1. It is unwise to enter negotiations with a preferred bidder when key requirements have not been settled and priced. In this case there was a 21 month period of exclusive negotiations before the contract was signed in June 2000 during which time the price increased by 21%, not wholly in a competitive environment. When a preferred bidder is selected before all key requirements have been negotiated, the contractor is inevitably at a price advantage in closing the deal.
2. Major change programmes need to be managed as such from the outset. Any move of headquarters is likely to require numerous projects in addition to the building itself and to changes in working practices. In this case, which obviously was bound to involve a major technological move, GCHQ continued to perceive it as a building project for far too long. It was nearly three years after a PFI solution for its accommodation was first explored that GCHQ recognised the move as a major programme and designated it as such.
3. GCHQ experts failed to spot that development of IT networking during the 1990s would hugely complicate technical transition which effectively evolved into a major systems upgrade. The GCHQ Board was principally concerned with the feasibility of testing the PFI market for a new building and lost track of the scope and cost of the technical transition.
4. A further consequence of GCHQ's failure to see the programme as a whole is the staging of the technical transition for budgetary reasons. GCHQ will be keeping one of its existing sites open for 7 years longer than planned and incurring extra costs of £43 million.
5. GCHQ made a highly uncertain assumption that a conventionally procured building would have over-run its budget by 24%. That alone accounted for the comparative cost saving that GCHQ estimated the PFI deal would offer, but was simply an average over past projects and hides the wide range of outcomes.
6. Departments should not uncritically accept that PFI is the only way to improve on past construction performance. The Treasury and the Office of Government Commerce have told us that they are seeking to modernise construction and that there are non-PFI approaches to construction procurement that offer potential advantages. The public sector could learn from the experience of the private sector and reduce the risks in construction projects to provide a better measure of competition with PFI bids and be a spur to securing improved value for money.