Estimates of the savings Land Securities Trillium could make

3.13 After it had established benchmark prices, the Department applied its estimates of the savings it considered Land Securities Trillium could make through the combination of the PRIME and PRIME expansion estates. The Department recognised three generic types of saving:

■ Economies of scale: savings resulting from increasing the size of a contractual package for one particular service;

■ Efficiencies: savings resulting from continuous improvement in the delivery of a particular service over a period of time; and

■ Synergies: savings resulting from combining different activities within the same contractual package.

9	The benchmarks used by the Department were appropriate

Key cost item		Benchmark	Rationale	NPV of costs within should cost model (£m)	Percentage of costs 1 within the should cost model
Rent net of sublet income		Lease data, estimated rental values, vacant possession values	Reflects how cost is determined	459	37
Life Cycle Capital Expenditure		Joint condition survey	To reflect actual condition of the estate	185	15
Security		TUPE data and LST detailed costings	No meaningful benchmark available	159	13
Overheads		Existing Employment Service estate costs and PFI costs	Based on current cost of delivery	123	10
Funding		Weighted average cost of capital: PRIME bid model adjusted	In the Department's view a competitively determined rate reflecting the risks and rewards in the transaction	100	8
Cleaning		Occupiers' Property Databank (OPD) data	Scope sufficiently generic	81	7
Maintenance		PRIME prices and OPD data	Scope sufficiently similar	86	7
Service charge		DWP budget figures and historic cost	In Department's view best guide to future liabilities	51	4
Estate management fees		Estate management contract rates on the Employment Service estate	Reflects current costs for the same service	8	1
Source: Department for Work and Pensions

3.14 The Department did not have any means of validating the detailed assumptions it made against any published benchmark, but its financial evaluation team, comprising representatives from Estates Strategy, Estates Finance, Corporate Finance, Jobcentre Plus Finance, IBM and PKF reviewed them and considered them to be reasonable.