Conclusions and recommendations
1 The Department has failed to achieve value
for money so far as it has not secured all of the benefits available
and it had no plan for obtaining the savings available from allowances
in the contract to vacate properties. It still has no plan beyond
2011. The Department
must now develop a plan up to 2021 that details how it will use
the contract to deliver the objectives of its estates strategy,
and how it will make use of allowances for vacating buildings.
2 During the first eight years of the contract,
the Department did not monitor overall costs and value for money.
The Department's senior management is now taking a more positive
and proactive approach to managing the contract, and as part of
this, is committed to preparing an annual value for money assessment
for its Board. It should develop cost and value for money targets
for the remainder of the contract, measure its performance against
these, and reflect the targets in its plan.
3 The Department lacks visibility of Mapeley's
financial position and profitability, limiting its ability to
manage risks, negotiate effectively and develop a functioning
partnership. Mapeley assured the Committee
it will provide the Department with full access to its financial
information in line with HM Treasury guidance on information rights
in PFI contracts. The Department should understand and monitor
such financial information, and use it to strengthen its management
of the contract and negotiations.
4 The Department's vacation plans create financial
pressures for Mapeley, exacerbated by the economic downturn and
falling property values. Seven months into the contract, Mapeley
approached the Department for help in dealing with serious cash
flow problems. Mapeley gave assurances
that it could afford the contract and would not seek any additional
financial assistance from the Department. In any case, the Department
should not offer any concessions on the contract terms without
obtaining commensurate benefits.
5 The Department has lacked the skills and
business acumen to manage a contract of this size.
The Department should identify the commercial and legal skills
it needs to achieve effective strategic and risk management, strong
contract administration and good financial management. It should
then appoint and deploy people with these skills over the remaining
life of the contract.
6 Lack of sound commercial skills is a common
problem across government, reducing the value for money obtained
from large private finance deals such as this and other commercial
projects. The Treasury should undertake
an annual assessment of commercial skills across government. It
should use these assessments to identify skills shortfalls and
establish centres of expertise that departments could tap into.
7 The Department did not undertake robust
monitoring of Mapeley's viability and did not understand its own
risks and liabilities in the case of Mapeley default. The
Department should understand and keep abreast of changes in Mapeley's
financial position and the Department's potential liabilities
in the event of Mapeley default. It should maintain an up-to-date
business continuity plan.
8 Even though the Committee highlighted in
2005 the need to establish an effective partnership, the Department
and Mapeley have not achieved this. The
Department must establish an effective partnership with Mapeley,
including:
- using joint Board meetings
for early and regular dialogue on strategy;
- sharing strategic aims, and
- establishing a shared property
database.
9 Signing a contract involving tax avoidance
through an offshore company has been highly damaging to the Department's
reputation. It is also unlikely that the arrangement delivers
any overall benefit to the Exchequer, as any reduction in contract
price is accompanied by lower tax revenue.
Sensitivities over offshore ownership have led to delays in including
additional buildings in the contract. As a result the Department
has incurred additional estate management costs and continues
to lose out on additional vacation allowances it could otherwise
claim on these properties. As a matter of principle and good value
for money, public sector organisations should not use tax avoidance
schemes. The Department should take whatever action it can to
persuade Mapeley to bring the properties onshore. It should also
reach agreement on including additional buildings in the contract.
10 It remains uncertain what tax savings Mapeley
will obtain over the course of the contract from being offshore,
and therefore whether these are passed on in full to the Department.
There have also been delays in Mapeley providing the information
needed by the National Audit Office to complete the analysis we
requested. The Department should track the savings Mapeley actually
obtains and Mapeley should provide full and timely information
to enable the Department to do this. The Department should seek
to recoup any additional benefits Mapeley obtains.
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