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July 2005
Foreword by the President of
the County Surveyors’ Society
The Framework for Highway Asset Management, published by the CSS in 2004,
provided an excellent introduction to a subject which is manifestly growing in
importance. As authorities throughout the UK have begun to embrace this new
approach to highway management, there has been a clear and urgent need for advice
and guidance on the valuation of highway assets. I am delighted that, once again, the
CSS and its partner organisations have risen to the challenge.
I extend my thanks to all who have helped to develop this guidance, and I would
especially like to acknowledge Transport for London who have contributed generously
to the project. I also want to mention the involvement of government departments: the
Office of the Deputy Prime Minister, Her Majesty’s Treasury, and the Department for
Transport, whose support for this work makes it all the more authoritative.
The aim has been to deliver guidance which will enlighten and assist both highway
engineers and accountants and bring about mutual understanding and closer working
relationships. I believe this document achieves that objective, and I commend it to you.
ALASTAIR JEFFORD
May 2005
3
Preface
It is widely accepted that Asset Management provides the framework and principles for
good highway management. In 2004 the County Surveyors Society (CSS) produced the
Framework for Highway Asset Management to assist Local Highway Authorities in the
development and implementation of Asset Management. Central to Asset Management
is the development of cost effective long term plans, and the importance of these has
also been recognised by the Government:
Transport is vital to the economy and the way we live. Decisions we make
now will have an impact for decades to come. It is essential that we take
the long-term view.
Asset valuation is the calculation of the current monetary value of an authority’s assets.
The current monetary value is evaluated as the Depreciated Replacement Cost (DRC) of
an authority’s highway infrastructure assets, where:
The Gross Replacement Cost (GRC) for the highway infrastructure is determined from a
bottom up calculation using a standardised procedure involving standardised Unit Rates
and GRC models which represent the cost of replacing an existing asset with a Modern
Equivalent Asset. Assets are consumed during service due to ageing, usage,
deterioration, damage, a fall in the Level of Service (assessed through appropriate
Performance Measures) and obsolescence.
4. To support Highway Asset Management – Asset Valuation provides one facet of the
robust financial framework that Asset Management should operate within.
4
PURPOSE OF THE GUIDANCE DOCUMENT
The purpose of this Guidance Document is to provide a common framework for the
discussion, development and implementation of highway infrastructure asset valuation
by Local Highway Authorities in the UK. The general procedure to be used for asset
valuation is described; however, some of the detailed work, such as derivation of Unit
Rates and establishing asset service lives, will need to be undertaken by Local Highway
Authorities. It is recommended that regional groups are set up for this purpose to pool
the data and share the experience and learning.
The guidance document describes a generic procedure for calculating the asset value
of highway infrastructure assets. Specific guidance is provided for roads, segregated
footpaths and cycle routes, structures, highway lighting, street furniture, traffic
management systems, off-highway drainage and land (associated with the highway).
If required, the generic procedure can be used to value other highway infrastructure
assets that are not covered explicitly by the document.
The Guidance Document is a companion to the CSS Framework for Highway Asset
Management. The recommendations of the Guidance Document are not explicitly
mandatory on authorities. The term ‘should’ associated with an action is used to denote
a recommendation, except where clearly relating to a statutory requirement.
The Guidance Document is endorsed by the Treasury, the Office of the Deputy Prime
Minister (ODPM), the Department for Transport (DfT), the County Surveyors Society
(CSS), the Local Government Technical Advisors Group (TAG) and the Society of Chief
Officers of Transportation in Scotland (SCOTS).
Implementation
• benchmark valuation in Financial Year 2006-07 (provides opening book value for
2007-08).
Guidance is provided on the valuation regime, systems, data and resource requirements
that should be considered by Local Highway Authorities when planning the
implementation of asset valuation.
5
Contents
Glossary 8
Abbreviations 12
1. Introduction 13
5. Asset Inventory 32
6. Unit Rates 40
8. Depreciation 49
9. Impairment 57
12. Roads 70
14. Structures 79
19. References 99
Acknowledgements 113
6
LIST OF TABLES
LIST OF FIGURES
Figure 3.1 Overview of the Procedure for Highway Infrastructure Asset Valuation 22
Figure 3.2 Detailed Steps in Highway Infrastructure Asset Valuation Procedure 23
Figure 5.1 Asset Classification 34
Figure 8.1 Straight Line Depreciation of Finite Life Asset 51
Figure 8.2 Straight Line Depreciation and Residual Value 52
Figure 8.3 Treatment of Reduction in Remaining Service Life 53
Figure 9.1 Calculating Impairment 61
Figure 9.2 Grouping of Assets by Age Bands 62
Figure 9.3 Performance Measure and Restoration Cost Factor 63
Figure 11.1 Accumulated Asset Consumption Measure 68
Figure 11.2 In-year Asset Consumption and Renewal Measures 69
Figure 15.1 GRC and Component Replacement Cost 89
7
Glossary
Accruals Accounting a method of recording expenditure as it is incurred
and assets as they are consumed, regardless of
when the cash is received or paid out.
Asset Management a plan for managing the asset base over a period of
Plan (AMP) time in order to deliver the agreed Levels of Service
and Performance Targets in the most cost effective
way. This may be referred to as a Highway Asset
Management Plan (HAMP) or Transport Asset
Management Plan (TAMP) in other guidance
documents and codes of practice.
8
Glossary
Carriageway the part of the highway laid out for use by motor
vehicles.
9
Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
Net Book Value the amount at which fixed assets are included in the
balance sheet, i.e. the Net Asset Value.
10
Glossary
11
Abbreviations
AAC Accumulated Asset Consumption
ADF Adjustment factor
AMP Asset Management Plan
AMS Asset Management System
BVPI Best Value Performance Indicator
CSS County Surveyors Society
CIPFA Chartered Institute of Public Finance and Accountancy
DfT Department for Transport
DRC Depreciated Replacement Cost
FRS Financial Reporting Standard
GAAP Generally Accepted Accounting Practice
GRC Gross Replacement Cost
HMT Her Majesty’s Treasury
IAC In-year Asset Consumption
IAR In-year Asset Renewal
LASAAC Local Authority Scotland Accounting Advisory Committee
MEA Modern Equivalent Asset
NBV Net Book Value
ODPM Office of the Deputy Prime Minister
PI Performance Indicator
PROW Public Rights of Way
RAB Resource Accounting and Budgeting
RAM Resource Accounting Manual
RCPI Road Construction Price Index
RCTPI Road Construction Tender Price Index
RV Residual Value
SCOTS Society of Chief Officers of Transportation in Scotland
SL Service Life
SORP Standard of Recognised Practice
TAG The Local Government Technical Advisors Group
UR Unit Rate
WGA Whole of Government Accounts
12
Section 1
Introduction
1.1 WHAT IS ASSET VALUATION?
1.1.3 The methodology used to calculate the current monetary value depends on the
asset under consideration. This Guidance Document has been produced
specifically for the valuation of highway infrastructure assets.
1.2.1 Placing a monetary value on highway assets emphasises their importance and
hence the need to maintain them. Monitoring how the asset value is changing
with time can indicate if costs are being unduly passed to future generations,
and can provide compelling arguments for investing in the preservation of the
asset base.
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
1.2.2 Experience in other countries (Finland, New Zealand, Australia, US, Canada)
has shown that implementing financial reporting of asset values for
infrastructure assets has a significant impact on how maintenance and renewal
work is funded and utilised. This has generally resulted in an improvement in
the maintenance of assets.
1.2.3 It is, however, important to recognise that asset value represents only the
monetary value or capital value of the assets and not the service provided or
the “worth” of the assets to society.
1.2.7 WGA uses accruals accounting methods in line with the Generally Accepted
Accounting Practice (GAAP) and brings public sector accounting in line with
that of the private sector. By relying on proper accounting practice this builds
on the prudential system for local government finance and the Resource
Accounting procedures for central government.
1.2.8 The objectives of WGA and RAB are to promote greater accountability,
transparency and improved stewardship of public finances. Resource
accounting is intended to provide a systematic link between an authority’s
objectives, resources consumed and outcomes delivered. Under RAB an
authority is required to report in its accounts the resources, including physical
assets, invested and consumed in the delivery of public services. The benefits
of RAB are stated as including [Ref. 6]:
14
Section 1 – Introduction
5. Apportioning assets over the years in which they are consumed in the
provision of services.
1.2.9 The central objectives and intentions of RAB and consolidation through WGA
align closely with those of good Asset Management.
1.3.2 The guidance provides a common framework for the discussion, development
and implementation of highway infrastructure asset valuation by authorities in
the UK. It is recommended that authorities work together, possibly at regional
level, to develop some of the inputs for asset valuation, e.g. Unit Rates, Gross
Replacement Cost models and service lives.
1.4 SCOPE
1.4.1 This Guidance Document covers all fixed assets that form an essential part of
the highway network, for example the earthworks, pavement, drainage, verges,
fencing, structures, lighting, street furniture, traffic management and
communication assets. Assets such as vehicles, plant and equipment, and
depots are excluded from the scope.
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
1.5.1 This Guidance Document is a companion to the CSS Framework for Highway
Asset Management [Ref. 1]. The recommendations of this Guidance Document
are not explicitly mandatory on authorities. The term ‘should’ associated with
an action is used to denote a recommendation, except where clearly relating to
a statutory or mandatory requirement.
1.5.2 However, authorities who elect, in the light of local circumstances, to deviate
from the recommendations given here should identify these in their Valuation
Report together with the reasons for the departure.
1.5.3 The guidance is endorsed by the Treasury, the Office of the Deputy Prime
Minister (ODPM), the Department for Transport (DfT), the County Surveyors
Society (CSS), the Local Government Technical Advisors Group (TAG) and the
Society of Chief Officers of Transportation in Scotland (SCOTS).
1.6.1 Key recommendations are boxed, like this paragraph, when they appear in the
text. They are also summarised in Section 18.4.
16
Section 2
Asset Valuation Requirements
2.1 FINANCIAL REPORTING REQUIREMENTS
2.1.1 Asset valuation for highway infrastructure assets should comply with the
financial reporting requirements summarised below. The asset valuation
procedure described in this Guidance Document enables authorities to comply
with these requirements.
2.1.2 The methodology adopted for calculating asset values for an authority’s
statutory accounts should comply with the SORP [Ref. 7]. The methodology
should also be consistent with Financial Reporting Standards 15 and 11
[Ref. 8 & 9]. Consistency with Treasury’s Resource Accounting Manual [Ref. 10]
is also desirable for the preparation of the Whole of Government Accounts.
2.1.3 The valuation principles, basis and rules established for highway infrastructure
asset valuation are presented in Section 4. The principles, basis and rules
comply with the aforementioned standards where appropriate.
2.1.4 The guidance recommends the use of Renewals Accounting for roads,
segregated footpaths and cycle routes, and structures because they form an
integral part of the highway network and meet the requirements set down in
FRS 15 [Ref. 8]. It is recognised that FRED 29 [Ref. 11], following on from IAS
16 [Ref. 12], does not refer to Renewals Accounting. However, in the opinion of
those endorsing this guidance (Section 1.5.3), Renewals Accounting is a robust
and systematic basis for estimating the consumption of the aforementioned
parts of the highway network.
2.1.5 The inclusion of highway infrastructure asset values derived in accordance with
this guidance into the statutory accounts is dependent on agreement of the
procedure with CIPFA/LASAAC and necessary amendments to the SORP [Ref.
7]. It is recognised that the 2004 publication of the SORP guidance [Ref. 7]
requires highway infrastructure assets to be reported in the Balance Sheet at
historical cost and a current valuation of these assets is not required. At the
time of publication of this Guidance Document, discussions between
CIPFA/LASAAC, HMT, ODPM, DfT and CSS/TAG were assessing the suitability
of historical cost for highway assets and the practicality of moving towards a
(re)valuation regime based on current value. This Guidance Document has been
prepared on the assumption that highway infrastructure assets will be required
to be valued on the basis of current value.
2.1.6 An authority should provide a true and fair current value of the highway
infrastructure assets for reporting in the Balance Sheet. The asset value is
intended to represent the current value of the capital employed by the authority
in delivering its services.
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
2.1.8 The accumulated depreciation and impairment are deducted from the Gross
Replacement Cost to give the Depreciated Replacement Cost.
2.2.1 Key objectives of highway Asset Management, as with RAB, are to promote
greater accountability and improved stewardship of public assets, and to
systematically link resources to the delivery of an authority’s objectives. This
translates into two categories of work for highway infrastructure assets:
2.2.2 These programmes of work influence the asset value, i.e. the work programme
may maintain or increase the asset value or, if it is not adequate, then the asset
value may decrease. Monitoring asset value over time can therefore be used to
demonstrate stewardship of assets. This information provides an important
input to a business case for investing in the maintenance and upkeep of public
assets.
2.2.3 To enable effective use of asset valuation within highway Asset Management,
the valuation procedure should meet the following specific requirements:
1. Treat the assets in the “right way”, reflecting that they are part of a
highway network and operate together to provide the specified Levels of
Service for the network. This integrated approach to asset management
should be reflected, where appropriate, in the procedure used for
highway infrastructure asset valuation.
18
Section 2 – Asset Valuation Requirements
2.3.2 It is recognised that the robustness and reliability of valuation are likely to
improve with time as Asset Management Systems (AMS) progress and the
quality of data about asset inventory, condition and performance improves.
Also, as authorities develop and populate their AMS they can expect to
improve the level of detail used in asset valuation and to streamline the
procedure. If suitable advances are made in AMS, then asset valuation may
become largely, or completely, automated and it may become feasible to align
annual adjustments more closely with the tasks undertaken in a benchmark
valuation.
2.3.3 An authority should review the scope of the benchmark valuation and annual
adjustments described below and, based on the characteristics of its highway
stock, the availability of data and the functionality of its AMS, adopt a suitable
valuation regime. An authority should also consider how their data and systems
are likely to change over time, as identified from the Asset Management gap
analysis [Ref. 1], and assess the impact this may have on the asset valuation
regime.
2.3.4 As a minimum, the asset valuation regime should include a full benchmark
valuation every five years. The benchmark valuation should comprise:
1. A review of the valuation basis, rules and algorithms, and making any
necessary amendments if this results in a fairer valuation.
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
2.3.5 A benchmark valuation should be undertaken before the five year milestone, if
there is reason to believe the current value is materially different from a true
and fair value.
Annual Adjustments
2.3.6 Asset valuation should include annual adjustments to reflect any in-year
changes compared to the previous year and, if appropriate, adjust the asset
value. The adjustments should take account of:
20
Section 3
Overview of Highway Asset
Valuation Procedure
3.1 OVERVIEW
3.1.1 The general procedure for the valuation of highway infrastructure assets
consists of the following steps and is illustrated in Figure 3.1.
1. Establish the principles, basis and rules for asset valuation (Section 4).
These should comply with the valuation requirements given in Section 2.
2. Compile an Asset Inventory that provides the base data for calculating
asset values for all highway infrastructure assets owned by an authority
(Section 5). The assets should be appropriately classified and grouped.
Also see Section 2 of the CSS Framework for Highway Asset
Management [Ref. 1].
3. Produce the initial value of the highway infrastructure assets. This
involves:
a. Deriving appropriate Unit Rates for the different asset groups and
sub-groups (Section 6).
b. Calculating the Gross Replacement Cost for each asset within a
group or sub-group (Section 7).
4. Calculate the consumption of the assets, which involves:
a. Calculating in-year depreciation (Section 8); and
b. Assessing for in-year impairment and calculating loss in value
where required (Section 9).
5. Calculate the Depreciated Replacement Cost (Section 10) which involves:
a. On the introduction of the asset valuation regime, calculating the
DRC (which is the opening Net Book Value) by reducing the Gross
Replacement Cost to reflect the current age, condition and
performance of assets; and
b. Annual adjustments to the asset value to account for in-year
depreciation and impairment.
6. Prepare the Valuation Report (Section 11).
3.1.2 Sections 4 to 11 apply to all highway infrastructure assets, except where
explicitly stated. Guidance specific to each asset type is provided in Sections
12 to 17.
3.2.1 The specific tasks involved in steps 2 to 5 above are shown in Figure 3.2 and
described in detail in Sections 5 to 10. The relevant sections are cross
referenced in Figure 3.2.
21
Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
3.2.2 Several tasks in the procedure are interrelated and may need to be carried out
in a different order, depending on whether the valuation is being undertaken for
the first time or whether it is a benchmark valuation or annual adjustment.
Figure 3.2 shows some of the relationships between tasks as appropriate for
initial implementation of asset valuation.
Valuation Principles,
Basis and Rules
(Section 4)
Asset Inventory
(Section 5)
INITIAL VALUE
Unit Rates
(Section 6)
Gross
Replacement Cost
(Section 7)
CONSUMPTION
Depreciation Impairment
(Section 8) (Section 9)
Depreciated
Replacement Cost
(Section 10)
Valuation Report
(Section 11)
Figure 3.1 Overview of the Procedure for Highway Infrastructure Asset Valuation
22
Section 3 – Overview of Highway Asset Valuation Procedure
ASSET INVENTORY
(Section 5) Establish asset
classification
Review asset (Section 5.4) Establish
Compile asset
inventory sub-groups &
valuation data
requirements adjustment factors
(Section 5.6)
(Section 5.2) Identify key (Section 5.5)
cost drivers
(Section 5.3)
DEPRECIATION (Section 8)
Adopt Determine Calculate
Conventional Classify assets & service lives & depreciation
Method components depreciation charge
(Section 8.2) (Paragraph 8.2.2) (Paragraph 8.2.4) (Paragraph 8.2.10)
IMPAIRMENT
(Section 9) Assess for Calculate
impairment impairment
(Section 9.2) (Section 9.3)
DEPRECIATED Determine
Calculate
Calculate annual
REPLACEMENT condition & adjustments
initial DRC
COST performance to DRC
(Section 10.3)
(Section 10) (Section 10.2) (Section 10.4)
23
Section 4
Valuation Principles, Basis and Rules
4.1 GENERAL
4.1.1 Before carrying out valuation it is important that the principles, basis and rules
are set down and agreed by the authority with its auditors, as they have a
significant impact on the calculated asset values. The principles, basis and
rules presented below provide an appropriate basis for the valuation of
highway infrastructure assets and are strongly recommended for adoption by
all authorities. They underpin the asset valuation procedure and guidance
presented in this document.
4.1.2 It is important that authorities do not deviate from the principles, basis and
rules described below unless there is a good reason to do so. This is necessary
to ensure consistency in the asset values and the related asset preservation
measures produced by different authorities. If an authority deviates from the
following rules they should fully document the reasons for the deviation in their
Valuation Report (Section 11.2).
4.1.3 The principles, basis and rules for highway infrastructure asset valuation are
described under the following headings:
4.2.1 Highway infrastructure asset valuation and its annual reporting should follow
the established principles of financial accounting; in particular:
24
Section 4 – Valuation Principles, Basis and Rules
4.3.1 Highway assets are largely publicly owned and have rarely if ever been sold on
the open market. They are not created to produce revenue and therefore do not
have a defined revenue stream, although revenue may be associated with them
in certain cases (e.g. congestion charging, tolls and parking charges). Hence
the ‘market value’ or ‘revenue stream’-based valuation methods are not
appropriate for highway assets.
4.3.2 The Resource Accounting Manual (RAM) [Ref. 10], based on the requirements
of FRS 15 [Ref. 8], recommends that highway infrastructure assets are valued
on the basis of Depreciated Replacement Cost (DRC). (NB: at the time of
publication of this document the SORP Guidance [Ref. 7] required historical
cost to be used for the valuation of highway infrastructure assets; but the
SORP requirement has not been followed, for the reasons given in
paragraph 2.1.5).
Equation 1
Where:
4.3.4 This Guidance Document describes the approaches that should be used to
calculate depreciation and impairment. Guidance on the accounting treatment
of depreciation and impairment in the Statement of Accounts is beyond the
scope of this document, and for this purpose authorities should refer to the
SORP [Ref. 7].
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
4.4.2 FRS 15 [Ref. 8] states that “Costs, but only those costs that are directly
attributable to bringing the asset into working condition for its intended use,
should be included in its measurement”.
4.4.3 Directly attributable costs for highway infrastructure assets are all costs
incurred by the authority when constructing the asset, e.g. labour, plant,
material, site preparation, traffic management and professional fees. However,
certain costs such as utility service diversion/disruption, pre-feasibility costs,
the authority’s overall programme management, monitoring and overhead costs
not directly attributable to a specific asset or scheme, are not admissible. Any
abortive costs including those related to design errors, industrial disputes, idle
capacity, wasted resources and production delays are also not admissible.
4.4.4 The actual outturn costs incurred in constructing a highway asset can be
broadly grouped under the following cost elements:
26
Section 4 – Valuation Principles, Basis and Rules
7. Possession costs for assets over, or that impact on, railway lines,
canals, etc.
4.4.6 It is recognised that the diversion of utility services (e.g. gas, water, telephones
and cables) during asset replacement or renewal work and their subsequent
reinstatement can contribute a significant proportion to project costs. However,
these costs are uncertain and difficult to estimate and should therefore be
written off when incurred (except for highway lighting, and similar assets, as
explained in paragraph 15.3.1).
4.5.1 The valuation procedure should preferably align with the capitalisation
procedures used for accounting for subsequent expenditure on assets in their
maintenance, renewal and enhancement. Guidance for this is provided in the
SORP [Ref. 7].
4.5.2 Authorities should establish proper policies and procedures, in agreement with
their auditors, for the capitalisation of costs and their classification into
admissible and non-admissible costs for valuation purposes. In doing so, due
consideration should be given to the approach adopted for depreciation
because this has an influence on how the subsequent expenditure is
capitalised [Ref. 8]. The recommended approaches for depreciation are
described in Section 8.
4.6.1 Valuation is carried out using standardised Unit Rates (Section 6) for each asset
group or sub-group. The Unit Rates are derived from outturn costs from a
representative sample of previously completed highway (re)construction
schemes. The Unit Rates need to be adjusted, using an appropriate price
index, to represent present day prices.
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
4.6.2 Authorities should adopt an index that best reflects the increases in road
construction prices in their authority. The indices widely used by authorities in
the UK are:
4.6.4 If an authority uses an alternative price index, then they may adopt this for
asset valuation provided the authority and their auditors are satisfied with its
suitability for highway infrastructure assets.
Baxter Indices
4.6.5 Baxter Indices were developed in order to apply Price Adjustment Formulae to
construction contracts to allow for variations in contractors’ costs over the
duration of a contract. Whilst they are published by the DTI on a monthly basis
[Ref. 13], there is a working group, which has a wide representation from all
sides of the construction industry, that is responsible for reviewing the indices
and deciding issues arising in the compilation of the indices. Indices are
published as provisional in the first instance and are subsequently changed to
firm values.
4.6.6 Two sets of indices are published; one for building work and one for specialist
and civil engineering works. The latter should be used for highway
infrastructure asset valuation and consists of 14 indices for different
components of labour, plant and materials:
3. Aggregates
5. Cements
8. DERV fuel
28
Section 4 – Valuation Principles, Basis and Rules
10. Timber
4.6.7 In order to adjust the Unit Rates (Section 6), it is necessary to use a basket of
indices weighted based on the proportion the above components contribute to
the Unit Rate under consideration. Whilst this can be done separately for each
Unit Rate an authority may decide to produce a weighted basket appropriate to
each Level 1 asset type (Section 5.4) and use this combined index for all asset
groups and sub-groups within the category. Similarly this could be done at
Level 2, for example, for a concrete bridge one would use indices 1, 2, 3, 5, 10
& 11A as their movement would affect the Unit Rate significantly.
4.7.1 The concept of Modern Equivalent Asset (MEA) is used to determine the
standardised Unit Rates (Section 6) and Gross Replacement Cost (Section 7)
when valuing existing assets of technologically obsolete construction form,
e.g. the modern equivalent of a masonry arch bridge may be a composite
beam and slab bridge.
4.7.2 The MEA is defined as one which provides the same Potential Performance as
the existing asset, but takes account of up-to-date technology. If the
construction form of an existing asset is no longer considered appropriate as a
replacement, or when existing assets can be replaced more economically by
new construction forms to provide a similar function, then this should be
reflected in asset valuation by using the MEA instead of the existing
construction form.
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
4.7.3 MEA should reflect current good practice and should therefore implicitly
account for the latest construction techniques, delivering minimum whole life
costs, and meeting sustainability and environmental requirements. The MEA
should be identified, where required, for the asset groups and sub-groups
described in Section 5 and a replacement Unit Rate derived for each. The MEA
can be readily identified by reviewing recent construction practice.
4.7.4 In some cases the Potential Performance provided by an existing asset cannot
be replicated by a MEA, e.g. the Potential Performance of an existing bridge
may be 10 tonne however a MEA would be designed to provide 40 tonne
capacity. In such cases the GRC should be evaluated as the cost of a MEA that
meets the Current Performance, even if it provides an improvement on the
existing Potential Performance, provided the GRC of the MEA is considered to
be representative. If the GRC of the MEA is considered to be unrepresentative
of the cost of replacing the existing asset, with an asset that provides the same
Potential Performance, then the costs should be factored accordingly. A factor
should be applied when the GRC for the existing asset is considered to be
more than ±10% of the GRC of the MEA.
4.7.5 Appendix A provides some examples of how to use MEA. The examples
explain the appropriate treatment of impairment (Section 9).
4.8.1 Schemes which have not reached the ‘open for traffic’ stage but are in
progress at the valuation date are classed as ‘assets under construction’.
These assets should be included in the accounts either at cost or a proportion
of the value of the complete asset evaluated using the standard procedure. The
proportion of the value considered should be based on the progress of the
work or spend to-date compared to the full asset when completed.
4.9.1 Assets which are managed under a Private Finance Initiative (PFI) scheme as
“off the Balance Sheet assets” should not be included in the valuation. Where
this is not the case a proportion of the full asset value (evaluated using the
standard procedure), based on the elapsed period of the PFI concession
relative to the total concession period, should be included in the Balance
Sheet. For example, if the total asset value of lighting assets in an authority is
£20 million and the total period of the PFI concession is 20 years with 15 years
elapsed, then the asset value to be included in the Balance Sheet is £15
million.
4.10.1 Highway infrastructure assets are classified into groups and sub-groups
(Section 5) to enable standardised Unit Rates (Section 6) and GRC models
(Section 7) to be determined. However, Special Structures are those that due to
a combination of their size, construction and/or character are not suitable to be
valued using standardised Unit Rates and GRC models, for example, the
Jubilee Bridge.
4.10.2 Special Structures should be valued individually using the principles given in
this Guidance Document, including the concept of Modern Equivalent Asset.
Specific guidance on the treatment of Special Structures is provided in
Section 14.
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Section 4 – Valuation Principles, Basis and Rules
4.11.1 Many authorities have a significant number of heritage and/or listed highway
assets, principally bridges, e.g. Tower Bridge, but they may also include other
assets that are deemed to be important to the character of the area, e.g. ornate
lighting columns and cobbled streets. It would not be appropriate to value
these assets using the Modern Equivalent Asset (MEA) approach because this
would not reflect the true costs incurred by the authority in maintaining and/or
replacing the existing asset. That is, a heritage asset would be expected to be
replaced with a ‘like for like’ or ‘nearly as like as is feasible’ asset. This is likely
to result in a significantly higher cost compared to replacing it with a MEA.
Therefore, the standardised Unit Rates derived for MEA groups, or sub-groups,
should not be used to calculate the asset value for heritage assets.
4.11.2 Unit Rates and Gross Replacement Cost models may be determined for
individual heritage assets or groups/sub-groups of heritage assets. The
approach adopted depends on the type and number of heritage assets in the
authority, or in the region if the authority is working with other authorities.
4.11.3 The Unit Rates and Gross Replacement Cost models should be based on an
optimised replacement cost that provides the required appearance and
function but seeks to make cost savings and efficiencies where appropriate.
Examples include:
4.11.4 If sufficient (re)construction cost data is not available from within the authority
or other similar authorities then engineering judgement and experience should
be used in valuing Special Structures and Heritage Assets. If necessary, advice
may also be sought from a Quantity Surveyor.
31
Section 5
Asset Inventory
5.1 GENERAL
ASSET INVENTORY
Establish asset
classification
(Section 5.4) Establish
Review asset Compile asset
inventory sub-groups & valuation data
requirements adjustment factors (Section 5.6)
(Section 5.2) (Section 5.5)
Identify key
cost drivers
(Section 5.3)
5.1.1 The asset inventory provides the base data required for asset valuation. This
section describes the asset inventory requirements, asset classification (and
the key cost drivers to be considered when classifying the assets), asset sub-
groups and adjustment factors. The data required for asset valuation is also
summarised.
5.2.2 In order to support asset valuation the asset inventory should contain the
following:
2. Valuation Data – the data for each asset required to calculate asset
values, e.g. dimensions, material type, age and useful service life.
5.2.3 The refinement of the asset register directly influences the accuracy and
reliability of valuation. Greater refinement is likely to increase the quantity of
data required to support asset valuation thereby increasing the storage
requirements and the resources needed to keep it up-to-date and accurate. It
is recommended that authorities identify the asset classifications required for
good Asset Management and seek to align asset valuation with these. A
classification that is suitable for asset valuation is presented in Section 5.4.
32
Section 5 – Asset Inventory
5.2.4 To expedite asset valuation it is desirable that the asset inventory and the
valuation procedure are automated using a computerised system. Section 18.2
provides further guidance on the functionality of asset valuation systems.
5.3.1 Asset valuation requires a true and fair monetary value to be placed on the
highway assets. The standardised Unit Rates and Gross Replacement Cost
models should take account of the factors that have a significant influence on
replacement cost. The key cost drivers should therefore be identified and used
to inform asset classification.
5.3.2 The key cost drivers that influence the GRC of a highway asset include:
5.3.3 Sections 12 to 17 present a range of key cost drivers for each asset type; the
asset classification presented in Section 5.4 takes account of these key cost
drivers.
5.4.1 The entire highway infrastructure is defined as an asset class. The highway
infrastructure operates as a single network and is managed and maintained in a
manner that reflects the interaction and inter-dependence between the
individual assets that comprise the network. However, for the purpose of asset
valuation it is necessary to distinguish between assets of different function and
form in order to derive appropriate Unit Rates and GRC.
5.4.2 The highway infrastructure asset class is divided into asset types, asset
groups, asset sub-groups and components. This helps to:
1. Distinguish assets by key cost drivers (e.g. function, form and material)
that influence their replacement cost; and
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
5.4.3 The proposed classification for asset valuation has three levels, shown in
Figure 5.1. The three levels are defined as:
Level 1: Asset Types – broad categories based on the general function of the
assets. They divide the asset base into categories that may be suitable for
reporting in the financial statement and provide an appropriate basis for high
level management information.
Increasing
level of Level 2: Asset Groups and Sub-Groups
asset Assets of similar function and form which
information provide suitable detail for calculating Unit
required Rates and Gross Replacement Costs (GRC)
Level 3: Component
Components that are likely to have different Note: Level 3 assets and
components are explicitly
deterioration rates and/or service lives and identified for depreciation
should therefore be treated separately for when the Conventional
depreciation and impairment Method is used.
34
Section 5 – Asset Inventory
5.4.4 The disaggregation required for asset valuation depends on the accounting
approach used for depreciation. Section 8 describes the depreciation
approaches suitable for highway infrastructure assets and recommends the
approaches to be used for each asset type. The choice of the depreciation
method influences asset disaggregation as follows:
2. Asset Types such as roads, segregated footpaths and cycle routes, and
structures that are assessed at group or type level for depreciation, using
Renewals Accounting (Section 8.3), require Levels 1 and 2 to be explicitly
defined and used within asset valuation. Whilst the Level 3 components
are not explicitly identified for depreciation they are likely to be needed in
the development of the Asset Management Plan that supports Renewals
Accounting.
5.4.5 An asset classification that is appropriate for asset valuation is shown in Table
5.1. The table is not exhaustive and should be taken as a general framework. If
these asset types and groups do not provide adequate coverage then an
authority may extend this scheme to make it appropriate for its network. Where
possible the asset disaggreagtion should align with that used for Asset
Management.
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
* These assets are only included in highway infrastructure asset valuation where they
are maintained as part of the highway infrastructure asset, e.g. surfaced PROW.
36
Section 5 – Asset Inventory
5.5.1 The asset groups (Level 2) shown in Table 5.1 may be used as the basis for
deriving standardised Unit Rates (Section 6). However, in some cases these
groups may not provide the required degree of refinement. Further refinement
can be achieved by identifying sub-groups within a group or by the use of
adjustment factors to account for certain cost-influencing factors. Guidance on
the choice between the two options is given below. Sections 12 to 17
recommend asset sub-groups and adjustment factors for each asset type.
Asset Sub-Groups
1. The flexible pavement asset group may be divided into sub-groups: urban
single, urban dual, rural single, rural dual and rural single track.
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
2. The bridges asset group may be divided into sub-groups, e.g. road
bridge, subway and footbridge.
5.5.3 The asset inventory should enable the asset sub-groups to be readily identified
based on the data held against each asset.
Adjustment Factors
5.5.4 The Unit Rate for an individual asset may in some cases differ significantly from
the standardised Unit Rate determined for the group or sub-group. This is likely
to occur when a key cost driver only influences one asset or a small number of
assets in the group/sub-group. The same key cost driver may also influence a
small number of assets in other groups/sub-groups. In such cases an
adjustment factor should be derived and this can be applied to the appropriate
assets when calculating the GRC.
5.5.5 Adjustment factors should take account of significant key cost drivers that are
not already covered by the group or sub-group attributes. Criteria that may be
considered as appropriate for adjustment factors include:
1. Location – different factors may be applied for assets in rural and urban
areas, or in relation to location generally.
2. Size – the replacement cost may vary according to overall size for certain
asset types reflecting economy of scale in construction.
3. Access – the replacement cost for assets with difficult access may be
higher, for example bridges over a motorway, railway line, canal or river.
5.5.6 The adjustment factors are applied to the calculated Gross Replacement Cost
as shown in Section 7.
5.5.7 Where adjustment factors are used the asset inventory should hold relevant
attributes against individual assets to enable appropriate factors to be applied.
5.6.1 The specific data requirements depend on the characteristics of the asset
group, or sub-group, and the associated format of the Unit Rate, Gross
Replacement Cost, depreciation and impairment models. The general data
required for different steps within asset valuation are summarised below:
38
Section 5 – Asset Inventory
5.6.2 The categories of data shown in Table 5.2 should be held against each asset
for the purpose of asset valuation. The list is not exhaustive and authorities are
advised to assess the completeness of the list for specific asset types, groups
and sub-groups, against the full asset valuation procedure described in the
following sections.
Inventory Data
1 Asset type, group (and sub-group if appropriate)
2 Attributes relevant to adjustment factors
3 Attributes relevant to Unit Rates (replacement)
4 Dimensions relevant to GRC calculations
5 Date of installation (where appropriate)
6 Remaining life or replacement date (where appropriate)
Additional Supporting Data
1 Current condition and performance
2 Required maintenance work
3 Attributes relevant to maintenance unit rates
5.6.3 All of the data shown in Table 5.2 is required for good Asset Management and
authorities are already likely to hold much of this data or are in the process of
compiling it. However, as a matter of course, authorities should review their
existing data against the list and identify any gaps in relation to the data
required for asset valuation. The review should assess completeness and
accuracy of the data, and the suitability of the data format and storage
medium. Where necessary, a prioritised programme for data cleansing and
collection should be put in place before implementing the asset valuation
regime. This programme should meet the timeframe identified in Section 1.7
and where possible be part of the data collection programme for Asset
Management.
39
Section 6
Unit Rates
6.1 GENERAL
UNIT RATES
Derive
Select Establish unit of Derive
adjustment
schemes measurement Unit Rates
factors
(Section 6.2) (Section 6.3) (Section 6.4)
(Section 6.5)
6.1.1 The Unit Rates are those relevant to the replacement of a highway asset,
e.g. road replacement, bridge replacement and lighting column replacement.
The Unit Rates are not derived for each individual asset; instead standardised
Unit Rates are derived for asset groups/sub-groups (Section 5). The Unit Rates
are then used with appropriate dimensional data for individual assets to
calculate the Gross Replacement Cost (Section 7).
6.1.2 The Unit Rates should be derived using outturn or tender costs from a
representative sample of recently completed highway (re)construction schemes.
The Unit Rates should relate to an appropriate unit of measurement and should
be indexed to represent present day prices. Adjustment factors should be
derived to take account of Unit Rate variations within an asset group or
sub-group.
6.2.1 Highway (re)construction schemes normally include a range of works and these
may include several of the asset types, groups and sub-groups described in
Section 5. Ideally the scheme information should enable the individual assets
and their associated quantities to be identified and allow outturn costs to be
carefully screened, classified and apportioned to the relevant asset(s). This
allows the quantities and costs to be linked to an asset group/sub-group for
the derivation of Unit Rates. Careful screening of the costs is required because
only those costs that are directly attributable to bringing the assets into
working condition are admissible for deriving Unit Rates (Section 4.4).
6.2.2 The number of assets in each asset group or sub-group will differ considerably
within and between authorities. The quantity of (re)construction data available
for deriving Unit Rates is likely to vary with the group/sub-group size. Where
possible, authorities should adopt the following recommendations for deriving
Unit Rates:
• Group or sub-group with less than 50 assets – the Unit Rates should be
based on (re)construction costs from not less than three representative
assets.
40
Section 6 – Unit Rates
• Group or sub-group with 100 to 200 assets – the Unit Rates should be
based on (re)construction costs from not less than 10 representative
assets.
• Group or sub-group with > 200 assets – the Unit Rates should be based
on (re)construction costs from not less than 20 representative assets.
6.2.3 Authorities should consider working with other authorities who have similar
highway networks in order to meet the above minimum requirements and to
utilise larger sample sizes that will produce more robust Unit Rates. It is
recommended that authorities seek to form regional working groups, possibly
split between urban, semi-urban, and rural areas, for this purpose. If regional
working groups are unable to provide a sufficient number of schemes then
estimates based on engineering judgement or from bills of quantities may be
used.
6.2.4 The following criteria should be considered when identifying sample schemes:
1. Scheme Date – the scheme should have been completed in the last
10 years.
2. Scheme Type – the scheme should include one or more of the following
types of work: construction (new build), re-construction, partial re-
construction or major improvement.
3. Scheme Size – the size of the scheme, in terms of value and number of
assets, should be typical of highway construction schemes carried out by
the authority.
Scheme Date
6.2.5 It is recommended that only schemes completed in the last 10 years are used
to derive Unit Rates because the construction techniques and procurement
practices used should be reasonably representative of current practices, i.e.
they represent Modern Equivalent Assets (Section 4.7). The selected schemes
should preferably be post 1999 to align with the Rethinking Construction
initiative [Ref. 16]. The scheme costs should be indexed to represent present
day prices (Section 4.6).
Scheme Type
6.2.6 The scheme types considered appropriate for deriving Unit Rates include:
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
a. If the GRC model uses separate Unit Rates for constituent parts of
the asset then, if appropriate, the partial re-construction costs may
be used to derive these Unit Rates directly.
b. If the GRC model uses a composite Unit Rate for the whole asset
then the costs for replacement of other parts of the asset should be
estimated, or derived from other schemes, and combined with the
partial re-construction scheme costs to derive a suitable Unit Rate.
6.2.7 The cost data from the above schemes should be used, and combined where
appropriate, in a manner that is representative of the common practice used for
renewing or replacing the assets in a group/sub-group, in whole or in parts, to
maintain the highway network at a specified Level of Service. The Unit Rates
derived from these schemes should implicitly include all the admissible cost
elements normally incurred by the authority (Section 4.4).
Scheme Information
6.2.8 The scheme information required to determine Unit Rates typically includes:
2. The scheme outturn costs or, if unavailable, the scheme tender costs.
The costs should be apportioned to the respective assets within the
scheme. Some or all of the cost elements described in Section 4.4 may
be incurred in completing a scheme and the relative proportions of the
different cost elements will vary from one scheme to another. Only those
costs admissible for asset valuation should be used. If a representative
sample of highway schemes is used then they should provide an
appropriate mix of the cost elements in the Unit Rates.
3. The scheme construction date (month and year) to allow indexation of the
costs to the valuation date using appropriate indices (Section 4.6).
4. The quantity of work performed for each asset group, e.g. 10,000m2 of
single carriageway road, three span bridge of 125m2 deck area each, 35
lighting columns of height 12m (Section 6.3).
42
Section 6 – Unit Rates
6.3.2 The recommended units of measurement for different asset types/groups are
shown in Table 6.1. Specific guidance for each asset type is provided in
Sections 12 to 17.
6.4.1 The Unit Rate for an asset group or sub-group should be evaluated as the
summation of the indexed outturn or tender costs (Section 4.6) divided by the
summation of the relevant quantities, where the costs and quantities are
compiled from the representative sample of (re)construction schemes (Section
6.2). When deriving Unit Rates the following approach is suggested:
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
2. Review the gross costs for an individual asset and, where possible,
exclude those costs that are not representative of the group or sub-
group. These costs should be used to calculate the adjustment factors
(Section 6.5).
( Quantity of Asset i
i &1
Equation 2
i = asset i of n
6.4.2 The above procedure should be repeated for each asset group and sub-group.
6.5.1 Section 5.5 provides guidance on when to use asset sub-groups and when to
use adjustment factors. An adjustment factor may be derived using either of
the equations shown below. Equation 3a evaluates the adjustment factor
relative to the influence of a key cost driver on an individual asset, while
Equation 3b evaluates the adjustment factor relative to the Unit Rate of the
respective asset group or sub-group.
GCINC
adjustment factor (ADF) =
GC EXC
Equation 3a
) GC INC /
** 0
+ Quantity 01
adjustment factor (ADF) =
Unit Rate
Equation 3b
Where GCINC = gross cost of the asset including the influence of a key cost driver
GCEXC = gross cost of the asset excluding the influence of a key cost driver
Unit Rate = the rate derived for the asset group or sub-group (Section 6.4).
44
Section 6 – Unit Rates
6.5.2 If scheme costs are not recorded in a manner to allow easy identification of the
influence of different key cost drivers then engineering judgement and/or
advice from a Quantity Surveyor may be used to apportion the costs.
45
Section 7
Gross Replacement Cost
7.1 GENERAL
7.1.1 The objective of the Gross Replacement Cost (GRC) is to provide a true and
fair estimate of the current cost of replacing an asset using a standardised
procedure. The replacement asset should have a Potential Performance
broadly similar to the existing asset, but take account of up-to-date technology,
i.e. a Modern Equivalent Asset (Section 4.7), except for assets classified as
heritage assets (Section 4.11).
Develop Gross
Calculate Gross
Replacement Cost
Replacement Cost
model
(Section 7.3)
(Section 7.2)
7.1.2 A GRC model should be developed for each asset type, group or sub-group as
appropriate. The GRC models are then applied to individual assets and
aggregated to evaluate the total GRC for the highway infrastructure using a
bottom up approach.
7.2.1 The format of the GRC model should be carefully selected for each asset type,
or group/sub-group where appropriate, based on an understanding of the key
cost drivers (Section 5.3) which influence the replacement cost for the asset.
46
Section 7 – Gross Replacement Cost
7.2.2 Individual assets within an asset group or sub-group are broadly similar in
terms of their functionality, composition and the key cost drivers that influence
them. In general, it may therefore be adequate to base the GRC model on one
or two key dimensional parameters of the asset or its constituent components,
which have the dominant influence on the overall cost of the asset. For
example, the road asset contains a range of constituent components (Table
5.1) but the GRC may be modelled in terms of the road area, pavement type
and associated Unit Rate.
7.2.3 Given the above, the GRC model typically includes appropriate dimensional
data, the Unit Rate for the asset group or sub-group and relevant adjustment
factors e.g.
Equation 4
7.2.4 Where the replacement cost cannot be accurately modelled in terms of one or
two key dimensions, it may be appropriate to divide an asset into major
component parts and develop a GRC model for each part. The replacement
costs of individual parts can then be aggregated to produce the overall GRC
for the asset. For example, the GRC for a bridge could be evaluated as a
summation of the GRCs for deck, sub-structure and foundation.
7.2.5 Guidance on the development of a GRC model for each asset type is provided
in Sections 12 to 17.
7.3.1 The GRC reported in an authority’s Balance Sheet may consist of one entry for
the whole highway infrastructure class, or possibly one entry for each asset
type (Section 5.4). These GRCs are built up from the GRC of each individual
asset, or where appropriate the component parts.
7.3.2 In order to calculate the GRC, it is necessary to hold relevant dimensional data
against each individual asset in the asset inventory (Section 5.6) and
additionally relevant attributes to enable the choice of appropriate Unit Rates
and adjustment factors.
7.3.3 The GRC calculation should become a largely automated procedure once the
GRC models are implemented into a computerised Asset Management System
or Asset Valuation System.
Sensitivity Analysis
7.4.1 Where possible, the sensitivity of Unit Rates and GRC models should be
analysed. The analysis should investigate the influence of key cost drivers and
the required refinement of the GRC. Sensitivity analysis should also be carried
out to assess other parts of the asset valuation procedure, for example, asset
service life and degree of refinement used for Level 3 components (Table 5.1).
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Verification
7.4.2 The accuracy of derived Unit Rates and the output from GRC models should
be verified against an independent sample of data. Authorities should define
the degree of accuracy expected in the verification process. The following
tolerances are suggested:
48
Section 8
Depreciation
8.1 GENERAL
DEPRECIATION
Definition
Objective
8.1.5 Depreciation should be charged even if the asset has risen in value or been
re-valued.
Methodology
8.1.6 It is recommended that the two depreciation methods defined above are
applied to highway infrastructure assets as follows:
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8.1.7 The following sections explain why the asset types were classified as above
and describe the two depreciation methods.
8.2.1 The Conventional Method should be used for asset types which do not qualify
for the use of the Renewals Accounting method, or if appropriate Performance
Measures are not available to monitor their performance at the asset type or
group level. This method is most appropriate where individual
assets/components have readily identifiable service lives and are routinely
replaced at the end of their life, for example lighting columns. In this approach
each individual asset, or its components, is treated separately for calculating
depreciation.
8.2.2 The asset, or components of the asset, should be classified into one of three
types – finite life, indefinite life and variable life, where these are defined as:
8.2.3 The level of refinement used to divide an asset into its components should be
chosen on grounds of materiality and should broadly align with that appropriate
for Asset Management. A greater level of refinement should not be used solely
for asset valuation purposes.
50
Section 8 – Depreciation
3. engineering judgement.
8.2.5 It is recommended that depreciation of finite life assets is calculated using the
straight line method shown in Figure 8.1.
DRC
Age (yrs), A
Zero
Residual TIME
Value
Time of End of
installation or Service Life
replacement (replacement)
8.2.7 Based on the straight line depreciation profile shown in Figure 8.1 the DRC, at
a given time in the asset’s life, is evaluated as:
) SL % A /
DRC t & GRC ' * 0 but not less than 0
+ SL 1
Equation 5
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
8.2.8 If the asset has a residual value, RV, this should be taken into account in the
depreciation profile, see Figure 8.2, and the DRC at a given time should be
evaluated as:
Age (yrs), A
DRC
Residual
Value, RV
0 TIME
Time of End of
installation Service Life
52
Section 8 – Depreciation
Accelerated depreciation
0 TIME
Time of New End of revised End of initial
installation information service life service life
Depreciation Charge
8.2.10 The in-year and accumulated depreciation charge for an individual finite life
asset or component after t years in service are evaluated as shown below.
Equation 7a
t
Accumulated deprecation charge after t years = ( "DRC
i &1
i % DRC i %1 #
Equation 7b
Where DRCt-1 = the DRC at the start of the current financial year
8.2.11 The total in-year depreciation charge for the finite life assets is the summation
of the individual in-year depreciations.
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
8.3.3 Renewals Accounting requires all definable major assets or components with
identifiable finite lives to be treated separately for depreciation using the
Conventional Method. Special Structures (Section 4.10) are excluded from
Renewals Accounting because the Conventional Method is regarded to be
more representative of the specific management plans normally developed for
these structures.
8.3.4 To support Renewals Accounting the AMP should identify the work volumes
and associated funding at asset type and asset group level and clearly
distinguish between:
2. The level of funding required for improving the Level of Service to meet
specified targets in the AMP.
8.3.5 The above distinction is required because the in-year depreciation charge
under Renewals Accounting is calculated as the estimated annual expenditure
required for maintaining the current Level of Service of the asset type/group,
as assessed through Performance Measures.
8.3.6 An AMP provides the work volumes and phasing that an authority plans to
undertake in order to maintain, or improve, the highway infrastructure and
many of the work items may not be linked to a specific year. The annual AMP
funding requirements, and hence the depreciation charge, should therefore be
estimated as:
Where the Total AMP Funding Required refers to the funding required to
maintain the current Level of Service and the AMP Time Period is the number
of years the AMP covers, normally 5 or 10 years.
54
Section 8 – Depreciation
8.3.7 All work types that are required to maintain the Level of Service of the network,
should be identified in the AMP, e.g. reactive, programmed and routine. The
roads and structures Codes of Practice [Ref. 2 & 3] should be consulted for the
appropriate classification of work types.
8.3.8 Good Asset Management practice requires an authority to assess the service
lives, replacement cycles, inspection and maintenance needs of all assets,
normally at the group and/or component level shown in Table 5.1. Renewals
Accounting is therefore based on a similar level of detail and knowledge to the
Conventional Method, although under Renewals Accounting such data is not
explicitly required for valuation purposes.
Actual Expenditure
8.3.9 The actual annual expenditure is capitalised (as part of the cost of the asset) as
incurred. Actual expenditure should be tracked and recorded at a level that
supports Asset Management. This level of detail should be adequate for
Renewals Accounting, however authorities should ensure that the expenditure
considered is admissible for asset valuation (Section 4.4).
Depreciation Charge
8.3.10 The net change in asset value (Net Book Value) under Renewals Accounting
can be calculated as:
8.3.11 Provided the Levels of Service are maintained, as assessed through the
Performance Measures, then if the actual annual expenditure is equal to the
depreciation charge there will be no change in asset value (Net Book Value).
However, if the actual annual expenditure is less than the depreciation charge
then the asset value, Net Book Value, decreases. Additional expenditure
incurred in improving the Level of Service above the current Level of Service
should be treated as an enhancement of the asset base and will result in an
increase in the DRC, and may also result in an increase to the GRC. Appendix
C provides an example of applying depreciation under Renewals Accounting.
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
8.4.1 The Renewals Accounting method is proposed for estimating depreciation for
roads, segregated footpaths and cycle routes, and structures, as these assets
are typically maintained in perpetuity and meet the three requirements in
paragraph 8.3.1. However, it is recognised that some authorities are in the
process of developing AMPs and may therefore require an interim solution to
estimate depreciation. Modified Renewals Accounting provides an alternative
approach for estimating depreciation and should be used as an interim
solution pending the development of AMPs (see below).
8.4.2 Lighting assets, street furniture and traffic management systems typically
have finite lives and are replaced at the end of their service life. These assets
should be treated separately and depreciated using the Conventional Method.
Off-highway drainage assets should also be treated using the Conventional
Method as they do not form an integral part of the highway, and appropriate
Performance Measures are currently not available to monitor their
performance at a group level.
8.4.5 Following initial valuation, the Level of Service and DRC of the asset is
established. If the Level of Service is maintained (within defined limits) in steady
state over a year, the actual maintenance and renewal expenditure is treated
as a proxy for depreciation but is not deducted from the asset value. If the
Level of Service drops in a year, it is recognised as an impairment of the asset
base (Section 9). The Level of Service is assessed through Performance
Measures.
56
Section 9
Impairment
9.1 GENERAL
Definition
IMPAIRMENT
Objective
9.1.2 When the Level of Service of an asset drops below the previously assessed
level (outside defined limits), impairment should be recognised and the asset
value reduced accordingly. The Level of Service may be assessed individually
or at the asset type or group level through appropriate Performance Measures
or performance/condition surveys.
9.1.4 When the Level of Service (or performance) of an asset rises above the
previously assessed level (as a result of maintenance works) it should be
recognised as impairment reversal, revaluation gain or fixed asset formation,
depending on the reason, and the expenditure treated according to established
capitalisation principles [Ref. 7].
Methodology
9.1.5 The approach used for assessing for impairment should align with the
approach adopted for applying depreciation, i.e.:
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9.1.6 Although the impairment is assessed at different levels between the two
methods, impairment is calculated using a bottom-up approach on individual
assets in both the methods. The two methods are therefore discussed
concurrently in the following.
Frequency of Assessment
9.2.2 Finite life assets/components which are treated using the Conventional Method
are depreciated on a systematic basis through their service life. The service
lives of these assets should be assessed, and revised if necessary, at the time
of each benchmark valuation or when new information becomes available
which suggests a revision of service lives. A reduction in the remaining service
life of an asset/component could be treated using accelerated depreciation as
discussed in paragraph 8.2.9, or alternatively impairment is calculated as
discussed in paragraph 9.3.3.
9.2.4 Assets treated using the Renewals Accounting method should be assessed for
impairment annually at the asset type or asset group level using appropriate
Performance Measures.
9.2.5 When impairment occurs, the adjustment in asset value and recognition of
impairment should take place immediately.
Indications of Impairment
58
Section 9 – Impairment
9.2.10 The above two cases do not consider the possibility of the Potential
Performance being greater than the Required Performance. Whilst a valid
consideration for many non-highway assets, e.g. plant and machinery, this is
not considered to be relevant for the majority of highway assets.
9.2.11 Appendix A provides examples for roads, structures and street lighting and
discusses the relationship between the Required Performance and Potential
Performance. The examples include scenarios where impairment should and
should not be recognised.
Acceptable Limits
9.2.12 It is likely that Performance Measures will show some fluctuation each year but
these could be ignored on grounds of materiality if they do not exceed defined
limits. It is proposed that impairment is recognised based on the following
limits:
9.2.13 These limits represent a provisional suggestion and have not been tested. The
suitability of these limits should be tested using sensitivity studies to identify
limits that provide a materially correct valuation for each asset type. Any
sensitivity studies should be fully documented.
9.3.1 The approach used for calculating impairment should be established and
consistently applied. After an approach is established, if it is identified that a
change in the approach would provide a fairer valuation, then this should be
applied at the next benchmark valuation and described in the Valuation Report.
9.3.2 The approach recommended below is based on the typical maintenance and
management practices used for different highway assets. The approach is
described under the following headings:
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
2. All other assets and components (indefinite life assets under the
Conventional Method and all assets treated using the Renewals
Accounting Method) – sub-divided into two categories:
) SL % SLR /
Impairment & GRC ' ** I 00
+ SLI 1
Equation 10
2. Between time t1 and t2 there was no change in asset value, i.e. the Net
Book Value remained the same.
60
Section 9 – Impairment
GRC
Cost to restore Cost to restore
at time t1 at time t2
DRC(t1)
Impairment
DRC(t2)
TIME
t1 t2
9.3.5 The impairment is the difference between DRC(t1) and DRC(t2) as shown in
Figure 9.1. It would generally be difficult to evaluate directly the work required
to bring the asset(s) back to their condition/performance at the time t1. Instead,
it is more convenient to calculate the cost of the work required to restore an
asset to the as new condition. The impairment should be calculated using the
full cost of restoration at time t2 minus the cost of restoration at time t1
as below.
Equation 11
9.3.7 The value of the maintenance work is evaluated directly based on the condition
or performance data for the individual assets or components. The effort
involved in this task can be greatly reduced if rule sets are defined that link
generic maintenance types and average maintenance costs to typical defect
types and/or condition ratings/indices.
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
[
DRC(t) = GRC × ( )]
SL − t
SL
Equation 12(a)
[
Impairment (t1, t2) = GRC × ( )]
t 2 − t1
SL
Equation 12(b)
Network
A
30%
26%
20%
14%
Network 10%
B
30%
26%
20%
Network
14%
C 10%
0–5 yrs 5–10 yrs 10–15 yrs 15–20 yrs 20–25 yrs
9.3.11 The DRC for the whole asset group can be evaluated as shown in the equation
below based on the proportion of assets in each age band.
62
Section 9 – Impairment
k
GRC
DRC %
SL
& ( "RL
i %1
i & p Bi #
Equation 13
Simplified Approach
Equation 14
Best
Performance
Measure
Worst
9.3.13 Relationships between Performance Measure and Restoration Cost Factor are
not provided in this guidance document and should be developed by
authorities, should they wish to use this approach for some
assets/components.
63
Section 10
Depreciated Replacement Cost
10.1 GENERAL
10.1.1 The Depreciated Replacement Cost (DRC) is the Gross Replacement Cost
(GRC) appropriately reduced to reflect the current age, condition and
performance of the asset. In this Guidance Document DRC is also referred to
as the Net Book Value, Net Asset Value and Asset Value. The DRC can be
defined as:
Equation 15
10.1.2 It is normal for the DRC of highway infrastructure assets to be less than the
GRC. This is due to systematic consumption of finite life assets and the
inevitable ageing and deterioration of other assets that causes their current
condition to be below the as new condition. If an asset valuation regime is in
place from the time of original construction, or installation, of the asset then the
accumulated depreciation and impairment are built up over time through the
recognition of annual (in-year) depreciation and impairment. However, such a
regime has hitherto not been required for Local Highway Authorities. Therefore,
on the introduction of asset valuation authorities need to establish the initial
DRC (Net Book Value), and in subsequent years calculate the in-year
depreciation and impairment.
10.2.1 To calculate the initial DRC it is necessary to know the current condition and
performance of highway infrastructure assets. The condition and performance
data are used to assess the cost of work required to restore the assets to the
full performance or as new condition (Section 10.3).
64
Section 10 – Depreciated Replacement Cost
10.3.1 The approaches described for assessing depreciation and impairment should
be used to evaluate the DRC on the introduction of the asset valuation regime.
The initial DRC should be evaluated as follows:
10.3.3 On the introduction of asset valuation an authority should establish how the
change from historical cost, as required by the SORP [Ref. 7], to DRC should
be treated in the Statement of Accounts.
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
10.4.1 After the initial DRC has been evaluated it forms the basis for applying
subsequent in-year depreciation and impairment as follows:
Where DRCt = represents the closing NBV for the financial year
10.4.2 The DRC should be re-evaluated at each benchmark valuation (Section 2.3)
rather than continuing with the application of annual adjustments to the
original DRC over a longer period.
66
Section 11
Asset Preservation Measures and
Valuation Report
11.1 Asset Preservation Measures
11.1.1 The following three measures are provided for monitoring the preservation of
assets over time:
11.1.2 Authorities are recommended to calculate these three measures annually and
include them in the Valuation Report.
Equation 17
11.1.4 The Accumulated Asset Consumption should be monitored over time and
presented in the Valuation Report. In-year change in the measure is unlikely to
appear significant on this scale, but the time dependent plot should enable an
authority to assess the trend over time, i.e. is the measure increasing,
decreasing or is the asset base being preserved at a constant level (see the
example in Appendix C).
11.1.5 In the future it may be useful to determine the optimum value for the
Accumulated Asset Consumption measure based on the optimum amount of
maintenance, renewal and enhancement work identified in an Asset
Management Plan. This would require quantifying the impact of the work
proposed in the AMP on the asset value of the highway infrastructure asset.
11.1.6 The actual Accumulated Asset Consumption and the optimum value implied by
an AMP can then be plotted on a graph, as shown in Figure 11.1, to illustrate
the gap. Also, it can be argued that the value of work required to bridge this
gap is the current maintenance backlog.
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Possible AAC
Measure
profiles
(%)
Time
Equation18
Equation 18
11.1.9 The IAC and IAR measures should be presented on the same time dependent
plot. If the IAR is less than the IAC this indicates a shortfall in maintenance
expenditure, depreciation in asset value and an increasing maintenance
backlog. For example, Figure 11.2 schematically shows the difference between
the two measures to be gradually increasing because maintenance is under
funded.
68
Section 11 – Asset Preservation Measures and Valuation Report
Time
11.2.1 The Valuation Report should be a stand alone document that presents the
results of valuation with supporting information. The Valuation Report should
act as the key supporting document to the highway infrastructure asset
values reported in the Balance Sheet. It is recommended that the Valuation
Report is produced annually.
5. A summary of the standardised Unit Rates and service lives used in asset
valuation.
7. The GRC, DRC, depreciation and impairment values by asset type and
group, presented in a tabular format. Including identification and
explanation of any significant changes compared to the previous
valuation.
69
Section 12
Roads
12.1 GENERAL
12.1.1 This section provides specific guidance on the valuation, depreciation and
impairment of roads and their associated assets/components. Reference
should also be made to the asset valuation examples for roads in Appendix A,
B and C.
12.2.1 The road asset consists of the following components (see Table 5.1):
• Hard strip/shoulder
• Markings
• Kerbs
• Vegetation
• Drainage
• Safety fences
12.2.2 The above list is not exhaustive and should be reviewed to identify any
additional components that make up the road asset and would result in a fairer
valuation. If additional components are identified they should be checked
against the other asset types (Table 5.1) to ensure they are not covered
elsewhere.
70
Section 12 – Roads
12.3.1 The following factors are considered to have a significant influence on the
replacement cost of a road:
4. Number of lanes – this influences the width of the carriageway and may
therefore impact on the Unit Rate per m2 due to economies of scale in
construction.
12.3.2 The above list is not comprehensive and authorities are advised to identify
other key cost drivers, relevant to their road asset, that have a significant
impact on replacement cost.
12.4.1 Suggested asset groups, sub-groups and adjustment factors are presented
below. Also refer to Sections 5.4 and 5.5 for generic guidance and the
distinction between the use of sub-groups and adjustment factors.
Asset Groups
12.4.2 The pavement type is the dominant cost driver for the majority of road assets.
It is recommended that the road asset is divided into the following asset
groups based on pavement type:
1. Flexible pavement
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
12.4.3 The above four groups may not provide a sufficient degree of refinement for
deriving appropriate Unit Rates. If required the above groups should be further
divided into asset sub-groups.
Asset Sub-Groups
12.4.4 The key cost drivers should be used to identify the asset sub-groups. It is
suggested that the carriageway type and location are used to define the
following asset sub-groups within each asset group.
12.4.5 If suitable data is available, and if required, the above list of sub-groups may be
extended to take account of other key cost drivers, e.g. road hierarchy. It may
be more appropriate to account for some of the key cost drivers through
adjustment factors.
Adjustment Factors
12.4.6 Section 5.5 provides guidance on when to use sub-groups and adjustment
factors, and Section 6.5 provides guidance on deriving adjustment factors. The
influence of key cost drivers, which are not explicitly covered by groups/sub-
groups, on Unit Rates should be assessed and adjustment factors derived
where appropriate.
12.5.1 The road asset within a group or sub-group should be relatively homogeneous
in terms of its components. It is assumed that any local variations, not explicitly
accounted for through a group/sub-group or adjustment factor, are likely to be
averaged out over the asset stock. Based on this assumption, it is suggested
that the GRC of the road asset is estimated using a Unit Rate for each asset
group/sub-group, the associated dimensions of the carriageway and the
relevant adjustment factor as shown below.
72
Section 12 – Roads
12.5.2 The asset inventory should hold the carriageway length and width, and other
required data (i.e. characteristics, features, attributes), against each road asset
to enable appropriate Unit Rate and adjustment factors to be applied and the
GRC calculated. Where there are two clearly defined carriageways (i.e. dual
carriageway) then the carriageway width is equal to the sum of the two
carriageway widths.
12.6.1 Given the format of the GRC model above, the Unit Rate should be evaluated
separately for each asset sub-group in terms of £ per m2 of the carriageway.
The Unit Rate is therefore a composite rate which combines the replacement
cost of all the relevant components listed under Section 12.2.
12.6.2 The derivation of Unit Rates should follow the general procedure given in
Section 6. In selecting the highway schemes for each asset group/sub-group,
care should be taken to ensure that the schemes provide a representative mix
of the different components, e.g. embankments, cuttings, safety fences and
footways, so the Unit Rates and adjustment factors represent average costs
for all assets within that sub-group. The Unit Rates for roads should be
evaluated as:
( "Admissible Costs#
i %1
i
Unit Rate % n
Equation 21
Where n = number of assets used to derive Unit Rate for this group/sub-
group
Depreciation
12.7.1 The road asset should be assessed for depreciation using the Renewals
Accounting method, described in Section 8.3 (an example is provided in
Appendix C). Authorities who are in the process of developing an Asset
Management Plan may use Modified Renewals Accounting to estimate
depreciation in the interim period.
Impairment
12.7.2 The road asset should be assessed for impairment annually using appropriate
Performance Measures at asset type or group level.
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12.7.3 It is not necessary for the Performance Measures to cover all components of
the road asset described in Section 12.2. Instead, a balanced set of
Performance Measures should be used that covers the majority of the road
asset. Performance Measures for roads are available [see Ref. 2] primarily for
the pavement component and since the pavement cost dominates the value of
the road it may be sufficient to use the pavement condition/performance as a
proxy for the entire road asset.
74
Section 13
Segregated Footpaths & Cycle Routes
13.1 GENERAL
13.1.1 This section provides specific guidance on the valuation, depreciation and
impairment of segregated footpaths and cycle routes. Footpath and cycle route
assets are only included in highway infrastructure asset valuation where they
are maintained as part of the highway infrastructure asset, e.g. surfaced
PROW.
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13.2.1 Footpaths and cycle routes, for the purpose of asset valuation, are considered
to consist of the following components (see Table 5.1):
• Formation
• Kerbs
13.2.2 The above list may be extended to provide more comprehensive coverage of
footpath and cycle route assets if this would result in a fairer asset value. The
list should only be extended if the available asset inventory (Section 5) and
construction scheme data (Section 6.2) support a more refined calculation of
Unit Rates, GRC and DRC.
13.3.1 The following factors are considered to have a significant influence on the
replacement cost of segregated footpaths and cycle routes:
2. Construction form
4. Earthworks
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
13.3.2 The above list should be reviewed to identify other key cost drivers relevant to
the footpath and cycle route network in an authority.
13.4.1 Suggested asset groups, sub-groups and adjustment factors are presented
below. Also refer to Sections 5.4 and 5.5 for generic guidance on the
distinction between the use of sub-groups and adjustment factors.
Asset Groups
13.4.2 It is suggested that footpaths and cycle routes are classified into the following
groups:
4. Pedestrian areas
Asset Sub-Groups
13.4.3 If there are considerable differences in the replacement Unit Rates between
assets in the footpath group, this may be divided into the following sub-groups
based on the widely recognised categories [Ref. 2]:
Adjustment Factors
13.4.4 Section 5.5 provides guidance on when to use sub-groups and adjustment
factors. The influence of key cost drivers which are not explicitly covered by
groups/sub-groups on Unit Rates should be assessed and adjustment factors
derived where appropriate.
76
Section 13 – Segregated Footpaths & Cycle Routes
13.5.2 The asset inventory should hold the footpath/cycle route length and width, and
other required data (i.e. characteristics, features, attributes), against each
footpath or cycle route asset to enable appropriate Unit Rate and adjustment
factors to be applied, and the GRC calculated. The “other” data enable the
appropriate Unit Rate and adjustment factors to be applied to the asset during
asset valuation.
13.6.1 Given the format of the GRC model above, the Unit Rate should be evaluated
separately for each asset group or sub-group in terms of £ per m2 of the
footpath/cycle route. The Unit Rate is therefore a composite rate which
combines the replacement cost of all the relevant components listed under
Section 13.2.
13.6.2 The derivation of Unit Rates should follow the general procedure given in
Section 6. The Unit Rates for footpath/cycle routes should be evaluated as:
Equation 23
Depreciation
13.7.1 The footpath/cycle route asset should be assessed for depreciation using the
Renewals Accounting method, described in Section 8.3. Authorities who are in
the process of developing an Asset Management Plan may use Modified
Renewals Accounting to estimate depreciation in the interim period.
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Impairment
13.7.2 Footway/cycle route assets should be assessed for impairment annually using
appropriate Performance Measures at asset type or group level.
13.7.3 It is not necessary for the Performance Measures to cover all components of
the asset described in Section 13.2. Available footpath condition indicators are
considered to be appropriate for this purpose. Where appropriate condition
indicators are not available they should be established.
78
Section 14
Structures
14.1 GENERAL
14.1.1 This section provides specific guidance on the valuation, depreciation and
impairment of the main structure types and their associated
assets/components, i.e. bridges, culverts, retaining walls and sign/signal
gantries. Other structure types listed in Table 5.1, but not explicitly covered
below, should be treated using a similar procedure to that described here.
Reference should also be made to the examples for structures provided in
Appendix A and B.
14.2.1 Highway structures should be categorised into groups as in Table 5.1. Although
structures are integral to the network performance they may be treated as
discrete assets for deriving the GRC as they are normally well delineated from
the highway network. The main components of each structure are well
identified for inspection purposes and the inspection pro-forma given in the
CSS Guidance Notes [Ref. 14 & 15] should be referred to for this purpose. In
particular, it should be noted that the surfacing on a bridge deck and approach
embankments are components of the road asset and not those of the bridge.
14.3.1 Definitions for the following assets are provided in the Code of Practice for
Highway Structures [3].
Bridges
14.3.2 The replacement cost of a bridge is influenced by the type of deck, abutment,
intermediate support and foundation.
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1. Deck – the deck cost is governed by the area of the deck and maximum
span of the bridge. Reinforced Concrete (RC) slab, pre-stressed concrete
beam and RC slab, and composite steel/RC slab deck forms are the
most commonly used modern construction forms (see Section 4.7 on
Modern Equivalent Assets); the choice being dictated by span and other
location specific factors. The Unit Rates between these construction
forms do not seem to vary significantly.
Culverts
14.3.3 The Unit Rate of culverts normally does not vary significantly between the
different shapes of culverts such as pipe, box or slab, and between different
construction forms such as corrugated steel, reinforced concrete or pre-cast
concrete. The key parameters influencing costs are span, height, depth of
ground cover, and ground conditions.
Retaining Walls
14.3.4 The Unit Rate of retaining wall per metre area is strongly influenced by the
structural form and retained height of the earth. Actual height is more
commonly recorded than retained height. The retained height may be
approximated by adding 0.6m to the actual height.
Sign/Signal Gantries
14.3.5 The cost of gantries varies significantly between cantilever and portal gantries.
The cost of portal gantries depends on the span, and to a lesser extent, on
column height.
14.4.1 Suggested asset groups, sub-groups and adjustment factors are presented
below. Also refer to Sections 5.4 and 5.5 for the generic guidance and the
distinction between sub-groups and adjustment factors.
Asset Groups
14.4.2 Highway structures should be categorised into the following groups (see
Table 5.1):
80
Section 14 – Structures
2. Culverts
3. Retaining walls
4. Sign/signal gantries
14.4.3 Other asset groups that may be reported under the structures category include
tunnels, structural earthworks, fords and causeways, and cattle grids.
Asset Sub-Groups
Adjustment Factors
14.4.5 The need for adjustment factors should be assessed as described in Section
5.5. The number of adjustment factors required for bridges depends on the
level of refinement adopted for the GRC model (Section 14.5). A more refined
model is likely to require fewer adjustment factors because variations would
have already been taken into account in deriving the Unit Rates.
14.5.1 Based on an understanding of the key cost drivers influencing the replacement
cost of each asset group, the Gross Replacement Cost models are
recommended as given in Table 14.1, subject to the proviso in 14.6.
14.5.2 Bridges generally form the largest component of the structures asset value and
it may be appropriate to use a more refined approach for asset valuation, given
the range of shapes and sizes they can take. Two approaches are suggested
for highway bridges:
14.5.3 The refined approach may provide a more accurate value of the GRC and
should be used where the necessary information to support this is available.
If the required asset data is not available then the basic approach should
be used.
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14.5.5 There are normally few highway tunnels managed by Local Highway Authorities
and hence these should be treated as Special Structures (Section 14.9) and
valued individually based on the replacement cost of major component parts.
There is no need to derive standardised replacement Unit Rates for these
assets.
Table 14.1 Gross Replacement Cost Models and Unit Rates for Structures
Bridge (Basic) CBridge= Deck Area x URBridge x ADF URBridge is expressed in £/m2 of
total deck area and is likely to be
a function of bridge maximum
span. It is a composite Unit Rate
for the whole bridge
Where
Deck Area = (Overall Width) x (distance between end support faces + 0.6m)
Deck Width = Overall width measured from outside edge to outside edge
82
Section 14 – Structures
Culvert Internal Surface Area = base, sides and soffit (as appropriate)
14.6.1 The format of the Unit Rates for the main structure groups are summarised in
Table 14.1 and guidance on their derivation is given in the following.
Bridges
14.6.2 The replacement cost of a bridge may be evaluated using the basic or refined
approach. The basic approach uses a composite Unit Rate (£/m2 of the deck
area) for the bridge, that includes all components of the bridge. The basic
approach should be used when adequate data is not available from
(re)construction schemes (Section 6.2) to derive a Unit Rate for each
constituent part. Under the basic approach the Unit Rate should preferably be
derived as a function of maximum span length while adjustment factors should
be used to account for other cost drivers.
14.6.3 The refined approach uses a summation of the cost of deck, parapets, end
supports, intermediate supports and foundation as explained below.
Culverts
14.6.4 The Unit Rate for culverts could be expressed as £/m2 of internal surface area
of the culvert for all construction forms.
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Highway Infrastructure Asset Valuation Guide – County Surveyors Society/TAG Asset Management Working Group
Retaining Walls
14.6.5 The Unit Rate of retaining walls including finishes can be expressed as £/m2 of
retained area. Where information on retained height is not available, the actual
height of the wall plus 0.6m may be used as a simplification. Where the
differences in Unit Rates are significant, retaining walls may be divided into two
MEA sub-groups: (i) Reinforced Concrete Inverted-T, and (ii) Embedded Pile.
Sign Gantries
14.6.6 The Unit Rate of portal gantries can be expressed as £/m length of the gantry
where the rate is a function of the maximum span. The Unit Rate for cantilever
gantries can be expressed as £/gantry.
14.6.7 The Unit Rates for each asset group should preferably be derived from recently
completed reconstruction schemes (Section 6.2) and should include all
admissible costs.
14.6.8 Where the number of schemes is limited, the Unit Rate for each group could be
derived from “new-build” schemes. These Unit Rates should include the direct
plant, material, and labour costs with allowances made for site preliminaries
and project management and supervision costs. The Unit Rates should then be
multiplied by the cost factors given in Table 14.2, where appropriate, to fully
reflect the additional costs involved in replacing an existing structure on the live
network as opposed to building a new structure off line.
Depreciation
14.7.1 Structures should be treated for depreciation using the Renewals Accounting
method, described in Section 8.3. Authorities who are in the process of
developing an Asset Management Plan may use Modified Renewals
Accounting to estimate depreciation in the interim period. Section 8.3 provides
guidance on the application of Renewals Accounting for depreciation.
Impairment
84
Section 14 – Structures
14.7.3 It is not necessary for the Performance Measures to cover all aspects of the
asset described in Section 14.1. A condition indicator [Ref. 17, 18 and 19] may
be sufficient for this purpose, although other indicators should be considered,
e.g. Reliability and Availability [Ref. 17]. Authorities are recommended to use
currently available Performance Measures [Ref. 17] for this purpose.
14.8.1 The asset value of heritage structures (Section 4.11) should be calculated using
the same procedure described for other structure types except that the GRC is
not based on a Modern Equivalent Asset (Section 4.7). Instead, the GRC of a
heritage structure is calculated based on a like for like replacement, or a nearly
as like as is feasible. This should be interpreted as the replacement structure
providing the same look and feel as the original, but modern techniques may
be used to optimise the “like for like” replacement where possible. For
example, cast iron elements could be replaced with steel elements that look
the same but represent a more cost efficient and structurally effective solution
than installing a new cast iron element.
14.8.2 Some structures may be deemed important to the character and environment
of an area but they may not be listed structures. In these cases the
replacement, while looking the same, may be able to deviate more from the
original compared to a listed structure. For example, the replacement could use
a non-structural façade that replicates the look and feel of the original and
masks a MEA underneath. In this case the GRC should be for the MEA plus the
cost of the façade.
1. The form of the MEA – is this the same as the existing asset or is a new
structural form more appropriate? If a MEA is not acceptable as a
replacement then the special structure should be treated as a heritage
asset.
2. The need to derive Unit Rates – if the structure is unique then it may not
be necessary to derive Unit Rates. Instead the actual cost data may be
used, being appropriately amended by adjustment factors and indexation.
85
Section 15
Highway Lighting and High
Mast Lighting
15.1 GENERAL
15.1.1 This section provides specific guidance on the valuation, depreciation and
impairment of highway lighting and high mast lighting assets. Reference should
also be made to the examples for lighting provided in Appendix A and B.
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15.2.1 Highway lighting assets are taken to consist of the following key components
(as shown in Table 5.1):
2. Bracket
15.2.3 The cost of the initial lamp is included with the luminaire in the above list.
Subsequent lamp changes are excluded from the above list because
expenditure is likely to be Operational rather than Capital and therefore may not
be admissible (Section 4.5) for asset valuation under the Conventional Method.
If an authority considers lamp depreciation and expenditure as admissible, they
should assess the practicality and benefits of dealing with this in asset
valuation. Lamps normally have short service lives and lower up-keep costs
relative to the remainder of the lighting column unit and therefore could be
treated in a simplified way.
86
Section 15 – Highway Lighting and High Mast Lighting
15.2.4 Energy consumption costs are not included for asset valuation.
15.3.1 The following factors are considered to have a significant influence on the cost
of replacing a lighting unit:
6. Number of brackets.
8. Type of control gear, switching and internal wiring – and whether or not
the authority is responsible for their maintenance.
9. Local Policy – in relation to lighting levels and types, e.g. white light.
15.3.2 The inventory list in the Code of Practice for Highway Lighting [Ref. 4] should
be consulted to identify additional key cost drivers that may be appropriate.
15.4.1 Suggested asset groups, sub-groups and adjustment factors are presented
below. Also refer to Sections 5.4 and 5.5 for generic guidance and the
distinction between the use of sub-groups and adjustment factors.
Asset Groups
15.4.2 It is recommended that highway lighting is divided into the following asset
groups:
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15.4.3 Groups 1 and 2 above may be combined if the foundation type does not make
a significant difference to the Unit Rate.
Asset Sub-Group
15.4.4 Based on the key cost drivers identified in Section 15.3, together with other key
cost drivers identified by the authority, appropriate sub-groups should be
identified. It is suggested that sub-groups for lighting columns are identified
based on total height, for example:
2. 6m to less than 8m
15.4.5 Authorities are recommended to review their lighting data and identify an
appropriate degree of refinement for asset valuation sub-groups.
Adjustment Factors
15.4.6 It is recommended that the influence of column type, bracket type and number
of brackets on the Unit Rate is investigated (Section 7.4). If they have a
significant impact then appropriate adjustment factors should be derived
(Section 6.5).
15.5.1 The Gross Replacement Cost (GRC) for individual lighting units may be
evaluated using a composite Unit Rate or a Unit Rate for each component, for
example:
Equation 24b
LU = Lighting Unit
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Section 15 – Highway Lighting and High Mast Lighting
Brac = Bracket
Lum = Luminaire
15.5.2 The summation symbols (Σ) are included where there may be more than one
component per lighting unit.
15.5.3 The sum of the GRC of the components should be equal to the GRC of the
asset as shown in Figure 15.1. The proportions shown in Figure 15.1 should be
derived from replacement cost data where available. The proportions are
therefore produced when Equation 24b is used but not when Equation 24a is
used. The proportions may need to be established using limited cost data
and/or engineering judgement when Equation 24a is used.
Where the percentages for x1, x2, x3 and x4 should be calculated from available
partial replacement cost data or, in lieu of this data, based on engineering judgement.
15.6.1 The Unit Rates, for each asset group or sub-group, should be determined from
a representative sample of lighting unit construction, replacement and partial
replacement schemes (Section 6.4). All admissible costs incurred during the
replacement (including removal and disposal of the previous unit or
component) should be included (Section 4.4). The Unit Rate should be
evaluated as:
Equation 25
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15.6.2 The above equation may be used to derive a composite Unit Rate for the
replacement of the whole lighting unit, or a separate Unit Rate for each
component of the lighting unit. The former approach may be more suitable for
the majority of authorities, particularly if replacement cost data is captured at
lighting unit or scheme level. If information on individual components
(paragraph 15.2.1) is available, then it may be appropriate to derive Unit Rates
for each component type.
Depreciation
15.7.2 The value of each component is depreciated, using the straight line method
shown in Figure 8.1 in Section 8.2, over its service life. It is recognised that the
condition deterioration profile for lighting columns may not be straight line,
however financial depreciation and condition deterioration are different
concepts, and the former represents how the economic benefits are consumed
over the service life (also see paragraph 8.2.6). Service lives should be
estimated from engineering judgement, manufacturer’s data or preferably,
from historical replacement cycles (Section 8.2).
15.7.3 The service life and replacement costs should be monitored and, as a
minimum, updated at each benchmark valuation (Section 2.3) or when new
information becomes available. If significant changes occur to service lives
between valuation periods, then the depreciation should be amended
accordingly, i.e. a new service life is reflected in a revised rate of depreciation,
see Figure 8.3 in Section 8.2, or impairment is applied (see below).
15.7.4 Guidance on the relationship between the CSS lighting column Condition
Indicator and remaining service life is provided in Ref. 20. This may be used
to assign remaining service lives to individual lighting columns.
Impairment
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Section 15 – Highway Lighting and High Mast Lighting
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Section 16
Land Associated with the Highway
16.1 GENERAL
16.1.1 The following approach is proposed for the treatment of land associated with
the highway infrastructure. Land associated with the highway may be reported
in the accounts with the highway infrastructure or with land in general. The
Valuation Report should identify which approach an authority has adopted.
16.1.2 Land is a component in the DRC valuation although in itself land can usually be
valued by reference to comparable open market transactions. It is however
recognised that when valuing a specialised property the land element is
included within the overall DRC approach.
16.1.4 The land should include the entire land holding associated with the highway,
and in identifying the extent of the land to be included in the valuation,
consideration should be given to the following:
1. Land that may be suitable for disposal without affecting the use or
stability of the highway, in which case that land should be treated as
surplus to requirements and reported separately at its market value.
2. Land that may be currently unused but is being kept for possible future
use, or has been expressly acquired for a future road scheme, may be
included as part of the highway asset.
16.2.1 The land asset should only comprise the land associated with the highway.
Features on the land are not taken into account in the valuation of land.
16.3.1 The value placed on the land may present difficulties since, by definition, the
highway has no open market. Conversely, if it were not for the highway, the
surrounding uses may well be substantially different, e.g. the highway giving
either a positive impact (due to access) or a negative impact (due to noise, loss
of outlook).
16.3.2 It is considered that although the valuation must always be of the actual land,
it is appropriate to assess that value by reference to the cost of acquiring a
notional replacement site in the same locality that would be equally suitable.
Thus there is a requirement to look at values of land in the locality.
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Section 16 – Land Associated with the Highway
16.4.1 Land should be classified as freehold or rights. Rights land may be further
subdivided into “time based rights” and “rights in perpetuity” (i.e. freehold). In
addition, a straightforward, but suitable, approach would be to distinguish
between rural and urban land by region.
16.5 VALUATION
16.5.1 From a practical point of view, it is suggested that the authority considers a
standard approach to land valuation. It is not considered necessary to
undertake a detailed assessment of every individual portion of the highway
network; this is likely to take an unjustified amount of time.
16.5.2 Where a road is currently being, or has recently been, constructed there should
be relevant land acquisition costs available and these can be utilised as the
land value. It must be realised, however, that the total compensation paid will
have included injurious affection – the compensation to cover the effect of the
new road on the remainder of the property owned by the vendor, as well as
other costs incurred, and so the valuation will need to establish the agreed
element of the land value.
16.5.3 It is recognised that a new road opening can result in claims for compensation
under the Land Compensation Act 1973. It is suggested that the value impact
of any such claims should be ignored for the DRC valuation – or else that figure
would alter year on year, based on the value of the surrounding housing, and
not relate to the cost of the asset itself.
16.6.1 Unless expressly notified to the contrary it should be assumed that land
associated with the road is held freehold with a clean title, and so the land
value is not required to be written down (depreciated or impaired). If for any
reason (such as a time limited concession being in place) the authority does
not have the freehold for the land, then it may be appropriate to discount the
land value accordingly, reflecting the period of ownership remaining, i.e. the
land is depreciated over the concession (rights) period.
16.6.2 The Conventional Method should be used to depreciate land (Section 8.2)
where appropriate, although by its nature freehold land would be assessed as
indefinite life (paragraph 8.2.2) and therefore no depreciation would be charged
on the grounds of immateriality, however the land would be reviewed for
impairment.
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Section 17
Other Highway Assets
17.1 STREET FURNITURE
General
17.1.1 Street furniture can constitute a significant asset for some authorities and, in
such cases, should be included as a separate asset category in asset
valuation. Street furniture should be valued according to the generic guidance
provided and depreciated using the Conventional Method (Section 8.2). Some
street furniture assets are similar to highway lighting therefore the guidance in
Section 15 should be considered as appropriate.
17.1.2 Authorities may not wish to identify street furniture as a separate asset type if
the inventory data is not readily available. In this case the street furniture may
be included as a constituent component of the road or footpath asset type, i.e.
they are included within the composite Unit Rate derived for the road or
footpath asset.
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Section 17 – Other Highway Assets
Asset Composition
17.1.3 The asset composition should include the following assets if they are managed
as part of the highway network: bus shelter, seating, bins, bollards, marker
posts, street name plates and tree protection. The list is not comprehensive
and authorities may add additional street furniture components relevant to their
network.
Asset Groups
17.1.4 The following asset groups may be sufficient to evaluate GRC for street
furniture:
3. Rural road.
17.1.5 It is not necessary to build up the GRC from the individual street furniture units,
instead a composite GRC, relevant to the above street classifications may be
considered adequate. If authorities hold a detailed inventory of street furniture
then they may wish to establish a more refined approach for evaluating
the GRC.
17.1.6 Depreciation should be applied using the Conventional Method (Section 8.2),
therefore each asset should be depreciated separately. However, assets may
be grouped together for depreciation if this is more representative of the
inventory data.
17.2.1 Many of the assets listed in Table 5.1 under Traffic Management Systems are
similar in nature to highway lighting (Section 15) and should be treated similarly
for asset valuation.
17.3.1 An authority should establish if this asset type is relevant to the valuation of
their highway network. Off-highway drainage should be valued in accordance
with the generic guidance provided and the Conventional Method should be
used for calculating depreciation and impairment.
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Section 18
Implementation and Recommendations
18.1 IMPLEMENTATION PLAN
1. Year 1 – Interim asset valuation which may include the following activities:
b. Assess how current asset inventory/data and systems align with the
needs of asset valuation. Integrate asset valuation needs with those
identified from the Asset Management gap analysis [Ref. 1].
d. Calculate the GRC and initial DRC for the end of this financial year.
This should be used as the opening Net Book Value for Year 3.
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Section 18 – Implementation and Recommendations
18.2.1 Asset Valuation can become an involved and complex procedure, requiring
considerable resource inputs, if appropriate IT systems are not in place.
Authorities should seek to automate the asset valuation procedure through an
appropriate software system that draws the basic data from a complete and
accurate asset inventory.
Morguefile.com
18.2.2 Authorities should identify how their current system(s) should be configured to
deal with highway infrastructure asset valuation, considering options such as:
3. A separate Asset Valuation System which interfaces with the AMS and
the Finance system.
18.2.3 Option 1 above may be the most suitable approach for many authorities
because they already hold the base asset data in the engineering AMS for
management purposes. The asset valuation capability may be added to an
existing AMS by:
18.3.1 The following resource needs should be determined for the implementation and
running of asset valuation:
3. Staff training.
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4. Staff time required to develop Unit Rates, GRC, DRC, depreciation and
impairment, attend Regional Working Groups and prepare the Valuation
Report.
18.3.2 Some of the above resource needs may align with those identified in the Asset
Management gap analysis [Ref. 1]. Authorities should seek to coordinate the
various initiatives and avoid duplicating the effort.
18.4 RECOMMENDATIONS
18.4.1 The key recommendations, and associated sections, from the Guidance
Document are summarised in Table 18.1.
1 Undertake a benchmark valuation at a minimum interval of five years and 2.3 & 10.4
apply annual adjustments. Re-evaluate the DRC at each benchmark
valuation.
2 Adopt the principles, basis and rules set down in the Guidance Document 4.1
5 Classify the asset base and align the asset valuation inventory with the 5.2
Asset Management inventory
6 Use schemes completed within the last 10 years to derive replacement 6.2
Unit Rates
11 Calculate the three asset preservation measures annually and include in 11.1
the Valuation Report
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Section 19
References
1. Framework for Highway Asset Management, CSS, April 2004.
11. Financial Reporting Exposure Draft (FRED) 29 – Property, Plant and Equipment
Borrowing Costs, September 2002.
16. Rethinking Construction: The Report of the Construction Task Force (Egan
Report), ODPM, 1998.
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100
Appendix A
Asset Valuation Explanatory
Examples
Purpose of Examples
The purpose of these examples is to explain some of the typical situations that may
arise during valuation, and how these should be addressed.
The existing asset is a two lane Classified B road with appropriate formation and
structural layers. The GRC is based on a MEA which represents the current construction
techniques for this class of road and the appropriate cross sectional profile (i.e.
formation and structural layers).
For simplicity it is assumed that condition is assessed through only one condition index.
This section of road has a score 50 (on a scale of 0 to 100) for the condition indicator.
Therefore, the DRC is calculated as (Section 10):
Alternative Consideration 1.1 – The road has been built up over time and the actual
make-up of the formation and structural layers is unknown. The MEA is taken as the
typical construction techniques that would be used now to provide the same
performance (or Level of Service) for a Class B road.
Alternative Consideration 1.2 – Traffic surveys indicate that the road does not provide
the required traffic capacity, i.e. it needs to be widened. This has no influence on the
asset value calculation. This is identified as an enhancement in the Asset Management
Plan. When the enhancement is carried out, then the GRC and DRC of the asset are
amended accordingly.
The existing asset is a masonry arch bridge. The bridge is 120 years old but is not
classified as a Heritage Asset (Section 4.11). The GRC is based on the replacement
cost of a MEA which is taken as a reinforced concrete/steel composite bridge with
appropriate foundations.
The bridge has a Condition Indicator score of 75 out of 100. Therefore, the DRC is
calculated as (Section 10):
Alternative Consideration 2.1 – In the assessment programme the bridge was found to
have a Potential Performance (load carrying capacity) of 10 tonne. However, data would
not be available on the construction cost of a bridge with 10 tonne capacity because
modern bridges are designed for 40 tonne trucks, therefore the following approach may
be used (also see paragraph 4.7.4):
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2. If the increase in cost is more than 10%, then the MEA described above should
be used for calculating the GRC, but this value should be factored down to
account for the difference in costs between constructing a 10 tonne and 40
tonne bridge.
Alternative Consideration 2.2 – In the assessment programme the bridge was found to
have a full Potential Performance (load carrying capacity) of 40 tonne. However, the
bridge is currently only providing 10 tonne capacity due to poor condition. In this case
the 40 tonne MEA is used to calculate the GRC, and the cost of work required to
restore the Potential Performance (40 tonne capacity) is deducted from the GRC when
evaluating the initial DRC (Section 10).
Alternative Consideration 2.3 – The Potential Performance is 10 tonne but the authority
has decided it wants 40 tonne capacity. The GRC is evaluated as described in
Alternative Consideration 2.1 above. The shortfall in structural capacity below the
defined Required Performance has no influence on the asset value. If the enhancement
is carried out, then the GRC and DRC of the asset are calculated accordingly.
The existing asset is a steel lighting column with a luminaire that provides the required
lighting levels. The GRC is based on the replacement cost of a MEA which is assumed
to be a steel lighting column (to the latest specification) with a luminaire of the same
output as the current luminaire (but to modern specification).
For simplicity, the whole unit is assumed to have a service life of 40 years and it is
currently 20 years old. It is in the condition expected for its age and is providing the
expected performance. Applying straight line depreciation the DRC is evaluated as
(Section 8.2):
Alternative Consideration 3.1 – The Required Performance has been redefined by the
authority and the Potential Performance of the existing asset is unable to meet this
standard. This has no influence on the asset value calculation. This is identified as an
enhancement in the Asset Management Plan. When the enhancement is carried out the
GRC and DRC of the asset are calculated accordingly.
Alternative Consideration 3.2 – The current condition or performance is worse than that
predicted by the condition profiles. The residual service life is revised down to reflect
the current condition/performance. In this case the depreciation and/or impairment are
calculated as described in paragraph 8.2.9.
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Appendix B
Depreciated Replacement Cost
Example
Hypothetical Network
12.5km 37.5km
25km
12.5km
Embankment
100km
Single carriageway
Dual carriageway
100km
River Embankment
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Roads
The network statistics and data are summarised in the table below. Urban roads have
footways attached and the Unit Rate has been factored by an adjustment factor to
reflect this. Also, the Unit Rate for the 75km of dual rural carriageway with embankment
has been adjusted to reflect this.
Unit Rate
ID Asset type/group Width Length GRC
per m2
NB: the width is the carriageway; attached footways are accounted for by different Unit
Rates.
Bridges
The road type has a limited influence on the bridges Unit Rate for this network. All
bridges are one span, of length 20m, and the overall deck width for single carriageway
is 10m, and 20m for dual carriageway bridges.
In addition to the bridges shown on the network it is assumed there is also a bridge for
every 25km of network.
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Appendix B – Depreciated Replacement Cost Example
Lighting
There are lighting columns on all urban routes at 25m spacing; there are no lighting
columns on rural routes. The lighting columns have been divided into two groups based
on overall height.
The initial DRC is evaluated as described in Section 10. The DRC is evaluated using the
principles of depreciation and impairment, described in Sections 8 and 9 respectively,
applied to the relevant assets/components. The assets/components should be divided
into two broad categories:
The roads, bridges and lighting assets/components are classified in this manner below
to evaluate the initial DRC.
Roads
The road asset is made up of the Level 3 assets and components shown in Table 5.1
(Section 5.4). The DRC should therefore be based on the GRC minus the cost of
maintenance required to restore these assets to as new condition.
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All the significant maintenance needs on the road asset relate to “condition based
maintenance”. Therefore, the calculation can be streamlined by excluding asset or
component types that only contribute a small proportion of the maintenance needs.
This approach is considered to provide a suitable degree of accuracy for evaluating the
initial DRC for roads.
The DRC is therefore evaluated as GRC minus the summation of maintenance work
required on the different assets or components. This may be evaluated based on an
average maintenance rate linked to a condition band, for example see the condition
bands shown in Table B4 (NB: the relationship between condition bands and
maintenance costs shown in Table B4 is hypothetical and for illustrative purposes only,
and therefore should not be used for asset valuation. However, authorities may wish to
derive such relationships for asset valuation purposes).
0 – 20 £0
20 – 40 £10
40 – 60 £25
60 – 80 £75
80 – 100 £150
The value of the maintenance work can therefore be evaluated by identifying the
quantity of the carriageway that falls into each condition category. A more refined
approach is to base the calculation on the condition, maintenance work needed and the
associated costs of each individual asset/component, e.g. each section of carriageway.
Authorities should adopt the approach that best reflects their asset data.
The major maintenance needs on the hypothetical network are as shown in Table B5.
The maintenance needs of the carriageway are likely to dominate the road maintenance
needs in most cases.
Drainage £30,000,000
Earthworks £10,000,000
Verges £10,000,000
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Appendix B – Depreciated Replacement Cost Example
DRCRoads = £1,821,708,800
Bridges
The total volume of work required to restore the bridges to as new condition is
evaluated from the current inspection and assessment data. The value of the work
should be calculated using the general approach described in Section 10, i.e.
distinguish between “condition based maintenance” and “time based maintenance”.
The major highway bridge elements that require “time based maintenance” are
expansion joints and bearings (and possibly painting). The maintenance on all other
components can be treated as condition based. The total cost of “condition based
maintenance” on bridges for the hypothetical network is taken to be £2.5million.
If the asset ages are spread evenly across the service life then the DRC is equal to
(GRC x 0.5). However, for this example the age profile is not spread evenly across the
asset service life, therefore a more refined approach is required where the assets are
grouped into age bands. For simplicity, the expansion joints and bearings are assumed
to have the same service life (30 years) however the age profile is spread as shown in
Table B6.
1 25 0.10
2 20 0.14
3 15 0.20
4 10 0.26
5 5 0.30
[
DRC = GRC ×
( )]
RL
SL
× (Proportion of asset in age band)
Equation B1
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RL = remaining life
The GRC of the “time based maintenance” elements is estimated to be 10% of the total
GRC of the bridges in this example = £17,350,000 x 0.1 = £1,735,000. The DRC of
“time based maintenance” elements is therefore evaluated as shown in Table B7.
Proportion of
Age Average
elements in (RL)/SL DRC
Band Remaining Life
band
DRCBridges = £13,832,133
Lighting
The DRC of the lighting assets is evaluated using the “time based maintenance”
approach for the whole asset. It is assumed that all parts of a lighting unit are replaced
after 25 years. However, the ages of lighting columns in the stock are not spread evenly.
The age profile of the lighting units is shown in Table B8.
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Appendix B – Depreciated Replacement Cost Example
Proportion of
Age Average
elements in (RL)/SL DRC
Band Remaining Life
band
DRCLighting = £9,793,600
Network DRC
DRCNetwork = £1,845,334,533
The Accumulated Asset Consumption (AAC), from Section 11.1, for the network is:
AAC = 15.1%.
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Appendix C
Renewals Accounting Example
Purpose of Example
The purpose of this example is to explain how the cost estimates from an Asset
Management Plan (AMP) and the actual in year expenditure should be used to apply the
depreciation charge under Renewals Accounting (Section 8.3).
Hypothetical Network
The hypothetical network from Appendix B will be used in this example. For simplicity
this example only presents Renewals Accounting in relation to the road asset from
Appendix B; the relevant details from Appendix B are shown in Table C1.
Condition Indicator
Asset Type GRC DRC (or NBV) AAC
Score (or BVPI)
20
Roads £2,131,708,800 £1,821,708,800 14.5%
(on a scale of 0 to 100)
2. An additional spend of £15million per year (for a five year period) would improve
the Condition Score to 15.
Under this scenario the authority provides the annual £50million to sustain the condition
of the road asset. The adjustment made to the Net Book Value (NBV) in one financial
year is as shown in Table C2 (NB: NBV = DRC).
Under this scenario the estimated cost of maintenance is spent each year, therefore the
NBV is maintained at £1,821,708,800. The Condition Indicator is monitored to check
that it does not exceed the acceptable limits (paragraph 9.2.12).
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Appendix C – Renewals Accounting Example
Under this scenario the authority spends £65million per annum to improve the condition
of the road asset from 20 to 15. The adjustment made to the NBV in one financial year
is as shown in Table C3.
Assuming the £65million funding continues for a five year period then the values in the
fifth year would be as shown in Table C4.
Therefore, the Accumulated Asset Consumption (AAC), described in Section 11.1 and
shown in Table C1, has decreased from 14.5% to 11.0%.
The five year change in the Condition Score should be approximately 5 points, i.e. from
20 to 15 as identified in the AMP. Therefore, based on the guidelines proposed in
paragraph 9.2.12, it was not necessary to calculate impairment (or the impairment
reversal) during the five year period (i.e. between benchmark valuations). Instead,
adding £15million per annum to the NBV is assumed to be a robust estimation of the
changing volume of maintenance work required on the road network, and hence the
change in DRC (see Section 10).
Under this scenario the authority is unable to spend £50million per year due to financial
constraints. Instead, £25million per annum is provided to carry out maintenance on the
road asset. The adjustment made to the Net Book Value (NBV) in one financial year is
as shown in Table C5.
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Assuming the £25million funding continues for a five year period then the values in the
fifth year would be as shown in Table C6.
Therefore, the Accumulated Asset Consumption (AAC), described in Section 11.1 and
shown in Table C1, has increased from 14.5% to 20.4%.
The change in the Condition Score may exceed the guidelines proposed in paragraph
9.2.12 and it may therefore be necessary to calculate impairment during the five year
period (i.e. between benchmark valuations) rather than relying on the annual deductions
based on the difference between AMP requirements and actual expenditure.
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Acknowledgements
Steering Group
Matthew Lugg (Chair) Cambridgeshire County Council
David Baker (Project Manager) Transport for London
Alan Armson Hertfordshire Highways
Robert Biggs Derbyshire County Council
Paul Fearon St Helens Council
Chris Walker East Sussex County Council
Alex Ramage Scottish Executive
Kieran Rix HM Treasury
Ian Holmes Department for Transport
Technical Advisors
Dr Garry Sterritt Atkins
Dr Navil Shetty Atkins
Lila Tachtsi Atkins
Alan Taggart Atkins
Dr Roger Cole Atkins
Malcolm Dennett PKF
Disclaimer
The CSS/TAG Asset Management Working Group, the Steering Group and the Technical
Advisors who produced this guidance document have endeavoured to ensure the
accuracy of the contents. However, the guidance, recommendations and information
given should always be reviewed by those using them in the light of the facts of their
particular case and specialist advice be obtained as necessary. No liability for loss or
damage that may be suffered by any person or organisation as a result of the use of
any of the information contained here, or as the result of any errors or emissions in the
information contained here, is accepted by the CSS/TAG Asset Management Working
Group, the Steering Group, the Technical Advisors, and any agents or publishers
working on their behalf.
113