Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 140-159)



  140. But slate is not black, is it? It is grey.
  (Sir William McKay) Cast-iron, I suppose, is nearer black. This was an attempt to achieve an aesthetic result, not necessarily to match a tint exactly. But no one, as I understand it, thought it would be the bronze of a polished bronze ornament.

  141. Not quite that but sort of brown. I did not mean to get us bogged down in that but it seems to me we wanted a bronze roof and have ended up with this black roof; if we had wanted a black roof we could have chosen another covering.
  (Sir William McKay) As I have said, the choice of this material was made on economic grounds.

  142. On energy efficiency, it strikes me in simple terms that having a bronze building which is black—and I think you said something along the lines of "the proof of the pudding is in the heating"—a metal black building, on a hot day you are asking to have difficulties in terms of the thermal environment.
  (Sir William McKay) I would not care, Chairman, to secondguess those who designed this. This must have been obvious to them.

  143. Can I ask you about insurance in terms of insuring risks. You mentioned in previous answers to David Rendell that half the risks were identified, were those risks insured against?
  (Sir William McKay) No. Why they were identified was to make sure we kept our eye on them as the construction proceeded. They were things like the bankruptcy of a major contractor.

  144. As you have mentioned the bankruptcy of a major contractor, in the case of Harmon, am I right in saying they managed to win costs of something like 10 million because of unfair—
  (Sir William McKay) No, it was not as much as that.

  145. The 10 million was the cost to us, the overall project management and legal fees and the like. They lost this project and, as a result, we lost 10 million. I think the budget for fenestration was 23 million but in fact the lowest bid was 39 million, and since then they have gone into liquidation. That is right, is it not?
  (Sir William McKay) They went into liquidation half way through the action.

  146. Why is it we were considering going forward in the first place with a company that was at risk of going into liquidation? Was there a credit rating on Harmon in the first place?
  (Mr Makepeace) It was a decision, Chairman, of their American parent company. They pulled out of what they called the curtain walling industry altogether. Harmon was a subsidiary of a firm called Apogee, in Minnesota I think, and Apogee, the parent company, pulled out of this sector of the business throughout the world.
  (Sir William McKay) When we offered out to tender the work on the roof, there was very little interest, I think you can say, because it was such an unusual piece of work. Harmon appeared, I dare say, along with the other possibilities and were the more welcome because there were so few.

  147. In other words, because of the scarcity of suppliers in the market that would make us willing to use suppliers who might be at risk of going bankrupt?
  (Mr Makepeace) We did a credit rating before we invited any company to tender on this project, and Harmon—I cannot remember the details—would have passed that test. They were part of a multi-multi-million dollar conglomerate.

  148. So that I understand this correctly, I think Sir William said they went into liquidation, but what you are saying is they were basically liquidated by the multi-million-dollar corporation?
  (Mr Makepeace) Yes.

  149. Were we at risk of that happening if we had given the contract during the contract or not, or the work?
  (Mr Makepeace) Yes, that is one of the good things we risked out of this.
  (Sir William McKay) We might have been appearing before you answering why we chose Harmon and they went bust.

  150. I see. That could not have happened with the other contractors, they could not have gone bust?
  (Mr Makepeace) They could, yes. Any one of them could. It was a corporate decision, as we understand it, of the parent company.

  151. Can I return briefly to this issue about fees. We did go 10 million over on fees, and there were some questions already about the nature of the fees. What struck me about the responses to this was that what was seemingly said was that the view was, "Oh well, we probably wouldn't get any more, it might cost more, so we won't bother negotiating at all."
  (Sir William McKay) No.

  152. I was concerned that that might be an approach elsewhere by project management and therefore not actually receive the efficiency savings that might be available.
  (Sir William McKay) No, I think it was more complicated than that, Chairman. As I said, after Northcroft, when this decision presented itself very acutely, all those with whom we had percentage fee agreements had to be treated separately, because their situations were separate. The engineers were nearly finished, so there was no point in upsetting the contract that they had. We managed to persuade the project management firm, the quantity surveyor firm, to change. We did not manage to persuade the architect to change. We did not manage to persuade Laings, the construction management people, to change. We could not make them.

  153. I am told that Ray Powell—and he was involved in this—had this view that when he challenged various things in the process of this, the response would always be, "Don't worry, Mr Powell, it's still within budget." I understand he got frustrated by this, because the impression he was getting in this was that people thought it was all right, "There's no point in trying to screw down the costs any more, because we're already operating to the budget and it's okay"; that the approach was not to maximise value for money but simply to stay broadly within the budget, and that as a result of that approach you have sort of spilled out of budget. Is that reasonable?
  (Sir William McKay) I do not think so. That would be true if the budgetary constraints were loose, and I do not think they were. Wherever we could do some value engineering—and that was not everywhere, but wherever we could—we did.

  Geraint Davies: I think my time is up. Thank you very much. I do have accommodation in one of these offices and they are very nice indeed, so thank you.

  Chairman: There you are. Thank you very much for that, Mr Davies.

Mr Bacon

  154. Sir William, you have given me my lead-in from your last sentence, which was not going to be my first question, when you said that whenever you could do value engineering, you did. Could I ask you to turn to page 44, paragraph 5.18, where it says that "There was, however, scope for making greater use of value engineering across the whole project." That seems to contradict your previous sentence. "For example," it goes on in paragraph 5.18, "while the value engineering workshop recommended the application of the technique to more than ten of the building's construction elements, it was only applied in two cases." This is page 44. It goes on later in the same paragraph to say: "The Northcroft review in 1999 also found that value engineering on the project and its budget had been limited. And while the design of the building and its budget had been agreed by the Commission, there was scope for applying this technique across a wider range of the project's elements. The complex and innovative nature of some of the packages—such as the roof and the fenestration—should have reinforced the need for the application of this technique." So could you explain, in the light of that paragraph, your last reply to Mr Davies?
  (Sir William McKay) Chairman, the value engineering is a technique, as I am sure you will know, which is most effective—

  155. In Norfolk we speak of nothing else!
  (Sir William McKay)—which is most effective at the beginning of a project. Over the time in which you carry out the project I suppose its effectiveness reduces, and it is at its lowest after contractors have been appointed. But we did carry out the value engineering workshop, and following that we did studies on the roof package, fenestration, courtyard roof, engineering plant rooms, materials for the office partitions, and 37 building specifications.

  156. Is this report correct when it says in paragraph 5.18 that the technique was applied to only two of the ten construction elements?
  (Sir William McKay) I think we disagree.

  157. You disagree with the report?
  (Sir William McKay) No.
  (Mr Barram) If I may say so, Chairman, in paragraph 5.16 it says that "In addition to the work carried out by Laing Technology Group, the project team undertook an internal review to identify potential cost savings". The whole of that section is about value engineering in its various guises, so I think there is a good record of the work that was done for the various packages. The NAO view is that there should have been value engineering of the whole project, and Sir William is saying that it is best done at the beginning.

  158. From the earlier stages am I right in thinking that it was not basically, is that right?
  (Sir William McKay) Whenever we had an opportunity, whenever a window opened, we did. Following the final sketch plan, when design was to be done which was not done in the sketch plan, we did value engineering. We did value engineering when each specialist package contractor was appointed, because one of the benefits of construction management is that as a client we have had direct access to each package director.

  159. Thank you. If I could direct your attention further down to page 45, paragraph 5.21, it says: "The replacement of the Project Steering Group with the Project Advisory Board in 1998 led to a number of improvements in House officials' oversight and monitoring of the project." Further down in the same paragraph it says that "in meeting on a monthly basis, the Project Advisory Board"—that was the new board—"met far more frequently than the Project Steering Group, again increasing control over the project as the construction work progressed." How often did this old Project Steering Group that was scrapped meet?
  (Sir William McKay) I certainly do not think it was monthly.


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