Contingency planning
9. The Departments and the banks that had lent money
to Mapeley to buy the estate had "step-in rights" to
take over the contract in the event of Mapeley's failure. Nevertheless,
before the signing the contract, the Departments had not worked
out all the consequences if Mapeley did fail. Since contract signature
the Departments had considered what their position would be with
the banks and how taxpayers' interests could be safeguarded. The
Departments were still trying to encourage a greater degree of
openness with Mapeley and its bankers. They had also commissioned
work to build a better financial model of what would happen if,
for instance, the property market collapsed.[9]
The Departments considered that their risk management strategy
would provide an early indication if Mapeley were likely to get
into financial difficulties again, and they expected Mapeley or
its bankers to tell them if further problems were anticipated.[10]
10. In the STEPS deal, the money borrowed by Mapeley
is secured on the Departments' estates, giving the lenders a higher
degree of security than is normally the case under PFI arrangements.[11]
In a standard PFI deal, finance raised by the private sector is
secured on the future cashflows of the project. Since those cashflows
are dependent on delivery of a service to the public sector, lenders
to a deal will only recoup their investment and make a return
if the project is successful.
11. The arrangements for the termination of PFI deals
because of contractor default had never been tested, so nobody
could be sure what would happen. It was normal to give banks and
other lenders a commercial incentive to step in and sort things
out so that the public sector continued to get a service, which
was better than a system that gave financiers an incentive to
step in to protect their own interests, regardless of public sector
concerns. The Departments were still looking at what they would
need to do to ensure that facilities management services for the
estate were protected. The contract would not become void if Mapeley
failed and the Departments retained rights of occupation over
the buildings.
Negotiations with Mapeley
12. At the time the C&AG's Report was published,
the Departments and Mapeley were still negotiating a number of
outstanding claims arising from the procurement process, such
as discrepancies in property information. Data on the estates
had changed throughout the procurement process as the Departments
moved in and out of properties and service delivery altered. Only
when the estates had been brought together under the STEPS deal
had Mapeley concluded that there were discrepancies in the information
provided by the Departments.
[12]
13. Seven months into the deal, Mapeley had asked
the Departments for an additional £27 million, based around
some of the changes that had occurred in the estate. When this
request was refused, Mapeley decided to fund the shortfall itself,
and was now in further discussions with the Departments over variations
and changes in the contract. Unless service delivery levels changed
or the Departments decided to remain in buildings they had expected
to vacate, Mapeley assured us that it would not ask for additional
money again.[13]
14. The contract had not been put together in a completely
satisfactory way and that was why negotiations were still ongoing.
The Departments expected, however, to resolve the outstanding
issues by the time HM Revenue and Customs comes into existence
in Spring 2005.[14]
Performance measurement
15. There had also been contractual disputes about
the performance measurement system under which Mapeley provided
services for the estate. The system had been developed by the
Departments and supplied to all three bidders for their consideration.
Shortly into the operation of the system, it had become clear
to both parties that Mapeley was devoting its resources to fixing
reported faults, and was not undertaking preventive measures to
avoid further problems occurring (Figure 4).[15]
Figure 4:
Problems with the performance measurement system
