1 Managing costs and benefits |
1. In 2001 the Inland Revenue and HM Customs
& Excise (merged in 2005 to form HM Revenue & Customs
(the Department)) signed a 20-year contract with Mapeley STEPS
Contractor Limited, one of several companies in the Mapeley Group.
Under the contract the Department transferred ownership and management
of 60% of its estate to Mapeley.
2. The Department sold 132 freehold properties
to Mapeley and now leases them back. Mapeley now manages these
and 459 buildings the Department leases from other landlords,
and provides facilities management and maintenance services to
the Department in exchange for a fixed monthly payment (Figure
1: Main features of the contract
|AT CONTRACT START
||The Department sold freehold buildings and assigned responsibility for managing leased buildings to Mapeley for a £220 million up-front payment and a further £150 million through reduced charges over the contract. 591 properties, mainly office accommodation, were transferred.
|DURING THE CONTRACT
||The Department makes monthly payments to Mapeley to cover rent, facilities management, maintenance and debt costs. Mapeley provides fully-serviced accommodation and bears the associated risks.
|INTENDED BENEFITS FOR THE DEPARTMENT
||The contract was intended to enable the Department to:
exit up to 60% of the estate and manage its accommodation according to business needs rather than fixed lease terms;
transfer day-to-day management of services;
transfer financial risks such as increased rents, and
share in windfall gains.
Source: National Audit Office
3. At contract signature the estimated cost of
the contract to the Department over its 20 years was £3.3
billion (2009 prices). By the end of 2008-09 the Department had
paid 20% (£312 million) more than expected, and it now expects
to pay £3.87 billion (2009 prices) over the 20 years. The
increase related to changes in building specifications, increased
provision of services and slower than expected use of the vacation
allowances. While the Department had calculated expected annual
costs and checks monthly invoices, it had not had strong processes
for monitoring costs against initial models. It assured the Committee
it would prepare an annual value for money assessment on the contract,
including updates of costs against forecasts, potential liabilities
and risks and available benefits.
4. The Department had not achieved value for
money on the contract so far, as it had not obtained all the benefits
available to date, and had no long term strategy for using the
property vacation provisions in the contract. The Department can
make savings by vacating properties using allowances in the contract
which let it vacate defined amounts of space each year. These
allowances enable it to exit buildings at a time of its choice
rather than having to wait for lease breaks. Under the contract
it can vacate 60% of the estate, 42% at no additional cost and
18% attracting compensation. The NAO estimated that if it had
used all the allowances as soon as they became available under
the contract, the Department could have saved £1.1 billion
to £1.2 billion (2009 prices) over the life of the contract.
Possible savings have now fallen by 25% to around £900 million
(2009 prices) available over the 20 years.
5. The Department did not have a strategic approach
to obtaining value from the contract and had no plan in place
from 2001. After the creation of HM Revenue & Customs in 2005,
it developed in 2007 plans for its estate to March 2012. It carried
out extensive consultation (including with staff, unions, local
Members of Parliament and Mapeley) on whether to close 258 buildings
and published the results in December 2008. In January 2010 it
confirmed the 130 buildings it planned to close in 2010-11. It
has no plans for closures beyond 2010-11, although more space
would continue to become available for vacation under the terms
of the contract. To make the most of remaining benefits available
in the contract, the Department now needed to identify buildings
for vacation in 2012 and beyond.
6. The recently announced closures affected some
3,150 staff. The Department has already agreed that 1,450 staff
will transfer to other locations, and it has been discussing a
range of severance options with the other staff. The Department
incurs its own costs in closing offices, including accommodating
staff elsewhere, and redundancy costs. It may also have to pay
Mapeley compensation as set out in the contract, for some closures.
The Department has committed to keeping enquiry centres open in
their current locations or nearby, which could involve partially
vacating buildings and incurring costs to move the enquiry centres.
2 C&AG's Report, paras 1 and 2.7 Back
C&AG's Report, para 2 Back
C&AG's Report, Figures 1 and 2 Back
Qq 31, 42, 84 and 87; C&AG Report, paras 1.3, 1.4 and 1.7,
Figure 4 Back
Qq 3, 40 and 88; C&AG's Report, paras 2.5-2.6 and 2.21 Back
Qq 2-4, 54 and 94; C&AG's Report, paras 2.9 and 2.22 Back
Qq 69, 70-72, 76, 77 and 94 Back
Qq 78-80 Back