Committee of Public Accounts


Press Notice No. 18 of Session 2003-04, dated 11 May 2004


EIGHTEENTH REPORT: PFI: THE NEW HEADQUARTERS FOR THE HOME OFFICE (HC 501)

Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today that because of poor forecasting of staff numbers, the Home Office's new headquarters-being built under a £311 million PFI deal-won't be large enough and that the Home Office needs to seize the opportunity to move staff out of London.

Mr Leigh was speaking as the Committee published its 18th Report of this Session, which examined the negotiation of the PFI deal for the Home Office's new headquarters accommodation and whether the building will meet the Home Office's needs. The PFI deal is a high profile, high value project. Over the life of the 29 year contract signed in March 2002, the Home Office will pay Annes Gate Property Plc (AGP) £311 million (net present cost) for accommodation and services. The new building, designed to hold 3450 staff, will be built on the site of the old Department of the Environment building in Marsham Street, Westminster. Demolition began in March 2002 and Home Office staff are due to move into their new accommodation in January 2005.

The Committee found under-forecasting of staff numbers leads to bad decisions on accommodation. There is evidence of optimism bias in PFI projects for departmental accommodation: departments have assumed much lower staff numbers than they have subsequently employed. The buildings have then not been large enough to hold everyone. Yet such projects are often justified in part, as in this case, by the advantages of bringing everyone under one roof. The Home Office assumed that staff numbers would reduce due to outsourcing, efficiency gains and changes in working practices. Instead, numbers increased dramatically between 1998 and 2003 as the Home Office took on new responsibilities, although the total increase is not fully explained by these new functions. Similar stories arose at GCHQ, the Ministry of Defence, and the former Department of Social Security.

If, as is now possible, Home Office HQ numbers in London fall, the Home Office should identify other Government departments whose staff can fill up the new building. Departments' roles and responsibilities, and therefore staff levels, are inevitably subject to change, yet PFI accommodation deals tie departments into paying for servicing buildings however few staff are accommodated.

The Home Office should revisit their implausibly high assumption that 1300 of their officials plus support staff need regular access to Ministers and Parliament. The greater part of their 3500 headquarters staff could probably be moved out of London, and the Home Office should take full advantage of the opportunity provided by Sir Michael Lyons' review of relocation.

There can be no operational reason why the Prison Service HQ needs to be in London at all. Originally the Home Office wanted it in the same building as the central Home Office, though more for convenience than demonstrated business need.

To get the softer, but important, benefits that the move to the new building is intended to bring the Home Office will have to set up a systematic management framework. This is a deal that potentially offers real benefits to the Home Office and the taxpayer. Staff to be located in the Marsham Street building do not deliver services directly to the public as customers but by developing effective policies and programmes. This means that the intended benefits of the new accommodation which arise through better team working and flexibility may not be readily apparent and therefore difficult to quantify. Other departments that have faced similar challenges, such as the Treasury and GCHQ, may be able to advise.

We doubt whether the potential return from the Home Office's right to share refinancing gains is worth the £2.75 million price the Home Office paid for it. The analysis done by the Home Office does not appear to relate the extra £2.75 million demanded by AGP for the concession to the probability that re-financing might take place. Given that subsequently the Treasury was able to negotiate far wider-reaching concessions on sharing re-financing gains without making any payment for them, it seems questionable that the Home Office should have agreed to any payment in this case.

The Home Office should decide quickly on the future of Horseferry House, a building incapable of future economic occupation. Since 2002 there has been a decline in the commercial property market and it is surprising that the Home Office does not know how much its freeholds are currently worth, particularly as it expects to sell them.

Mr Leigh said today:

"Poor forecasting of staff numbers means that the Home Office's new headquarters won't be large enough. In 1998 the Home Office expected staff numbers to fall to under three thousand. In fact they have increased to almost five thousand. This means that around 1,500 staff cannot be accommodated in the new building.

Given this shortfall, the Home Office needs to seize on the opportunity afforded by Sir Michael Lyon's review of relocation across central government to move staff out of London. I find it difficult to believe that 1,300 staff should need regular access to Ministers and Parliament and, now that there is insufficient space for the Prison Service to be headquartered in the new building, a regional location for the Service's central staff should be seriously considered."


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