15th PAC Report 2006-07
The termination of the PFI contract for the National Physical Laboratory
Chairman: Edward Leigh MP
Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:
“Before it awarded the contract, the Department for Trade and Industry was concerned that the private sector designs for new facilities for the National Physical Laboratory were not up to the job. But the department placed the contract anyway, hoping against hope that the contractor would be capable of rising to the considerable technical challenges. It couldn’t and the contract had to be terminated six years down the line.
“This was the first time that the plug had to be pulled on a major PFI contract because the contractor was incapable of coming up with the goods. Of the 400 laboratories to be built, many were late by some five years and some have still not been completed. Scientists at the NPL have had to use their ingenuity and resourcefulness to carry on their world class work in out of date laboratories. Where the taxpayer was fortunate was that the risk in the project had been largely transferred to the private sector which took a hit of over £100 million.
“This project was undermined from the start by a flawed procurement process and naivety by both the department and the favoured private sector contractor over the technical challenges which had to be surmounted. The result was a mess from which the DTI extracted itself with difficulty.”
Mr Leigh was speaking as the Committee published its 15th Report of this Session. On the basis of evidence from the Department of Trade and Industry, Serco Investments Ltd, John Laing plc and Abbey National plc, this examined the problems that led to the termination of the PFI contract for the National Physical Laboratory (NPL) and considered the lessons that might apply to future PFI projects.
The National Physical Laboratory works on the measurement of physical properties such as time, length and mass. It stands at the centre of the UK’s National Measurement System.
Since its inception in 1902, the NPL has spread across its Teddington site, occupying a disparate collection of buildings. By the early 1990s many of the buildings could only with difficulty provide the conditions required for the NPL’s scientific work. In 1998, the Department of Trade and Industry and Laser, a special purpose company jointly owned by Serco Group plc and John Laing plc, signed a 25-year long Private Finance Initiative (PFI) contract, under which Laser would redevelop the NPL facilities.
The redevelopment of the NPL involved the replacement of many existing buildings and the construction in 16 linked modules of over 400 laboratories, many of which had to meet exacting environmental requirements. The project suffered considerable construction delays and problems, the most serious of which involved 30 laboratories in which stringent temperature and/or sub-audible noise requirements had to be met.
In July 2004, Laser recognised that it did not have the financial capacity to complete the project to the required specification and proposed either revision of its contract or termination. After negotiations, the PFI contract was terminated in December 2004 and the Department paid Laser £75 million for its interest in the new buildings. The termination was the first for a major PFI contract involving serious deficiencies in contractor performance
Notes for Editors
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