall safety and cleanliness.
Developing a Capital/Maintenance Threshold Policy can offer several benefits to a council
The policy provides clear guidelines and criteria for classifying infrastructure projects as capital or maintenance works. This consistency ensures that all projects are assessed and categorised in a standardised manner, reducing ambiguity and ensuring fairness.
By establishing a cost threshold for capital projects, the council can allocate resources more efficiently. It helps prioritise larger-scale projects that have a more significant impact on the community while ensuring that routine maintenance works are adequately funded as well.
The policy can also promote strategic long-term planning by prioritising capital projects that align with the community's growth and development goals. It encourages the council to invest in projects that have lasting benefits for future generations.
The policy necessitates proper documentation and reporting of infrastructure projects. This accountability ensures that the council's actions are well-documented, and progress can be monitored and evaluated regularly.
The example below sets out how you may like to determine your capital vs maintenance thresholds in a very simple and easy to understand way:
I hope this has been helpful. Every Council is unique so your capital vs maintenance thresholds may look very different. As long as everyone in your organisation are aware of the capital vs maintenance thresholds and what it means, then this will definitely benefit your council promoting efficient resource allocation, foster long-term planning, and ensure transparent decision-making.🥳
I have worked on many different projects with my Local Government clients, from designing and developing Power BI Reports, to building SQL Server databases for spatial data, to managing and maintaining the GIS and the Asset Management systems. If you'd like to discuss how we might work together, then please email Jill at ➡️ jill.singleton@iamdata.solutions
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