[Q41 to Q50]

Q41 Jim Sheridan: During the transition did you have any contingency plans should anything go wrong?
Dr Pepper: One of the benefits we have got from the approach we have taken is that we have very considerable contingency facilities of quite a wide range and if you will forgive me I will not specify what they are. We now have a degree of resilience that we have never approached in the past. It will certainly stand us in good stead during the transition and will last into the indefinite future so we are now much better able to withstand disruptions of all sorts to our operation.

Q42 Jim Sheridan: Just on the single building, against the background of September 11 and the fact that the armed forces take the view not to have all their eggs in one basket, do you have any major concerns about the single building in a single location given the security aspects, terrorism, etc?
Dr Pepper: No. We are actually better of than we were before for two reasons. One is that although until now we have been divided between two sites, in fact the guts of the intelligence production operation has been on one site. Within that site what we have is an awful lot of single points of failure. What we have in the new building is a much tougher structure which is much more resilient to most forms of attack and is much better able to withstand the sorts of things that we can foresee.

Q43 Jim Sheridan: Finally, it was mentioned in the Report that other government departments could learn lessons from this project. Could you give us some examples of what lessons could be learned? 
Dr Pepper: The programme we have managed, the technical transition, despite its difficult start has been, I would suggest, and I think the NAO would endorse this, very well run in that we have a £300 million IT programme coming in on time and on budget. In order to do that we have taken the programme management guidance that the OGC have produced and developed it very considerably. I described it as an IT programme. It is not. It is actually a very complicated hybrid programme because it involves IT, it involves moving people and it involves changes in working practices. We have taken the OGC guidance and built into it various aspects of system engineering and risk management which we think have enabled us to put together a very good package of how to go about managing a complicated programme. A lot of that guidance has been built into the latest round of the OGC guidance and we think we have covered quite a lot of new ground.

Q44 Jim Sheridan: Have those lessons been passed on to other government departments?
Dr Pepper: Indirectly through the OGC and more directly through contacts we have with other departments.

Q45 Jon Trickett: I want to put it like this first of all before I ask any questions. It strikes me that if money was spent more than was necessary on this building, it is less money available for the defence of the realm and I think that would be the common view of people I visit, certainly. I do not believe you can demonstrate value for money on this building. The only way that the public sector knows how to get value for money for a project is by competition, and it is not a bad device, but we ceased to have competition at a very early stage in relation to this, did we not, and then the price increased by 21%? What happened then was that we used the public sector comparator. This is a notional ideal by which to try to calculate what the public sector building costs would have been and as long as the private sector was less than that we think we can demonstrate value for money. This Report I think demonstrates the reverse, that the public sector comparator figure was fiddled in order that it became higher than the PFI deal. I want to go through one or two figures with you. Paragraph 5.16 indicates that we added £156 million to the public sector comparator figure for risk. How was this figure arrived at?
Dr Pepper: By taking the factor of 24%, which was the guidance that is usually given by the Treasury as a measure of the average cost overrun in public sector managed projects.

Q46 Jon Trickett: I have heard this figure before but I have never heard that the Treasury advised you to add 24% to the cost of the public sector comparator figure. I have heard 24% before. Can I ask the Treasury, did you instruct them to add 24% to the £156 million?
Mr Glicksman: It is the case that we do not instruct departments but we advise departments that they ought to allow for possible cost increases in traditionally procured contracts.

Q47 Jon Trickett: Did you say that they should add 24%?
Mr Glicksman: No. 24% is the bottom of the range that we advise and it comes in the study carried out for us by the firm of consulting engineers Mott MacDonald which is available on our website, and it is, as I said, the lower end of the range that we advise.

Q48 Jon Trickett: The rest of this paragraph goes on to make some other points but the final sentence says: "As in other PFI cases, the adjustment for risk on construction costs . . . more than accounts for the estimated cost difference between the comparator and the PFI deal". Can I ask the C&AG, is there any case at all anywhere that you are aware of or you have reported to this committee where the public sector comparator was higher than the PFI before this fiddle factor, as I call it, was added? You would call it, no doubt, scientific risk.
Mr Colman: I am not immediately aware of one but I would not like it to be said that there are not any.

Q49 Jon Trickett: What does this sentence mean then? It says, "As in other PFI cases, the adjustment for risk on construction costs . . . more than accounts for the estimated cost difference between the comparator and the PFI deal". The key clause is "as in other PFI cases", is it not? Does that not imply that in other PFI cases of which we are aware the difference is-?
Mr Colman: Yes, you are quite right, but it may not be all cases.

Q50 Jon Trickett: That was £156 million but that is not the end of the adjustments which were made in relation to this. Paragraph 5.20 talks about the discount rate. This is something complicated which is hard to explain, but essentially the Treasury changed the figures which it was using subsequent to this calculation to a lower discount rate. This made a £51 million difference in financing, did it not, which would have brought the public sector comparator within £20 million even allowing for the risk factor? 
Dr Pepper: That is right. This, of course, was after we had done this, though the paragraph does go on to point out that the comparison may not be entirely fair because the bidders would have known what the discount rate was and they would undoubtedly have shaped their financial model to ensure that other measures-