1 In January 1998, the Contributions Agency, (the Agency), let a Private Finance contract for the redevelopment and maintenance of the Newcastle estate of the Department of Social Security (the Department). The Contributions Agency were one of the Department's agencies and, with three other agencies (the Benefits Agency, the Child Support Agency and the Information Technology Services Agency), they occupy most of the Newcastle estate. In letting this contract, they acted on behalf of the Department as a whole. Since1 April 1999 they have been an Executive Office of the Inland Revenue, called the National Insurance Contributions Office.
2 The Newcastle estate housed over 13,000 of the Department's staff and comprises over 2.5 million square feet, 627,000 square feet of which comprised single storey buildings at Longbenton, on the outskirts of Newcastle, which had been constructed as temporary accommodation during the 1940s.
3 To replace the ageing premises at Longbenton, the Department was advised by the Treasury to explore the Private Finance approach, under which a private sector supplier would contract to design, build and finance new buildings and to operate them and the remaining buildings for a period of years. It was a pioneering Private Finance project in the office sector. Acting on Treasury advice, and in order to increase the attraction of the project to the private sector, they included the whole Newcastle estate, which comprised both freehold land and buildings owned by the Department and leased premises.
4 The contract was awarded to a consortium formed for the purpose called Newcastle Estate Partnership, (NEP). The shareholders in NEP are AMEC Developments Ltd, a subsidiary of a UK-based international construction and engineering group, and Building and Property Group, a facilities management company.
5 From January 1998, NEP took over the ownership of elements of the Department's freehold estate in the Newcastle area and are responsible for redeveloping it during the following five years. The contract requires them to provide offices for the Department over a period of 31 years from 1998. In return, the Department will pay NEP at a predetermined price according to the availability of the space. At the end of the contract, the Department have various options, including renewing it, occupying the buildings on a traditional lease arrangement at a predetermined rent, or moving elsewhere. The expected net present cost of the deal is £241 million.
6 We examined whether:
a) the contract will deliver the accommodation service sought;
b) the Contributions Agency's conduct of the procurement was satisfactory; and
c) the contract would achieve the objective to provide the best value for money to the taxpayer and the Department.
The methodology for this examinationis described at Appendix1 of this report.