GCHQ has occupied over 50 buildings at two sites in Cheltenham, at Oakley and Benhall, since the 1950s. The buildings were becoming difficult to maintain and unsuitable for the development of modern information technology systems. In the 1990s a planned rolling programme of building replacement under traditional public sector financing arrangements was frustrated through funding constraints. The advent of private sector participation in public procurement projects led to the decision in 1997 to relocate the whole of the accommodation on a single site within a ten mile radius of Cheltenham under a Private Finance Initiative (PFI) deal.
Following a competition, GCHQ chose a preferred bidder, IAS, in September 1998. Twenty-one months later GCHQ signed a contract with IAS at a price 21% higher. The deal was to provide new, fully serviced accommodation at Benhall at a cash cost of £1,247 million over 30 years, equivalent to £489 million net present cost. The building was completed early and was ready for occupation by GCHQ in September 2003.
Independently of the PFI deal, GCHQ retained responsibility for moving its technical capability into the new building, largely for security reasons. In 1997 GCHQ estimated the costs for this technical transition, that are additional to the PFI deal, at £41 million. By 1999 GCHQ's estimate had risen to £450 million. The Treasury would not fund such a large increase but contributed £216 million to a revised budget of £308 million over the first five years. To help contain costs to the revised budget, GCHQ is to stage technical transition and keep part of its existing site at Oakley open until 2012, incurring additional running costs of £43 million.
On the basis of a Report by the Comptroller and Auditor General1 we took evidence from GCHQ and the Cabinet Office on 1 December 2003. We considered the increase in the costs of the PFI deal after the preferred bidder had been selected. We also questioned why GCHQ did not recognise the full scope and cost of technical transition earlier and did not initially manage the building project and technical transition as a coordinated programme. Overall, we explored the evidence as to whether expenditure on the programme represented good value for money.
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1 C&AG's Report, Government Communications Headquarters (GCHQ): New Accommodation Programme (HC 955, Session 2002-03)