Memorandum submitted by the National Audit
Office
SAN FRANCISCO CONSUL GENERAL'S RESIDENCE
1. Thank you for your letter of 11 September
2003 relating your Committee's intention to hold a further oral
evidence session on the sale of the residence in San Francisco
and the purchase of a replacement building.
You asked if we might provide you with the documents
relating to the sale that Sir Michael Jay referred to in his letter
to you. As you will appreciate, the documents examined by my staff
are the property of the Foreign and Commonwealth Office. Although
my staff and I do, of course, have rights of access to such documents
for audit purposes, it is a matter for the Department as to whether
they should be released to a third party such as your Committee.
However, to be helpful to the Committee, I have outlined below
the evidence that my team examined when reviewing the decision
to sell the existing residence and to purchase a replacement.
I also refer below to the key documents which led us to conclude
that the matter had been handled properly.
Decision to sell the San Francisco Residence:
2. My staff reviewed the FCO's asset recycling
strategy. This included the key performance indicators which the
Department uses to assess whether properties are fit for purpose
and represent good value for money. A key factor in the decision
to sell the Pacific Avenue residence was the large size of the
building and high costs, highlighted by these key performance
indicators.
Assessment of the sale prospects of the Pacific
Avenue property:
3. A professional assessment was carried
out by estate specialists of the likely sale price and current
market conditions. This included an evaluation of comparable sales.
The assessment concluded that it should be possible to sell the
property at Pacific Avenue for a reasonable price.
Identification of suitable replacement properties:
4. My staff saw documentary evidence (including
memoranda, e-mails and letters) covering more than twenty properties
which were considered for purchase. Specialists from the Department's
Estates Group visited San Francisco several times to assist in
this process. Evaluations by security experts of a number of shortlisted
properties were also documented, as was consideration of properties
against a range of other criteria including image, quality of
location and size of the property. My staff also saw details of
consultations between Estates Group staff and other FCO officers,
including the Consul General and other key staff in San Francisco,
as the search for the most suitable property was being undertaken.
Financial cost comparisons:
5. Prior to the purchase of Presidio Terrace,
the FCO prepared a detailed discounted cash flow analysis which
compared the financial costs and benefits of different options
for the San Francisco residence. This concluded that the sale
of the existing building and the purchase of a replacement would
provide a better net contribution to FCO finances than either
leasing a new property or retaining the existing residence. In
addition, estates advisers assessed the financial implications
of purchasing each of the shortlisted properties. The results
of this assessment helped to inform the final purchase decision.
Assessment of whether the new property is fit
for purpose:
6. My staff reviewed papers which detailed
the consultation which had occurred on this issue with a range
of bodies, including British Trade International, and FCO staff.
Whilst this could not be said to constitute a formal attempt to
quantify the wider intangible costs and benefits of purchasing
a smaller property, or its likely effect on British business interests,
the documentation indicated that FCO considered and recognised
the importance of San Francisco's representational and commercial
role when coming to its decision. This degree of importance is
reflected in the decision to authorise the purchase of a replacement
building that is somewhat larger than the standard guidelines
on space would indicate. Steps were taken to assess whether a
smaller residence such as Presidio Terrace would be fit for purpose.
My staff also saw an analysis of the functions previously held
at the Pacific Avenue residence, undertaken in order to identify
the representational needs of the post. The Department also investigated
the cost of renting hotel conference facilities where necessary
for large functions, and of creating an additional conference
area in the Consulate office building to meet the post's representational
requirements. We understand the Department is currently negotiating
the lease of additional space in the office building.
Due diligence process:
7. My staff reviewed a series of evaluations
which indicated that professional advice was taken prior to the
purchase from various external specialists. These included real
estate experts and local legal advisers as well as numerous engineers,
surveyors and contractors. In addition, my team saw details of
consultations between internal specialists such as security advisers
and estates surveyors. These documents showed that the condition
of the Presidio Terrace property, legal and fiscal implications
were all considered and found to be satisfactory.
Approval process and final decision:
8. My staff saw correspondence from the
Director-General of Corporate Affairs which specifically authorised
the purchase of the new residence. Minutes of a telephone call
from a Departmental Minister also provided evidence of Ministerial
approval.
9. The evidence described above led my team
to conclude that the decision to sell the residence in San Francisco
and the purchase of the replacement had been handled satisfactorily.
I hope that you will find this information useful as you take
forward your inquiry.
National Audit Office
October 2003
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