The private finance scheme superseded an earlier less comprehensive conventional proposal

1.6 The Agency commissioned a feasibility study of options for the Longbenton site from a team of property consultants. In November 1993, the team recommended phased demolition and rebuilding of part of the Longbenton site only between 1995 and 2003 at a capital cost of £83 million. Their recommendation covered only a limited part of the Newcastle Estate and did not include replacement of the ageing multi-storey blocks at Longbenton or the sites at Kenton Bar, Broadway West, or Emerson. The Agency calculated that the cost of this option over 25 years would be almost the same as that of continuing with the existing buildings, but would offer a much improved working environment for some of its staff.

Figure 1
	The organisation and roles of the Department of Social Security and its Agencies

	The Benefits Agency's purpose is to assist the Government in establishing a modern welfare state by helping to create an active modern social security service, which encourages and enables independence and pays the right money to the right money to the right person at the right time; all the time.
	The Contributions Agency's role is to collect and record National Insurance Contributions; ensuring compliance with the law, maintaining individual national insurance accounts, and providing an efficient and effective service to customers. On 1st April 1999, the Agency transferred to the Inland Revenue and is now called the National Insurance Contributions Office.
	The Information Technology Services Agency's mission is to work with all parts of the DSS group to maximise business efficiency through the secure and cost effective use of information systems and information technology.
	The Child Support Agency's business is to deliver a consistent, accurate, timely and cost effective service in the assessment, collection, and payment of child maintenance, ensuring that children receive the financial support to which they are entitled.
	The role of the War Pensions Agency (not accommodated at Newcastle) is to adminster the War Pensions Scheme and provide appropirate welfare support to war disablement pensioners and war widows.
	DSS Headquarters supports ministers on both policy and legislation, provides corporate management covering the allocation and accounting for resources, targets and performance measurement, and provides financial, legal, medical, statiscal and analytical services to the Department as a whole.
Source: Social Security Departmental report and Expenditure Plans 1999/2000

1.7 The Agency recommended this option to HM Treasury in May 1994. While not explicitly rejecting the Agency's capital bid, Treasury asked in June 1994 that they investigate a Private Finance Initiative solution. This investigation was concluded in September 1995 when the Agency evaluated indicative bids and concluded that a Private Finance solution was viable. This decision was endorsed by the project board and reported to Ministers. The Treasury were represented on the project board that pursued this option up to the signature of the deal.

1.8 The essence of a Private Finance Initiative deal is that the private sector supplier receives a contract to Design, Build, Finance and Operate an asset, and is paid for the provision of the service only as it is delivered to the public sector client. In the context of office accommodation deals, government departments pay for the availability or use of space that meets all legal and health and safety requirements; heated, lit and serviced to the standards laid down in the contract. In this way, many risks that would normally be borne by the taxpayer, such as higher than expected construction or running costs, should be borne by the private sector supplier.

1.9 The Private Finance deal in this case had a much wider scope than the earlier, conventional proposal, which had a capital cost of £83 million. It included the replacement of existing multi-storey blocks at Longbenton, and also included the freehold sites at Kenton Bar, Broadway West and Emerson.