1 The Ministry of Defence (MOD) requires secure, modern and efficient working accommodation in central London, close to Downing Street, from which to direct Britain's defence operations. MOD had recognised since 1990 that the number of its Head Office staff in London could be reduced. This would create opportunities for reducing the number of London buildings used by MOD and save accommodation costs. In addition, MOD had identified that improvements were necessary to the accommodation and working environment available in its principal office building in Whitehall known as Main Building. It therefore decided to redevelop Main Building.
2 This is a large and complex project. It involves moving over 3,000 staff into other central London accommodation (a process known as decant), carrying out an extensive redevelopment of Main Building, disposing of surplus properties and then moving staff back into Main Building.
3 In May 2000, MOD let a PFI contract with a net present value of £746 million (at 2000 price levels) to a consortium called Modus (Figure 1). The 30-year contract covered the redevelopment of Main Building and limited refurbishment and provision of support to other buildings needed to accommodate staff while redevelopment is undertaken, followed by the provision of maintenance and facilities management services at Main Building and the Old War Office until May 2030.
1 |
| Members of the Modus consortium and its main contractors | |
|
|
| % shareholding |
|
| Innisfree PFI Funds4 | 40.1 |
|
| Laing Investments | 40.0 |
|
| Amey Ventures Ltd | 19.9 |
|
|
| 100.0 |
|
| NOTES |
|
|
| 1. Hyder Investments Ltd and Macquarie Infrastructure Projects Ltd were both initial shareholders in Modus but subsequently sold their respective shareholdings. | |
|
| 2. The construction contractor is Skanska Construction (who took over Kvaerner Construction who had been allocated responsibility for the provision of construction services). | |
|
| 3. Facilities management services are to be provided by Amey Whitehall. | |
|
| 4. Innisfree have two PFI funds: PFI fund 1 has a 13.4 per cent shareholding, PFI fund 2 has a 26.7 per cent shareholding. | |
|
| Source: National Audit Office | |
4 We examined the extent to which the PFI contract for the redevelopment is likely to deliver value for money and the effectiveness of MOD's management of this major project. The methodology we adopted to undertake the study is set out in Appendix 1. In summary, we found:
■ the deal gives MOD what it set out to procure, namely rationalisation of its central London Head Office accommodation, through a PFI deal in standard form;
■ after an effective procurement, the benefits of the deal will be similar in cost to the forecast cost of conventional procurement, other factors tipping the balance in favour of PFI;
■ the management of this project, which is proceeding ahead of plan, has been good.
5 Key features of the deal and how it compares to conventional procurement are set out in Table 1 on page 7.