1 GCHQ's acquisition of a new headquarters
1. In the 1990s GCHQ had a rolling programme of building
replacement at its two sites in Cheltenham, at Oakley and Benhall,
which it had occupied since 1952. By March 1996 funding constraints
meant that this would take much longer to implement than planned.
In 1996, with the advent of Government policy that all new capital
expenditure should be tested for suitability as PFI projects,
GCHQ first explored the possibility of acquiring new PFI buildings
at Benhall and then, in 1997, decided to expand the project to
cover the whole of its accommodation in Cheltenham.
2. GCHQ embarked on a competitive tendering exercise
to provide new serviced accommodation within a radius of ten miles
of Cheltenham. It followed best practice based on guidance issued
by the former Private Finance Panel Executive and Treasury Task
Force and issued an invitation to tender that was generally output-specified
with a strong emphasis on flexibility. A short list of four consortia
who were invited to tender offered bids ranging from £328
million to £485 million at net present values.
GCHQ told us that these bids had not been good enough and had
added an extra stage of competition with just two bidders, IAS
3. In September 1998 GCHQ selected IAS as the preferred
bidder on the basis of their Best and Final Offer of £404
million compared with Oakley's £493 million for delivery
of accommodation and services over a thirty year period.
The contract was signed 21 months later, in June 2000, by which
time IAS's bid had increased by 21% to £489 million without
the benefit of full and open competition. The equivalent increase
in the main annual Unitary Payment in this period was from £37.5
million to £45.6 million.Figure
1: Changes in Unitary Payments (UP) during the single bidder negotiation
|Best & Final Offer
|Adjusted to meet scope
|Revised bid||June 1999
|At Contract Signing
The figure shows that the Unitary Payments increased as a result
of resolving non-compliances and meeting changes in scope following
IAS's selection as preferred bidder.
*This is GCHQ's estimated increase over the Best
and Final Offer to meet the full scope of its requirements. It
is comparable in scope with all the subsequent figures up to and
including contract signature.
**These payments are equivalent to a total of £489 million
net present value or £1,247 million cash over thirty years.
4. IAS's Best and Final Offer had been non-compliant
in a number of ways and it needed quite a lot to bring it up to
GCHQ's specification at contract signature. In particular, the
cost of service level agreements had not been finalised and there
was a need to settle on one of the two sites offered by the bidder.
As a result, the Benhall site was not chosen until May 1999.
About 9% out of the 21% increase was not priced through competition;
the remainder was priced as a result of information already obtained
during earlier stages of the competition.
5. GCHQ told us that the increase beyond competition
resulted from higher staff numbers, the consequent increases in
services to the slightly bigger building, inflation and in increase
in finance costs because of the way the bond market worked.
Asked whether it was prudent to accept the original bid from IAS
so readily, GCHQ said that it was a judgement to draw competition
to a halt at that stage. The other bidder was considered so far
behind in terms of both quality and price that there was no realistic
prospect of them getting to the point of being the winner. GCHQ
also had to act responsibly in terms of how much effort it was
requiring the private sector to put in at a point when it already
knew who the winner was going to be.
6. The cost of the PFI deal is £1,247 million
cash over thirty years, equivalent to £489 million net present
cost. The construction of the new building was finished early
in June 2003. GCHQ told us that the new single building was a
much tougher structure than the existing accommodation where the
intelligence production operation was carried out and that it
was more resilient to most forms of attack that could be foreseen.
There were a number of faults to be rectified before it could
be accepted as complete and GCHQ required further work in the
form of contract changes. GCHQ said that IAS were due to be paid
a bonus of £2.2 million for early completion but this was
reduced by about £100,000.
About 99.9% of the job had been completed by the middle of June
and GCHQ could not force IAS to incorporate its contract changes
without putting the achievement of IAS's bonus at risk.
7. As to the size of the new building, GCHQ said
that it would now have to cope with higher staff numbers than
originally planned, mainly due to changes in customer requirements
following the terrorist attacks on 11 September 2001. Some 200-250
staff would be accommodated at the retained Oakley site while
new and more flexible ways of utilising the new building's space
were explored. GCHQ
had made some small changes to the way the building was configured
and used and was moving away from the concept of one person, one
desk. On any particular day 20% to 30% of desks were likely to
be empty because people were away for various reasons and currently
there were 5% more staff than desks; it thought it could cope
with a 10% margin and perhaps significantly beyond that. Staff
were being encouraged to use green transport to counter a 15%
reduction in parking spaces from current levels. Walking, cycling
and car sharing were being promoted and GCHQ was working with
the local authority to improve bus services.
2 C&AG's Report, para 1.15 Back
ibid, para 2.15 and Figure 4 Back
Q 2 Back
C&AG's Report, para 2.24 and Figure 5 Back
ibid, para 3.15 and Figure 7 Back
C&AG's Report, paras 3.1-3.2 Back
ibid, para 3.6 Back
Q 1 Back
Q 1 Back
Q 2 Back
Q 42 Back
Ev 18-19 (GCHQ's update memorandum, paras 2-4) Back
Q 113 Back
C&AG's Report, para 5.33 Back
Qq 32-33 Back