4.14 Figure 15 summarises what the parties have put into the project, and what they gained in return. For the private sector parties, the project has been a clear failure: the investors in Lasers lost all of their investment, and John Laing plc told us that it lost about £67 million on the construction project, excluding losses of at least £12 million absorbed by its sub-contractors. The Department has also not achieved all it wanted because of delays in completing the buildings and because some work still needs to be completed. However, the Department has much to show from the project, in buildings that are largely complete and which the Department expects substantially to complete over the next few years.
4.15 The £122 million (2005 prices) investment in the new buildings by the Department is less than the amount spent on the buildings by the private sector, which we estimate to have been at least £178 million, made up as follows:
■ Laser's investment (£99 million, comprising the Department's £8.8 million prepayment, £81 million of senior debt, £4.5 million of junior debt and £4.4 million of equity);
■ Losses by John Laing plc and JLC Ltd on the fixed price design and build contract (£67 million), and by their sub-contractors (£12 million).
The Department's investment is however more than:
■ The £85 million valuation placed on the buildings by King Sturge LLP for the purposes of the Department's 2004-05 accounts;
■ The value implied by the original project agreement. The original budgeted cost of the project totalled approximately £130 million when adjusted to 2005 prices.8 The Department's current estimate of the cost of completing the buildings and ancillary works is £18 million, implying a value for the work done to date of around £112 million at 2005 prices.
15 | What the parties put into the project and what they got out of it | |||||
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| The department's investment | (£ millions at | value of the new buildings |
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| Pre-contract cost of advisers | 3 |
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| Cost of design assistance from NPL scientists. | 2 |
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| Pre-contract design and construction work intended to shorten construction timetable | 8 |
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| Proceeds from sale of excess land as pre-payment for future services | 10 |
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| Cost of advisers following the award of the contract | 9 |
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| Variations ordered by the Department | 4 |
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| Unitary charge for space that the Department did not occupy because of concerns about non-performance and health and safety | 9 |
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| Payments of liquidated damages to Laing Homes Ltd, net of liquidated damages received from Laser | 2 |
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| Termination sum | 75 |
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| Total investment: | 122 | value of the new buildings on a depreciated replacement cost basis | 851 |
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| Private sector investment in the project | (£ millions) | Principal outcomes (£ millions) |
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| Equity investors (Serco Group plc & John Laing plc) | 4 | Full equity lost. No dividends received | (4) |
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| The Lenders (Bank of America, NA; and Abbey National Treasury Services plc) | 85 | £67 million left to repay loans from the termination sum (£75 million) after deducting the cost to break agreements that hedged movements in interest rates (£8 million) | (18) |
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| Sub-contractors (JLC Ltd) | not available | £67 million loss on the design and build contract plus £12 million suffered by other parties in the supply chain | (79) |
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| Total private sector investment | >89 | Total private sector loss | (101) |
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| Source: National Audit Office |
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| NOTE |
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| 1 The valuation consisted of £102 million for the completed buildings, less an estimated cost of £17 million to complete the buildings, which excluded the cost of achieving the stringent sub-audible noise requirements in existing buildings, if such work becomes necessary. The cost to complete included the cost of fitting out the new buildings to accommodate new scientific research needs, a cost that would not have been part of Laser's obligations. | |||||
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8 Laser's budgeted construction cost of £113 million in 2005 prices plus the Department's procurement and other budgeted costs of £17 million in 2005 prices.