GCHQ managed the impact of the consequent changes on the Unitary Payment accordingly

3.12  GCHQ was to pay for the required accommodation services by three levels of Unitary Payments, decided by negotiation with IAS. The level would depend on the services being provided as in Figure 6. Failure to provide the agreed levels of service would incur deductions that would be defined in the contract.

3.13  When considering affordability, the Treasury took the Public Sector Comparator cost estimate (see Part 5) at the Best and Final Offer stage as the yardstick by which to measure the changes in Unitary Payments. As a result of the increases during preferred bidder stage, Treasury set a cap on the main annual payment, covering the period of full accommodation and service provision (UP2). This was set at £44.3 million, and GCHQ sought to ensure that the contract changes for design and service provisions kept costs within this cap.

3.14  Figure 7 shows the movement in IAS's bid for the main Unitary Payment, UP2, from £29.5 million at Best and Final Offer stage to £45.6 million at contract signing in June 2000. The Unitary Payment at Best and Final Offer stage excluded many essential elements of the project without which the IAS bid would have been unworkable. GCHQ's Invitation to Continue Negotiations evaluation report had estimated that to meet all its requirements the figure should have been £37.5 million. On top of this there were subsequent increases for the extra cost of the Benhall site (£1.4 million), inflation (£0.9 million), increased building size (£2.6 million) and other items (£1.9 million).

3.15  The final figure of £45.6 million exceeded the Treasury's £44.3 million annual cap by £1.3 million, but the Treasury accepted that this small increase was due to market fluctuations in the costs of the bond used to finance the project. At contract signing the net present value of total Unitary Payments was £489 million, an increase of 21 per cent compared with £404 million at the preferred bidder stage.

3.16  The GCHQ negotiating team had some difficulty in analysing the movement in bid costs due to the large movements in design and personnel requirements between Best and Final Offer and the revised bids. As a result, and to seek assurance that the costs were reasonable in a non-competitive environment, GCHQ asked its programme management advisers, Capita to -reconcile price changes between the key bid stages.

3.17  Capita issued a price reconciliation report in January 2000 which covered the movements from September 1998 to the later bids. This concluded that "despite the limited amount of information provided the overall changes in price from Best and Final Offer are acceptable given the detailed clarification of GCHQ's requirements and the changes in scope that have been negotiated.

3.18 Capita's conclusions took account of assurances from Northcroft, an independent consultant, on the value for money of the increased construction costs alone. Northcroft's evaluation concluded that, when special cost related aspects of the design were removed, the cost per square metre of £1,400 was within the expected range for a similar landmark private sector office building in the Cheltenham area.

The figure shows that the Unitary Payments increased as a result of resolving non-compliances and meeting changes in scope following IAS's selection as preferred bidder

*  This is GCHQ's estimated increase over the Best and Final Offer to meet the full scope of its requirements. It is comparable in scope with all the subsequent figures up to and including contract signature.

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3  Some service elements of the Unitary Payments are subject to re-negotiation before UP3.