1 In June 1998 the Foreign and Commonwealth Office (FCO) signed a contract for the construction, operation and financing of a new Embassy in Berlin with a German supplier called Arteos which had been formed by a consortium comprising Bilfinger + Berger, one of the three biggest German construction companies, and Johnson Controls, a large American-based facilities management provider. Arteos is expected to complete the construction of the Embassy in June 2000.
2 The contract provides for the construction of a new Embassy building and its operation for 30 years and is extendable by re-tender for a further 30 years. Arteos will construct and fit out the new Embassy. The FCO will make a unitary payment (80 per cent of which is fixed in German marks in nominal terms) estimated at £4.5 million a year for 30 years, which amounts to a net present cost of £49.8 million at 1997-98 prices.
3 In 1993, the FCO identified the need to acquire a new Embassy on or as soon as possible after September 1999, as the seat of the German Government was due to move from Bonn to Berlin by the year 2000. The FCO chose a site at 70-71 Wilhelmstrasse within walking distance of the centre of German Government in the heart of Berlin. This was the site of the pre-World War II Embassy in Berlin; the site was enlarged by the purchase of an adjacent plot for £6.5 million. A design competition was held in 1994 which was won by the British architects, Michael Wilford and Partners.
4 This was the first and so far only PFI accommodation project undertaken by the FCO. The PFI process commenced in 1996, which was two years after the design competition. The project was therefore unlike other PFI construction deals where bidders employ their own architects to create their own design. The FCO faced difficulties, because they had to undertake a novel form of procurement abroad, at a time when all parties were learning about the complexities of the PFI.
5 The FCO developed three main objectives for the project:
■ to move the Embassy operation to Berlin by September 1999;
■ to ensure they would not pay for services unless they received them and that payments would be adjusted according to the availability of the building and the quality of the service provided; and
■ To ensure that the contract agreement demonstrated value for money.
6 We examined:
■ how effectively the FCO managed the competition; and
■ whether the FCO are likely to obtain a fit-for-purpose new Embassy in Berlin, whether risks were allocated appropriately, and at a lower cost than if they had undertaken the project using conventional finance.
7 The scope and methodology of our examination are described in Appendix 1. We received advice on legal and contractual matters from DJ Freeman and Partners and on property and construction aspects of the project from King Sturge & Co.