Understanding implications of contractor default
i The potential cost to the Department in the event of default is likely to be significant. The Department carried out some analysis in 2002 but has not kept this up to date, and before undertaking further work in January 2009 did not understand its liabilities in the case of Mapeley default. Departments undertaking these types of deals should maintain an up-to-date understanding of the costs and consequences of contractor default.
Understanding downside risks
j The Department did not fully appreciate the risks arising from the downturn in the property market. In January 2009 Mapeley approached the Department with concerns about financial pressures resulting from the vacations programme in the current economic climate. Departments should carry out robust scenario testing of downside risks to ensure they have a full understanding of the implications and risks to the taxpayer.
Sharing gains in property deals
k Mapeley has concluded deals with landlords to extend leases and reduce its risk profile in exchange for up-front payments. The Department does not share in the payments and there may be increased liabilities in the event of Mapeley default, particularly from lease extensions. As in refinancing arrangements, departments should ensure that they have full visibility and approval rights on such deals, and consider whether it is appropriate to put in place gain-sharing provisions.
The STEPS contract is a Government asset
l The Department is seeking to reduce the size of its estate, but in the current economic downturn this creates financial pressures for Mapeley. There are opportunities for the Office of Government Commerce to engage with central and local government agencies to fill space the Department is vacating or, where the Department has partially vacated a property, for it to relocate to other government properties.