Q11 Chairman: If you were not looking for concessions, what were you looking for?
Mr Friedlos: What was important to us at that time, when we gained visibility of the scale of their plans over the next few years, was really rapidly to get as much clarity as we could around exactly what those plans were in terms of timings and building and so on and also to get resolution of one or two outstanding commercial items between us.
Q12 Chairman: What would happen if HMRC vacated every building? Would you survive?
Mr Friedlos: It cannot vacate every building at once. What we are looking at is a plan over the next two to three years where it largely catches up on the vacations it has not used to date and we do survive.
Q13 Chairman: The truth is Mr Friedlos that you underbid for this contract, did you not? Your bid was way below other people and now you cannot afford the contract. Now that the Revenue are putting pressure on you, you are screaming foul, are you not?
Mr Friedlos: We are not screaming foul. We can afford the contract. We bid the contract at a keen margin which we knew at the time and was commented on at the last NAO Report. We can afford the contract.
Q14 Chairman: Ms Strathie, paragraph 10. I know that you personally were not involved but unfortunately you have to take the rap for this. Do you accept that your Department did not have the right commercial skills at the time when you were making this contract?
Ms Strathie: If I look back on my own experience of that time in another government department and I look at the prime contract the DWP have and their experience and I look back on HMRC's experience, I think that is fair criticism of the Department.
Q15 Chairman: What do the Treasury say to this? Do you think you can now ensure that departments have the right commercial skills for this type of contract in the future? Have you learned from this?
Mr Gallaher: Yes, we have and we have learned from other National Audit Office Reports which came in front of this Committee in recent months. We will be working with the Office of Government Commerce to tighten up the criteria for recruitment of expertise in delivering complex projects and, if I may, I will drop you a note on this.1
Q16 Chairman: We have had other instances; Metronet for instance and highways maintenance.
Mr Gallaher: Yes.
Q17 Chairman: This was a massive own-goal, was it lot? You did a deal with an offshore company. Here you are. You are supposed to be raising taxes on behalf of us. Why has this happened? How could you have got yourself in this mess that way down the negotiations you found that you were dealing with in offshore company? Is this how the Revenue should conduct themselves, you of all people?
Ms Strathie: Certainly for the first two or three years of the contract that was the focus and much handling of the media and that is a very difficult time in the early days of a contract like this. I know much has been made of it.
Q18 Chairman: Do you agree that it is quite right that much should be made? It was a disgraceful situation that you got locked into a contract and you did not have the right commercial skills. When it was too late you found you were in bed with an offshore company, you of all people.
Ms Strathie: I do not know how disgraceful it was in 2001. What I do know today is that 82% of companies in this business hold leases offshore. I do know that you then have to question what that means and you have to balance overall. At the end of the day I am responsible for collecting the revenues and I am also responsible for an admin budget and you need to look at the trade-off of what it would cost if those leases were onshore, what that would mean for my partner's competitiveness.
Q19 Chairman: Mr Friedlos, will you now give an assurance to this Committee that you will bring ownership of these properties onshore?
Mr Friedlos: That is not an assurance I can give today.
Q20 Chairman: So you will not give that assurance.
Mr Friedlos: We have not been asked to do that. It is certainly something we will consider, if asked.
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