Q81 Dr Pugh: What I am trying to do is price the additional costs of this workforce renewal/change/rationalisation of accommodation. When I enquired about Duke's House, which is in my own constituency as to what would be the effect of closing down the office, I got from your office a statement which said that on current figures the payback, accommodation versus other costs, accommodation rationalisation, would take approximately 19 years. Are you able, for all these 130 offices, to have some idea of what the payback would be for all of them? Can you send us a note?8
Mr Hartnett: We can do that but I have to say I have no recollection at all of saying that, so it would be very helpful if I could have a look.
Q82 Dr Pugh: It is a document from your implementation team and it is the business case for the rationalisation. It does suggest the rather high figure of 19 years before there is any saving out of this closure.
Mr Hartnett: Let me say how much that surprises me in this sense: I know the building well, I have been in it many times in my career but we have other very substantial buildings not very far away. To think that it might take 19 years to realise the savings surprises me. I put it no stronger and we will send you a note.9
Q83 Dr Pugh: My general concern is that it may look like you are making some sort of saving but if you do not have all these costs built into the equation, you may, in the short term at any rate, be tasking yourself-
Mr Hartnett: One thing, if I may, about the enquiry centres. In our calculation of savings we have not taken the saving in relation to enquiry centres because we know we have to keep enquiry centres. In some places there might be a marginal increase in the cost for the enquiry centre, but I do not think there are any substantial ones. We will check that.
Q84 Geraldine Smith: Just so I am clear, how much more has the contract cost than you originally estimated? Is it £507 million?
Mr Bowles: Yes. The NAO Report very helpfully actually puts a number of numbers together here. It is probably just worth mentioning the bid from Mapeley which came to £3.3 billion in 2009 currency and then a recent estimate of contract life of £3.87 billion. The difference between those is £570 million.
Q85 Geraldine Smith: The contract put forward by Mapeley was supposed to be £300 million cheaper than managing it within the public sector, basically you doing your own nationalisation of buildings. Rather than have this complicated contract with a private offshore company which is not even paying tax on the properties, would it not have been much more sensible just to manage it within the public sector yourselves?
Ms Strathie: Again we go back in time.
Q86 Geraldine Smith: Yes, or no. Would it have been cheaper? On the figures I am looking at it would have been.
Ms Strathie: No, because even the NAO have concluded that this is a good contract.
Q87 Geraldine Smith: I am still not with you. It says in this Report that the contract you originally negotiated would have been £300 million cheaper than managing it within the public sector. However, it is now working out at £570 million more.
Mr Bowles: Many of the factors which affect that were changes in the specification of the building, details of the building, which would have affected the public sector equivalent against which it was compared.
Q88 Geraldine Smith: Do you not lose a lot of your flexibility when you are in this long-term contract, if you are managing it yourselves? You said before that there were tax credits, there were different policy changes which affected your buildings and affected where people are working. You do not have the flexibility because you are dealing with a private company.
Mr Bowles: If I may, I think it is actually the converse because the attraction of this contract was that it gave a great deal of flexibility as the Department has the right to vacate 60% of the STEPS estate, 42% of which is at no additional cost and 18% which attracted compensation.
Q89 Chairman: The Comptroller and Auditor General is nodding. He might be able to row in to your help.
Mr Morse: I was agreeing with the fact that those costs adding up to around £300 million are mostly ones which I am afraid we carried into the public sector comparator. That is undoubtedly the fact. Secondly, we do not regard the fundamentals of the contract, if it had been operated exactly as it should have been, unfavourable to HMRC. That is not what our Report says. Being able to place contracts at will when you wanted to move out should have been-should have been-pretty useful. Is it impossible to replicate that in the public sector? Well, I leave you to consider. I do not know but I think that having it there and being able to do it at relatively short notice without immediate penalty, assuming you wanted to rationalise the estate, appeared to be a useful contractual form. We are not fundamentally saying that is a bad contract. We are saying we are talking about the way the contract has been conducted not about the fundamentals of the contract itself.
Chairman: Thank you for that.
Q90 Geraldine Smith: You cannot voluntarily terminate a contract, can you?
Ms Strathie: We have a shared dependency here and there would be significant costs attached to termination of that contract, if that were something we assessed we wanted to do, particularly having assessed the costs anyway if Mapeley were to become insolvent.
__________________________________________________________________________