Examination of Witnesses (Questions 109-119)
14 OCTOBER 2003
MR PETER
COLLECOTT CMG, MR
JULIAN METCALFE
AND MR
DAVID COATES
Q109 Mr Hamilton: Good afternoon.
Welcome to this meeting of the Foreign Affairs Select Committee.
The Foreign Affairs Select Committee has scrutinised the Foreign
and Commonwealth Office's annual reports each year since 1991.
This year the Committee continued the tradition of scrutiny and
took oral evidence from the current Permanent Under-Secretary,
Sir Michael Jay, on 24 June[1]Members
covered a wide variety of issues during the session, including
personnel matters, information technology, crisis response facilities
and visa services. At the June session, the Committee also raised
the issue of the Foreign and Commonwealth Office's decision to
sell the current Consul-General's Residence in San Francisco.
We took that up with Sir Michael. The Committee has taken evidence
on this matter before, during its inquiry into the 2001 Annual
Report, and members have received a number of letters concerning
the Residence from a variety of concerned sources, principally
from the British American Chamber of Commerce. The sale of the
Residence has also been raised separately by, among others, Mr
Derek Wyatt MP, who has tabled an Early Day Motion. This afternoon
we are hoping to explore in more detail how the Foreign and Commonwealth
Office reached its decision to sell the current Consul-General's
Residence in San Francisco and purchase a new one; whether the
sale of the old building represents a significant loss to the
UK's diplomatic representation in the city; the suitability of
the new building for its purpose; and whether the decision made
by the FCO is justified in the long term. We might also wish to
examine this afternoon what wider lessons can be drawn from the
sale regarding the asset recycling programme. Could you start
by introducing the officials appearing with you today, Mr Collecott,
and say what connection you have all had with the current Residence
in San Francisco and the purchase of its replacement?
Mr Collecott: May I first of all
say that we welcome this opportunity to appear again before the
Committee to explain in greater detail than was possible at the
time of your hearing into the Departmental Report about the surroundings
of the San Francisco sale, and in more general terms the asset
recycling programme, which we shall be happy to go into. I am
the Director General (Corporate Affairs) and as such take overall
responsibility at Board level for estate issues and was therefore
involved in the detailed decision to sell the existing Residence
in San Francisco and to purchase the new one. Julian Metcalfe,
sitting on my left, is the Head of our Estate Strategy Unit in
the FCO and under me takes responsibility for all estate issues,
that is our worldwide programme of estate management and estate
building, etc. On my right is David Coates, who is our Estate
Modernisation Manager, with particular responsibility in the compass
of his job for the asset recycling programme. David was the one
who led the last team to San Francisco in March this year when
he was looking for a new Residence to purchase, and the decision
to purchase one was actually taken. The three of us have had a
quite intimate connection with this subject over a number of months.
Q110 Mr Hamilton: Could you just
clarify for the Committee the exact status of both buildings at
present, both the new and the old Residences? Has the sale been
made? Has the new building been purchased? Where are we up to
in San Francisco?
Mr Collecott: On the new Residence,
we have indeed completed the purchase, in June this year. We have
had to do some work on it before it could be occupied. The new
Consul General, who is Martin Uden, arrives in San Francisco this
week and will move straight into the new Residence. I might note
in passing that one of the nice things is that the Residents'
Association of the Presidio Estate, where the new house is, have
already organised a welcoming party for him. So he is a welcome
addition to their number. We waited until we had purchased the
new Residence before formally putting the old one on the market.
That was done pretty promptly and we received offers for that
and have just recently, last week, accepted an offer.
Mr Metcalfe: We have accepted
an offer. I would prefer not to go into detail about the value
because this could compromise our position. All I would say is
that it vindicates the figures which have already been submitted
to this Committee.
Mr Collecott: So the sale is in
process and we have accepted an offer.
Q111 Mr Hamilton: And the new one
in the Presidio estate is about to be moved into by the Consul
General.
Mr Collecott: It is about to be
occupied by the new Consul General.
Richard Ottaway: May I start with a point
of order? Given that Mr Metcalfe has said he cannot discuss the
value, it is rather hard for us to go into detailed comparisons
of the figures on the two properties. I wonder how we might get
round this one.
Q112 Mr Hamilton: I think what he
said—forgive me if I am wrong—was that expectations
had been met. I do not know whether you can make any further comment
on the point made by Mr Ottaway.
Mr Collecott: Obviously we are
looking at it now with hindsight and the figures are vindicated
by the sale price we have been able to achieve. Naturally, when
we go through the process of taking decisions, which I think is
the primary focus of the Committee's discussion, clearly we have
to operate then on the basis of the best expert judgment of what
properties are worth, and that is therefore the figure which we
included in the documentation which you have in front of you.
Q113 Richard Ottaway: Let us see
where we get to. You have very kindly made a number of figures
available to us and it is much appreciated. If there were no recycling
programme, would you have sold it?
Mr Collecott: Perhaps I may take
an historical perspective on that.
Q114 Richard Ottaway: A yes or no
would do.
Mr Collecott: The answer is yes.
I would just add a gloss to that. Even before we had the asset
recycling programme we did look at the question of whether Residences
we had around the world were fit for purpose, whether they were
over scale, whether in the right place. We did in some cases decide
to sell them. One of the ones which came to my attention not long
ago, because I was visiting there, was that in the mid 1980s we
sold quite a large Residence in Madrid and purchased another,
more modern, but equally fit for purpose Residence there. This
process is clearly something which, in managing a very large estate—our
estate worldwide is about £1 billion—one has to do
continually. Perhaps my second gloss is only that with the existence
of the asset recycling programme it gives us, as the FCO, the
incentive to make rational decisions about the distribution of
our assets and hence the sale of some properties, purchase of
others, rent of others, precisely because we actually see the
proceeds of the sale, rather than it going directly back to the
Treasury as it used to.
Q115 Richard Ottaway: Just to confirm:
it was not to do with the recycling programme. You would have
made this decision anyway.
Mr Collecott: I think we would
have made this decision anyway, because, as Sir Michael Jay put
in one of his letters to the Committee, the house in San Francisco
was rather grand and very large, but one of those places where
it would have been very difficult for us, and indeed was very
difficult for us, to maintain and use to the standard and to the
style which might have been appropriate. We would have looked
very hard at it in any case.
Q116 Richard Ottaway: I want to probe
the cost benefit, even though you say that is not the reason.
You seem to be saying that it is nothing to do with cost benefit.
Mr Collecott: No; on the contrary.
The fact is that with a very large worldwide estate we have continually
to look at the value for money we are obtaining from the estate
and hence decisions on whether to sell, repurchase or how we organise
the estate, is independent of the particular asset recycling programme
we have. In each individual case of a decision, of course we are
guided by value for money considerations as the overriding principle.
Q117 Richard Ottaway: That is helpful;
thank you. I am told by those who understand these figures you
have provided for us, that the actual saving boils down to a capital
saving of about £2 million. Could you confirm that and perhaps
just say briefly how that figure is arrived at?
Mr Collecott: I may have to rely
on others to get into the details of how that figure is arrived
at. It is true that our estimate, which I think will be borne
out, is that there will be an upfront capital accretion to the
FCO of approximately £2 million.
Mr Metcalfe: That is certainly
right. Let us put that figure in context. That buys us a new embassy
in Baku, Azerbaijan. In addition to that upfront capital gain
which accrues to the Office, we also save on running costs. In
the capital charge alone we will have made a saving on an annual
basis of £230,000. That is the equivalent of giving us the
ability to employ three or four US-based additional workers.
Q118 Richard Ottaway: You are getting
into arguments here and I am trying to stick to the capital situation,
though I take your point. Is this £2 million roughly within
the limit that you cannot really divulge? It is the ballpark figure,
is it?
Mr Metcalfe: Yes. The £2
million is certainly borne out by the offer we had which we have
accepted.
Q119 Richard Ottaway: What are the
savings in running costs?
Mr Metcalfe: On an annual basis
they are around £230,000.
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