230. May I first, Sir Andrew, ask you a question on behalf of Mr Gardiner who had to leave and it is concerning bank versus bond finance. He asks, "James Stewart just agreed that because the term was 37 years it was longer than the banks' longest lending period and therefore the banks could not compete." He goes on to say, "Earlier you had said there was no factor which precluded the bank from bidding successfully, in particular you said you had not set out it must be done by bond finance, yet in fact the time period meant it had to be done by bond finance, so effectively the banks were excluded."
(Sir Andrew Turnbull) The banks did not take that view, otherwise why did they bid. They thought, despite this natural disadvantage, nevertheless they could come up with something competitive.
231. That was Mr Gardiner's question, perhaps I can now come on to my own. I would like to return to the question of the cost of running the Treasury building. You said they would do the maintenance, the running costs of the building, for £9 million a year, and then I think you sought to correct yourself. First, I would like to take up something you mentioned earlier in answer to another question about serviced accommodation. You said you are buying serviced accommodation which is why you are paying a different rate. Would I be right in thinking that the services you are buying are including things like cleaning, window cleaning, maintenance, security, that sort of thing?
(Sir Andrew Turnbull) All those things.
232. So would it be a correct analogy then if I borrowed the money to buy a house on a mortgage and Barrett said to me, "Not only will you get this house for the money you are giving us but you will get a cleaning lady once a week", essentially that is a correct analogy is it not? I would not be paying any extra on top of my mortgage payments, I would be getting the cleaning lady, it says in the Barrett contract, included-
(Sir Andrew Turnbull) I would not expect it to be for exactly the same price.
233. I am not suggesting for one moment it would be, but I am asking is the analogy correct.
(Sir Andrew Turnbull) The analogy is correct up to a point.
234. So if you say you are buying serviced accommodation, you are paying interest payments on the serviced accommodation. It is equivalent to my borrowing the money over 25 years, or in your case 35 years, to pay my cleaning lady, is it not?
(Sir Andrew Turnbull) No, we are not borrowing the money, they are borrowing the money and then charging us, to pay for the capital cost. They are also having a current cost-and I think the figure given was split between £10.6 million as the capital cost and £3.4 million as the services.
(Mr Gershon) Can I just add that it is not directly equivalent because when you buy the house from Barrett, first, you only get a warranty against defects for ten years, not for the whole life you are going to live in the house, you get no warranty from Barrett about keeping up the quality of the interior decoration, the quality of maintaining the external fabric. It is different.
235. Yes, I see that. Nonetheless, you are paying interest payments on it effectively over a 35 year period?
(Sir Andrew Turnbull) No, I do not think we are. We are paying interest on the money they have had to borrow up-front to do the work. The £14 million covers the £3.4 million for services, leaving £10.6 million to pay back the capital. I do not think we are paying interest-
236. The point I was trying to get to earlier was this, if I have a rubbishy building and it is costing me, as you said, £9 million a year to keep it going, plainly one of the reasons it is costing so much money is because it is falling down, I have to spend a lot on maintenance and so on, and you yourself said you would have had to spend £50 or £60 million quite shortly. I would expect, if I spent a sum of money on doing a building up, that my annual running costs would go down, not up, because I am then in a position where I have a brand new, spanking new building which actually does not fall down. In fact, if it had been cleverly designed like some modern buildings are, the body heat of the people inside means the net energy cost of running the building is zero.
(Sir Andrew Turnbull) This would be a BREEAM, a 'very good' rating at least,5 so it is designed to be an efficient, low cost building.
237. Can you go back to this question of £9 million, what actually is the running cost per year of the Treasury building?
(Sir Andrew Turnbull) That was the figure I said I did not know and I would provide. The £9 million is equivalent to the £14, not to the £3.4.
238. The point I am trying to get to is this, Chairman. If you are spreading the cost of this over 35 years, including the capital cost-I take it the £14 million is index linked so it is actually going to be more than £14 million when it comes down to it. That is right, is it not?
(Sir Andrew Turnbull) Yes.
239. My concern is, at the end of the day you are going to pay a lot more than if you had just gone to a contractor and said, "Do this building up for us and then we will have a series of annual maintenance running cost payments which will be lower because we have a brand new building which is not falling down."
(Sir Andrew Turnbull) The two things are not comparable. We would have had the risk of maintaining those standards ourselves. What we have done is we have a pre-commitment to maintain those standards, that is written down in the contract, for 35 years. We have no guarantee, as I said to some hilarity, that we would actually get the money to do the maintenance. This time we are sure we have.
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5 Note by witness: It has now been assessed with an "Excellent" rating.