How commuted sums are calculated
The commuted sums rates are adjusted annually to accommodate any price fluctuations and will be carried out by using current contract rates, and appropriate cost indices.
The council calculates the cost the maintenance obligation using the formula established by “Commuted Sums for Maintaining Infrastructure Assets”:
Commuted sum = ΣMp/(1 + D/100)T
Mp = Estimated periodic maintenance cost
D = Discount rate (effective annual interest rate) (%)
T = Time period before expenditure will be incurred (years)
Maintenance unit costs (Mp)
Maintenance unit costs are based on contract rates current at the time of calculation and the frequency of treatment or intervals of replacement, based on planned frequencies or historic information. A sum of 10% of the works costs will be added to cover design and supervision costs.
Discount rate (D)
The discount rate (effective annual interest rate) is worked out as follows:
D = (1.045/1.0225) – 1
= 2.2%
Where:
1.045 is the interest rate (4.5% based on long-term neutral base rate)
1.0225 is the inflation rate (2.25% based on RPI-X that is RPI excluding mortgage payments)
Time period (T)
A maintenance period of 60 years (maximum) will be used to calculate commuted sums, except for highway structures where a 150-year period will apply, reflects the recommendation of the CSS publication 'Commuted Sums for Maintaining Infrastructure Assets'.
Schedules of commuted sums payable
The Commuted Sums Schedule can be found below. The rates and items will be reviewed and updated on a yearly basis and are index linked to the date of the agreement. Some commuted sums rates are tailored to specific site circumstances.
Calculating the actual commuted sums to be paid
To ensure commuted sums represent the current values, they will be calculated immediately before the highway is adopted. The legal agreement will contain conditions for recalculating the 'provisional' commuted sums based on actual quantities and a price fluctuation factor.
Bonding commuted sums
Any commuted sums will be included in the bond required under the Section 38 or Section 278 agreement. This will be based on the 'provisional' commuted sums that are calculated on completion of the agreement.
Timing of payments
The commuted sum must be paid before issuing the final certificate