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| The Committee of Public Accounts has agreed to the following Report:
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| UNITED KINGDOM ATOMIC ENERGY AUTHORITY: SALE OF FACILITIES SERVICES DIVISION
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| INTRODUCTION AND SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS
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| 1. In March 1995 the United Kingdom Atomic Energy Authority (the Authority) sold their Facilities Services Division to Procord Limited for £12 million.
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| 2. On the basis of a report by the Comptroller and Auditor General, our predecessors took evidence from the Authority on the terms of the sale and the costs incurred by the Authority. Our conclusions and recommendations are as follows:
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| Terms of the sale |
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| (i) We note that, at £12 million, the proceeds of the sale of the Facilities Services Division were higher than other bids received and were close to the highest of a number of benchmark valuations which had been prepared (paragraph 15).
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| (ii) We note however that, as part of the sale, the Authority guaranteed Procord a level of income of £111 million over six years; and that, as part of this arrangement, the Authority gave Procord sixty three separate guarantees relating to particular areas of facilities management work (paragraph 16).
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| (iii) We are concerned that as a result the Authority were required to pay compensation of £342,000 to Procord because the value of work required at Dounreay in 1995-96 was less than the amount that had been guaranteed even though, in aggregate, they had placed work with Procord with a value some £14.8 million higher than the total amount guaranteed (paragraph 16).
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| (iv) We note that by 31 October 1997 one third of the workforce, who had transferred at the date of sale, were no longer employed by the new owners (paragraph 17).
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| Costs incurred by the Authority
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| (v) We note the Authority's argument that the advisers' costs of £2.2 million they incurred in the restructuring of their Facilities Services Division for sale should not be set against the sale proceeds. We are not convinced by this argument since the purpose of this restructuring was to put the division in a form in which it could be sold. Such costs, when added to the sale costs of £3.1 million were equivalent to 44 per cent of the sale proceeds of £12 million (paragraph 36).
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| (vi) We are also concerned that the sale costs were 24 per cent higher than the Authority's March 1994 estimate and the restructuring advisory costs were 16 per cent higher. We note the Authority attribute this to lack of experience in preparing such budgets. We consider it very unsatisfactory that the Authority did not recognise their lack of experience in these matters at the time they proposed budgets and so take appropriate advice (paragraph 37).
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| (vii) We are concerned too that, contrary to our predecessors' longstanding recommendation, the Authority let seven contracts with a total value of £4.4 million without competition to their principal adviser, Coopers and Lybrand. Not only does competition generally lead to the best value for money in the appointment of advisers, it also demonstrates that appointments have been made in line with the proper conduct of public business. In this case, it would have helped to demonstrate that there was no potential conflict of interest (paragraph 38).
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| (viii) We note the Authority's recognition that their decision to award the seven contracts to Coopers and Lybrand without competition was difficult to justify (paragraph 38).
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| (ix) We share the Treasury's view that an open competition would have been desirable and we urge them to remind Departments that full and open competition should be applied in all save the most exceptional circumstances (paragraph 38).
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| (x) We note with concern that, at the time these contracts were let, there was no requirement for the decision to award any of the contracts to Coopers and Lybrand to be approved by the Board of the Authority. We are pleased to note the changes to the Board of the Authority's financial procedures which now require Board approval for contracts with a value in excess of £1 million (paragraph 39).
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| (xi) We are concerned that the Authority underestimated the costs of Binder Hamlyn, the reporting accountants, which, at £709,000, were more than four times the Authority's budget of £161,000 (paragraph 40).
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| (xii) We are also concerned that the Authority failed to recognise that more work would be needed before the reporting accountants' report could be produced. We note the Authority's recognition that they should have made it clearer in the specification of the work that more work than normal was likely to be necessary (paragraph 40).
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| (xiii) We note the Authority's view that many of the problems that occurred in the sale arose because the Facilities Services Division was being created at the same time as it was being prepared for the sale. We agree with the Authority that they should have allowed more time for this (paragraph 41).
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