Conclusions and recommendations
1. It was a very serious blow indeed for the
Inland Revenue to have entered into a contract with tax avoiders.
The Departments knew
that Mapeley was owned by shareholders based outside the UK, but
did not clarify the company's tax plans, or find out that it intended
to hold the properties offshore until late in the procurement
process. Departments should as far as possible discount gains
from tax avoidance that may be factored into a PFI bid, since
any price advantage to the Exchequer is likely to be offset by
lower tax revenue.
2. For its part, Mapeley had always intended
to hold the properties offshore to avoid paying tax.
Yet the company was less than open with the Departments, only
making its intentions known to members of the Departments' project
team very late in the procurement process.
3. Faced with Mapeley's financial difficulties,
the Departments' negotiating position was weak and led to the
prolonged negotiations following deal signature.
Ahead of signing the contract, the Departments had not given a
high priority to analysing the possible termination scenarios
or developing a fall-back position to ensure business continuity.
Departments need to ensure that they retain a real option to terminate
a deal in the event of contractor default.
4. Nearly four years into a 20-year deal,
negotiations between the Departments and Mapeley have still to
be concluded. It is important that they
should now meet their objective of concluding the current negotiations
by Spring 2005.
5. The current negotiations should aim to
agree a performance measurement system that balances rewards and
reductions in payments. Mapeley signed
up to the performance measurement system suggested by the Departments
even though it considered some aspects to be punitive. A performance
measurement system can only function effectively when all parties
are agreed on the criteria for, and the value of, deductions for
poor performance.
6. After the STEPS deal was signed, a number
of key staff in the Departments moved on and there were management
changes at Mapeley. Departments should
avoid moving contract management staff unnecessarily, and contractors
should commit to an appropriate degree of staff continuity between
the procurement process and the operational phase of a PFI project.
| 
