7 The Contributions Agency sought to negotiate a contract on behalf of the Department which would:
a) provide good quality accommodation in the Newcastle area, which will provide an adequate working environment for staff;
b) reduce escalating maintenance costs;
c) provide accommodation which is adaptable both in terms of movement between business units and future reductions in staffing;
d) reduce the number of sites housing business units;
e) provide accommodation which is IT-friendly and capable of further IT expansion; and
f) harness private sector skills and innovation.
8 Many of the existing premises are old and in very poor condition. This means that new accommodation will almost inevitably yield major operational benefits. The contract provides for the number of sites to be reduced from 12 to 5. Some flexibility if staff numbers fall is given by providing for the Department to vacate up to20 per cent of the accommodation free of charge over the 25years that the buildings are occupied. The Department can also request construction of a further new building during the first seven years of the contract should that be necessary.
9 The Contributions Agency sought to allocate risks to the party best placed to manage that risk, because such an allocation of risk is most likely to provide value for money. The contract does allocate the major risks appropriately and in accordance with this principle.
10 The Department have transferred to the private sector the risk that the Department might vacate up to 20 per cent of the office space available under the contract. This decision was informed by:
a) the known and possible major changes affecting the Department and its staffing levels;
b) discussions with the three bidders about the likely level of flexibility which they would be able to fund at a reasonable price, before asking all of them to include such flexibility in their final bids; and
c) historical movements in staffing levels since the early 1970s.
11 The Department were aware that a number of major changes were under consideration, such as the introduction of major IT systems and possible greater use of outsourcing, including (for example) Child Benefit work which accounted for some 1,850 staff on the Newcastle estate. The Department therefore felt that the future was very uncertain and all business units felt unable to make realistic long-term forecasts of their requirements for office space. Because of this uncertainty the Department saw flexibility as mandatory. The Contributions Agency also saw flexibility as inherent to their understanding of the Private Finance Initiative. They did not, therefore, ask bidders how much it was adding to their prices. This approach means that the Agency did not know, with certainty, whether the Department were likely to need the flexibility over the life of the contract- it was a matter of judgement- and they did not know how much it would cost the Department.