Building standards - building warrant fee model: research project

2. Review of Current Model of Building Warrant Fees

2.1 Current Building Warrant Fees

2.1.1 The building warrant fee in Scotland is based on the value of work with a minimum fee (before certification discounts) of £150 for works with a value of work of up to £5,000. The fees increase in incremental steps above the minimum fee to a fee of £4,874 for projects with a value of work of £950,000 to £1 million and then in increments of £253 for every £100,000 (or part thereof).

2.1.2 Certificates of design attract discounts of between £30 and £100 on projects up to £100,000 and thereafter the discount is 10% of the fee. Certificates of construction operate on a similar basis with a discount of £15 to £35 on projects up to £100,000 and thereafter a discount of 3% of the fee.

2.1.3 There are also several other fees including:

• Fixed fees for other warrant applications including those for demolition or conversion with no building works and some amendments to warrants.
• Fees which are 200% or 300% of the normal fee where applications are received for a building warrant where work has already started or a completion certificate submission is made without a warrant.

2.2 Advantages of the Current Fee Structure

2.2.1 One of the advantages of the current structure is that it is relatively simple with value of work being the key determinant of the application fee. The system is also well established, understood by customers and is based on national fee rates. For example, a £1 million project will attract the same fee regardless of where in Scotland the project is located.

2.2.2 As fees are based on the value of work, there is an element of ‘inflation proofing’ within the system with the value of work, and therefore fees, increasing annually with increases in building construction costs.

2.3 Disadvantages of the Current Fee Structure

2.3.1 There are a number of disadvantages of the current system including:

• No inflation increases for fixed fees.
• Establishing the cost of delivering the verification service.
• Limitations on incorporating new activities into the structure.

Fixed Fees and Inflation

2.3.2 Although there is an element of ‘inflation proofing’ within the system for warrants based on the value of work, there are a few application types which attract a fixed fee including fixed fees for conversion only, demolition only and extensions to warrant. Discounts for certificates of design and construction are also fixed for values of work up to £100,000. For these fixed fee warrants and discounts, there is nothing within the model to address inflation and these have remained at their original level since the fee rates were introduced in 2017.

2.3.3 The headline measure of inflation in the UK is the consumer price index (CPI) which rose by 19.2%^[2] between 2017 and 2022. Inflation in the construction sector can also be measured by the building cost index (BCI). Table 2.1 provides a summary of the effects of inflation on the fixed fee building warrants and selected fees for certificates of design and construction between 2017 and 2022 using the CPI and BCI indices.

2.3.4 If the fixed £100 and £150 warrant fees had kept pace with inflation between 2017 and 2022, they would have risen to £119 and £179 respectively in 2022 using the CPI and to £123 and £184 if the BCI had been used. Hence, for fixed fee applications, there has been an erosion in the value of fees in real terms since 2017. The effects of inflation should be considered in the new model.

2.3.5 In addition to funding the local authority verification process, the 2017 fees increase also incorporated an element of funding for BSD of £1.5 million. This was to ensure that building warrant fees covered the building standards related running costs of BSD at that time. This level of funding has not been reviewed since 2017 and the current structure does not easily support an amendment to this level if required. As the funding for BSD relates primarily to staff costs, inflation between 2017 and 2022 has been measured using average earnings changes in the public sector. This implies that £1.5 million of funds in 2017 would be equivalent to £1.69 million in 2022.

Establishing the Current Cost of the Verification Service

2.3.6 The building warrant fee should cover all the costs incurred by local authorities associated with the verification process. This should include general overheads which are usually apportioned to local authority departments by finance teams. Key Performance Outcome 5 (KPO5) adopts an uplift factor of 30% to allow for these costs. This is based on work from 2012 and the appropriateness of this figure should be considered.

Incorporating the Cost of New Futures Board Activities

2.3.7 The work of the Future Board has led to several important developments which are proposed for the verification process. These proposed changes are expected to have implications for the costs of delivering the verification service and include:

• A new compliance plan approach for all building warrant applications (including a compliance plan manager (CPM) and additional processes for high-risk buildings (HRBs).
• Enhanced enforcement and post completion certificate activities/powers.
• The building standards Hub which will offer services and deliver Futures Board projects on learning and development and digital transformation.

2.3.8 The existing fee structure and model does not readily allow for any additional costs associated with delivering and strengthening the verification service to be included. For example, costs associated with a building standards Hub. Costs specific to HRBs are considered in Section 2.4.

2.3.9 The 2017 increase in fees sought to better align the fee received from the application with the cost of verification work as it was felt that, at the lower end of the value of work scale, the fee received rarely covered the cost of verification. Feedback from authorities in the Part 1 research suggested that applications at the minimum fee and lower value of work bands continue to fail to cover their verification costs. The Part 1 research also identified an issue with applications with relatively low fees which are not accompanied by certificates of design. Examples were provided of projects where the cost to the local authority of using external providers (e.g. to check structural calculations in the absence of a structural certificate) was greater than the fee received.

2.3.10 This raises an issue of whether the fee structure should allow for additional charges for certain tasks e.g. use of a specialist service, or where applicants do not follow the Technical Handbooks guidance and additional verifier verification work is required. A model structure which allowed authorities to charge for certain services may help align the fee received with the cost of verification for minimum fee level and lower value of work projects.

2.4 High Risk Buildings

2.4.1 High Risk Buildings (HRBs) are defined as:

• Domestic buildings or residential buildings with any storey at a height of more than 11 metres above the ground.
• Educational establishments (schools, colleges and universities), community sports centres and non-domestic buildings under local authority control/where they have an interest in the building.
• Hospitals.
• Residential care buildings.

2.4.2 Following the Compliance and Enforcement Consultation, it is expected that the requirement for a compliance plan and a Compliance Plan Manager (CPM) will be introduced for HRBs. The compliance plan must be agreed at the outset of every project and will be used to demonstrate, through the collection of evidence and documentation, how the risk of non-compliance has been minimised and that the verifiers reasonable inquiry requirements have been met. The CPM will be appointed on behalf of the relevant person and will be responsible for the compliance plan.

2.4.3 Preparation of the compliance plan will involve a pre-application discussion process with the local authority verifiers and an approved in principle compliance plan will accompany the subsequent building warrant application. The compliance plan will set out the verification inspections or checks required during the construction phase and the evidence which will be required to support the signing and submission of the completion certificate.

2.4.4 The current fee model treats all projects with the same value of work as equal in terms of the building warrant fee i.e. a £4 million supermarket would pay the same fee as a £4 million school, although the latter would be classed as a HRB and could require more verifier involvement through the compliance plan process.

2.4.5 If additional funds are required by local authorities to discharges their compliance plan duties, the current fee structure would require that the additional funds are spread over most value of work bands. There is no option to add a specific charge (e.g. for a pre-application meeting or additional inspections) to the basic warrant fee. This will result in all users of the system paying for some of the compliance and enforcement costs which are only incurred by HRB projects (which represent a small proportion of projects).

2.4.6 Revising the current structure to include a separate fee structure for HRBs would allow the increase in fees to cover the additional costs of the compliance plan to be restricted to the projects where the requirements for verification work will be more onerous.

2.5 Conclusions

2.5.1 It is concluded that the current fee model may not serve the requirements of the building standards verification service in the future. The model is unable to add charges for specific services and the introduction of compliance plans for HRBs cannot be targeted at the projects which incur the additional costs. It is also anticipated that, over time, the strengthened compliance procedures for HRBs will be tailored to non-HRB projects which will have an impact on the work of verifiers across the system.

2.5.2 The current model established a set of fee rates for 2017. The fee rates which are based on value of work contain an element of inflation proofing, but the fixed fee elements have lost value in real terms since 2017.