3 Delivering building projects to time
and budget |
10. The Department's record in delivering its
capital projects to time and budget has been disappointing. The
NAO examined the performance of 42 projects which had been completed
since 2002. Of these, 29 were delivered late and 14 exceeded their
budget by over 10%, a total cost overrun of £57 million.
In 2008-09 the capital programme went £11 million over budget
because of poor controls over in-year capital spending.
The Department felt this also reflected the need to deal with
unexpected events, recently exemplified by circumstances in Madrid,
where a faulty sprinkler system in its new top floor offices flooded
floors below belonging to other tenants, for which the Department
may be liable.
11. The Department pointed to a number of challenges
it faces when building overseas. Many of the capital projects
the Department undertakes are in some of the world's most difficult
environments, and the Department attributed £40 million of
the £57 million overrun since 2002 to buildings in Baghdad,
Basra and Harare which went over budget.
For some work, the Department must use UK labour and contractors
for security reasons and this can add significantly to the overall
cost of the project.
For other work, it may be possible in some locations to subcontract
non-sensitive areas to local contractors but this is judged on
a case-by-case basis.
12. The Department provided more detail on a
recent example of the problems associated with building in insecure
environments. Work on the new Embassy in Damascus had to be suspended
after the Department discovered that the site was not sufficiently
guarded early on in the build, allowing unauthorised access. A
subsequent review of the contracting arrangements identified concerns,
and financial compliance staff were looking at the project. The
Department agreed there had been deficiencies in the way it managed
this project and that it should have recognised the security risks
at the start of the project and built these into its plans. Work
was underway to establish the way forward and the likely costs
to the Department.
13. Exchange rate fluctuations had also caused
cost increases and delays on some projects.
The new Embassy in Algiers was late and over budget due to exchange
rate movements although terrorism, security considerations and
the retrospective application of Value Added Tax also added to
the overall cost of this project.
The Department reported a budget shortfall of 12% in 2009-10 due
to an adverse exchange rate position.
It admitted it had been caught out by the sharp exchange rate
depreciation in 2007-08 as it had not been hedged.
14. The Department has an annual target for the
sale of its properties. The Department keeps the sale proceeds
up to an agreed limit set by Treasury for reinvestment (some £50-60
million over the three years of the Spending Round).
The Department has a list of properties which it believes it can
sell for a reasonable return, taking account of market conditions.
This is not made public in advance to avoid an adverse effect
on the market value of the properties listed.
The Department looks to sell buildings which are no longer relevant
to, or too big for its needs, but aims to retain its prestige
buildings if used fully. We believe these prestige buildings play
an important role in representing British interests overseas.
Recent disposals include a property in Brussels which was sold
after the FCO Embassy staff and those from the UK Permanent Representation
to the EU (UKRep) co-located together in a refurbished set of
offices. The Treasury
limit for retaining sale proceeds was increased by £25 million
as part of a recent rescue package announced by the Chancellor
of the Exchequer. The Department can choose to reinvest these
additional receipts in projects to improve the estate, or to cover
increased running costs such as those caused by adverse exchange
22 Q 93; C&AG's Report, para 3.7 Back
Q 106; C&AG's Report, para 3.9 Back
Qq 21-24 and 107 Back
Q 95 Back
Q 41 Back
Q 93 and 94 Back
Qq 15-20 Back
Qq 12-13 and 93 Back
Qq 12 and 13 Back
C&AG's Report, para 4.3 Back
Qq 12 and 13 Back
Qq 38, 42-45 and 98 Back
Qq 38-39 and 45 Back
Qq 66, 68 and 75; Committee of Public Accounts, Third Report of
Session 2009-10, Financial Management in the Foreign and Commonwealth
Office HC 164, [incorporating HC 1051-i] Back
Q 26 Back
Qq 97-100 Back