Agenda item

The Committee had before it a report by the Director of Enterprise, Planning and Infrastructure which highlighted the urgent requirement to address the consequences of a lack of investment in the Council’s vehicle fleet and plant and to seek approval to proceed with the modernisation of the fleet by means other than that of outright purchase of vehicles.

The report provided a detailed overview of the Council’s existing vehicle fleet wherein it was advised that for the past five years, the Council had been operating its fleet on the basis that light goods vehicles were replaced after seven years and heavy goods vehicles after nine years.   In line with this, in June, 2006, the former Resources Management Committee agreed to invest £3.2 million in vehicle replacements per year over the following three years.

However, the fleet replacement budget had been maintained at £1.5 million per annum for the past four years.   This, in itself, had contributed to the ageing of the fleet, with an average of 60 vehicles per annum being replaced whereas 75 replacements per annum would have been required just to maintain the fleet at its existing age profile.   As a result by April, 2011, the Council would have 30 vehicles over seven years old and 223 light vehicles over five years old.   It was estimated to replace these vehicles by outright purchase would cost in the region of £7.5m.   Given current and existing future borrowing constraints, the outright purchase of these vehicles was impractical.

In light of the above position, the report presented the following options available for financing of vehicles:-

(1)       Operating Lease  

Offers a low initial outlay of typically three months rental in advance.  This was desirable if there was a shortage of available funds for the outright purchase of vehicles.   In addition, it provided certainty of budgeting and cash flow as monthly rentals were fixed over a fixed period, and there was flexibility to extend the lease at the end of the initial agreement at a considerably reduced rental.   As the risks and reward of ownership were retained by the leaser there was no need to account for the vehicles in the Council’s financial statements.  This contrasted with a finance lease which required an asset and liability to be provided for the Balance Sheet which might impact on the Council’s overall debt position.

(2)       Contract Hire 

A low initial capital outlay with fixed monthly payments providing certainty of budgeting and cash flows.   Risks involved in running a vehicle fleet including residual values and interest rates could be transferred to a contract hire company.  

Both options could be tailored to include maintenance if required or this function could be carried out by the in-house service.

The Committee resolved:-

(i)         to approve the updated strategic approach to modernise the fleet to bring its age profile down to manageable levels in line with industry standards;  and

(ii)        to refer the report to the Finances and Resources Committee, with the recommendation that it instructs the Service to progress with the Central Procurement Unit the investigation of alternative means of financing the required investment through revenue expenditure and the selection of the most cost-effective option.