HM Revenue and Customs' estate private finance deal eight years on - Public Accounts Committee Contents

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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Prepared 8 April 2010