Examination of Witnesses (Questions 140-159)
DEPARTMENT FOR
CHILDREN, SCHOOLS
AND FAMILIES,
OFFICE OF
GOVERNMENT COMMERCE
& HM TREASURY
14 JANUARY 2008
Q140 Mr Williams: A cost-benefit
assessment is made, it is not just presumed that because it is
PFI and the difficulties of PFI that it is a no-go area.
Mr Burt: No, absolutely not and
in fact in the context of benchmarking, we have done some specific
work around how we benchmark PFI buildings.
Q141 Mr Williams: One of you made
the point that it would be in new PFI builds that you would be
able to build in flexibility. In the future in what way will you
be able to build that in where you have not done in the past?
Mr Smith: Some of them have been.
DWP is an example of that where flexibility was built in. I think
I am right in saying—I will check this number—since
the PFI started on there, they have released 130,000 square metres
of space even though they have been under the PFI. I will check
that, but certainly they have released space. Of course there
is a cost to building in flexibility. You probably pay some more
but sometimes that is sensible when you are looking at planning
for the future.
Q142 Mr Williams: Could you let us
have one or two examples? Is it possible to do that in a note?
Mr Burt: We could certainly let
you have some examples of where individual buildings have been
refurbished through PFI or a new build through PFI.[5]
Q143 Mr Williams: I am more concerned
about where they cannot be. Are there examples where you have
not been able to go ahead with them or it has been severely limited
in what you can do just because of PFI?
Mr Burt: We will have a look at
that.[6]
Q144 Mr Williams: Would you please put
a note in?
Mr Burt: Indeed.
Q145 Mr Williams: It says in the
Report that of the 896 only 520 are in the OGC benchmarking services.
What is holding back the others?
Mr Burt: We have actually increased
that number now to 631 and when we go through the mandating process
from 1 April, that will increase to over 2,000.
Q146 Mr Williams: What is holding
the others back? Is there any suspicion that there is foot dragging,
for example? Is there any incentive to do what you want them to
do or are there any penalties to deter them from not cooperating
with you?
Mr Burt: The biggest incentive
is really the fact that all departments are facing a pretty tough
round of being able to live within the reduced resources that
they have, so property actually becomes higher on the profile
in terms of an area where savings can be made. What we are finding
is that there is no foot dragging. We have been running the benchmarking
since 2006 on a voluntary basis and rolling it out in phases and
in fact in the period of about 19 months we have covered 24% of
the estate on a voluntary basis.
Q147 Mr Williams: We are going into
a period of relative constraint as far as expenditure is concerned.
How far is the cost of refurbishment generally, and particularly
in PFI, an upfront cost which, while it may be justified long
term, is a cost that departments would prefer not to take on because
of the limitations imposed during the next three years of comprehensive
spending?
Mr Burt: The upfront cost of refurbishment
is obviously a very critical factor and it can get in the way
of some departments taking forward their plans for refurbishment.
Q148 Mr Williams: Really? Would you
say they set them aside or revisit them?
Mr Burt: Through the business
case process they will be looking at the value for money for going
down that route. Sitting behind that of course is the fact that
if you leave maintenance on a building too long, then you actually
store up an even bigger problem for yourself. In terms of upfront
cost, clearly the business case will be looking at the upfront
costs against the payback period and the value for money that
comes out of it and the schemes that have gone forward in the
likes of BERR, the former DTI, indeed in DCSF, have actually looked
at the upfront costs and the payback period.
Q149 Mr Williams: Have there been
any that would be worthwhile and that you would still say there
would be merit in making the changes but it is the upfront cost
that is stopping you going ahead with it?
Mr Thompson: I am happy to share
our own personal experience, which is that the cost-benefit analysis
for refurbishing Sanctuary buildings in London was £9 million.
What it enabled us to do was to consolidate two London properties
into one because we were able to adopt some of this best practice
and that saved us £12 million a year. With that kind of payback
period it was obviously very good. I cannot speak for everyone
else, but a £9 million investment for a £12 million
annual saving seems like a pretty good cost-benefit analysis to
me.
Q150 Mr Williams: Is there any possibility
that the generosity of Treasury could be such that they might
cast their greedy eye on the savings and say they do not see why
you should have the full benefits of that? Are you guaranteed
the full savings?
Mr Thompson: In my particular
case, yes, but it is fair to say that the Treasury spending teams
are open to a conversation about these kinds of cost-benefit analyses.
If you can produce a compelling case, this certainly allows you
to have a conversation about dealing with it potentially outside
your normal administration costs.
Q151 Mr Williams: Can we hear some
more about this conversation? Conversations fascinate me. Describe
such a conversation.
Mr Thompson: Well such a conversation
goes "I think I have got a fairly compelling financial case
to restructure my property portfolio. Can we talk about whether
or not the Treasury is able to fund or part fund £9 million?
I can deliver the public purse £12 million in saving".
Q152 Mr Williams: There is only one
answer to that is there not? When it gets down to the nitty-gritty,
have you had cases you can think of where you would have liked
to go ahead and you have had to say no?
Mr Thompson: I personally cannot.
Mr Burt: Across the government
estate?
Q153 Mr Williams: Yes.
Mr Burt: I do not know of any
cases, certainly none of the major schemes have actually been
prevented from going ahead. There may be a few isolated smaller
cases.
Q154 Mr Williams: Would you check
and come back to us with a note if there is any evidence of that
sort of constraint?
Mr Burt: Certainly.
Q155 Mr Williams: A final question
to OGC. What muscle do you have? You have the power of persuasion
and the ability to point out that there are benefits from pursuing
the policy you want and the procedures you want. At the end of
the day, if you come across a department that is dragging its
feet, do you have any muscle at all to persuade it to take the
view you want rather than the view it is pursuing?
Mr Smith: It is always difficult
when you talk about muscle. There is muscle for OGC in the sense
of mandation, the benchmarking, ePIMS. The issue though is not
really about the tools you are putting in place; it is about what
you do in your plans. The issue there is yes, there are certain
areas: the London and the south-east property controls. There
there has to be an explanation of the business case to stay in
London. If OGC does not agree, then that will go to the Chief
Secretary of the Treasury. Yes, that is muscle. The biggest muscle
we can have is actually public exposure and I am talking here
in the sense of within the Civil Service rather than getting into
other dangerous ground, but certainly within the Civil Service
public exposure of whether you are meeting your targets or not.
Q156 Mr Williams: Why should it only
be within the Civil Service? The reason we are here is because
the public's interest is in this. So if it is of interest within
the Civil Service, it is of interest in this Committee and it
is of interest to the public generally. Could you put on a more
public display of your effective muscle?
Mr Smith: We will certainly be
reporting against the OGC's performance against its agenda on
a regular basis, yes.
Mr Burt: We have an annual report
on benchmarking which looks across the whole of Government. That
is published, that is publicly available and that actually identifies
how Government is performing against the key metrics that we have
under the benchmarking activity.
Q157 Mr Williams: One final question.
C&AG, is there anything you think the NAO could do further
than is being done at the moment to support the OGC in its actions?
Sir John Bourn: The publicity
that will be brought out by this published Report is again an
example of our encouraging the public knowledge and public discussion
of it, picking up the point you made before. We are also interested
in the metrics that they use, compared with those that we have
devised for this exercise. We look on it as working in a complementary
way for us to assist the OGC in the further development of their
approach here.
Q158 Mr Mitchell: I am interested
in the point about penalties and incentives. There are some departments
which have better reasons for being in London than others. Since
civil servants seem reluctant to go—we have been trying
for decades now to get departments and functions moved out of
London—can we do it without incentives and penalties? If
I were the head of Defra or DFID, good departments for moving
out of London, would I not be encouraged to think of moving to
Grimsby by a penalty for keeping things in London and an incentive
from the cheaper office rents and the greater desirability of
the neighbourhood from going to Grimsby? Will we ever get them
to transfer without penalties and incentives?
Mr Smith: The really key issue
is actually getting people to understand their accountability
for cost, getting people to understand the benefits which can
take place if they move people out.
Q159 Mr Mitchell: That is a distant
thrust, if I am sitting in plush offices in London.
Mr Smith: I have to say that the
first thing you do is actually make people aware. If you are benchmarking
one property against another, if you are benchmarking one department
against another, that will come out. There is a lot of activity
underway in Government. The issue is making it consistent across
Government. It is a policy question essentially if you are going
to apply penalties on departments staying in London; it is not
an OGC question. What we will do is work within policy and we
will try to maximise within that situation.
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