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​​Co-location capital expenditure costs

Capital expenditure costs (CAPEX) apply when a new fit-out is required for the building.

Capital expenditure costs in a property project

In a property project, a standard fit-out cost is made up of four components.

Main contractor hard fit-out (MCHF)

This includes things like:

  • installing or modifying heating and air conditioning equipment for the sub-divisional hard fit-out
  • installing fire protection equipment
  • electrical and
  • plumbing.

Sub divisional hard fit-out (SHF)

For example:

  • the installation of tenant doors and enclosed meeting rooms (including the computer room)
  • joinery for utility areas
  • security cables and equipment and
  • IT networking cables and equipment.

Soft fit-out (SFO)

This includes:

  • desks, chairs and other furniture
  • fixtures like refrigerators and microwaves
  • installing equipment like multifunctional devices, for example photocopiers and audio-visual equipment (end-user computing like laptops and phones are often excluded from this).

Workplace and classroom furniture – New Zealand Government Procurement

Consultancy fees for design, engineering, project management and legal

Costs associated with negotiation, design and delivery services need to be capitalised.

MCHF and SHF are normally written off – fully depreciated – over the initial lease term. SFO is typically written off over six years. This is consistent with current accounting policies and practices.

How capital expenditure costs work in a co-location

Fit-out cost (CAPEX) is transferred at the start of the project. All agencies pay a proportion of the total fit-out costs based on their agreed area allocation, regardless of the level of usage.

Lead agency responsibilities

The lead agency:

  • is the head lessee and has 100% ownership
  • controls the management, repair and replacement of the fit-out, including the furniture, fixtures and equipment
  • establishes and maintains the area allocation, using the area allocation tool.

Area allocation

The lead agency may have available funds to completely cover CAPEX requirements.

Participating agency responsibilities

Participating agencies:

  • transfer capital to the lead agency at the start of the project
  • are individually responsible for securing their capital contribution either through baselines or a new budget bid
  • must meet the capital obligations they've committed to at all stages of the co-location.

If the lead agency has funds to cover all CAPEX, no contribution is required from participating agencies.

If an agency exits the co-location during a tenancy

Their contribution can only be recovered if a replacement agency joins and contributes the outstanding capital. This is consistent with the principle of minimising risk on the lead agency.

Leaving a co-location

Asset transfers

Asset transfers will be treated as a capital injection and withdrawal by lead and participating agencies respectively, with corresponding increases and reductions in equity. The capital charge for this injection will be billed to agencies.

The published Treasury rate for capital charge at the time will apply.

Where possible, reusable assets will be used. These assets will be transferred to the lead agency balance sheet at Net Book Value, along with the corresponding accumulated depreciation.

Return of capital at the end of the lease period

At the end of the lease period, the lead agency returns any transferred capital from the accumulated depreciation on the asset.

Lead agencies will test with their auditors whether a finance lease arrangement applies – if it does, Minister of Finance approval will be needed.

Financial considerations for lead agencies

Lead and participating agencies will need to engage with their own internal finance teams and Treasury vote analysts to ensure approvals and agency due process is followed.

Case Study: The Christchurch Integrated Government Accommodation co-location model

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