Recommendations

a  When a Government department is considering major investment in new accommodation and services it is essential that the full scope of the requirement is properly defined from the outset. In this case GCHQ failed to consider all the implications of the fact that it was relocating its entire business capability to new accommodation and that technical transition was a major factor. As a result, at the time Ministers and the Treasury were asked to approve the PFI strategy they could not have known about the high costs of technical transition.

b  It is essential that departmental Management Boards are given full and properly estimated information on costs when considering investment proposals. The Burton report on transition costs and management of the New Accommodation Programme found high level planning and management weaknesses at GCHQ. The failure to identify the high technical transition costs earlier was a manifestation of these weaknesses.

c  The negotiating period between selection of the PFI preferred bidder and signing of deals should be kept to a minimum. Too many unresolved issues can lead to the cost of the deal being significantly understated when selection is made and can threaten value for money. In this case, therefore, although GCHQ prolonged competitive tension by adding an additional procurement stage, there was a gap of 21 months before the deal was signed, partly caused by the consortium's problems. During this time the non-competitive increase in the net present value of the contract was nine per cent; however, GCHQ's advisors analysed this increase and concluded that it was acceptable.

d  In any PFI deal careful consideration needs to be given to the effectiveness of benchmarking value for money against an assumed conventionally financed alternative procurement arrangement. In many cases a realistic alternative is not obvious and may not be capable of offering a useful measure. In this instance GCHQ and the Treasury carefully considered the form of the alternative and it went through a number of changes before manifesting itself as a recall of the original two site Cheltenham Building Programme. The comparison, while a useful benchmark, needs also to be put into the context of the potential long term benefits of a PFI deal such as specific corporate benefits and a real transfer of risks to those incentivised and better experienced to manage them both in respect of design and construction of a new building and the provision of services.

e  Other Government Departments might learn lessons from the way that GCHQ developed its programme management arrangements for this major hybrid change programme. While standard programme management frameworks formed a base for managing GCHQ's New Accommodation Programme, they overlapped imperfectly and there was little guidance available on the management of benefits delivery. Departments should follow best practice - developing additional tools as necessary - and should especially focus on introducing programme management procedures to identify, plan and then deliver all the benefits attainable from their PFI programmes.