APPENDIX 3
NOTE BY THE MINISTER FOR THE CABINET OFFICE
ON THE CABINET OFFICE ACCOMMODATION PROJECT
1. When I gave oral evidence to the Committee
on 8 December, I agreed to provide a supplementary note on the
project to re-house the Cabinet Office London staff who are not
based in 70 Whitehall, comparing the costs and benefits of the
project upon which the Department is engaged with that of providing
comparable private sector rented accommodation.
THE NEW
ACCOMMODATION PROJECT
2. The Cabinet Office's new accommodation project
has derived from the Department's long term objective to accommodate
the great majority of its staff in 70 Whitehall and one other
central London building. Staff are currently housed in seven main
sites (in addition to 70 Whitehall) and a number of other satellite
buildings where staff will not be relocated (including staff based
at 10 and 12 Downing Street).
3, The Prime Minister announced to the House
on 28 July 1998 (HC Deb., col. 132) that a number of structural
and organisational changes would be made to the Cabinet Office
following the review conducted by the Cabinet Secretary, Sir Richard
Wilson. Among these was the relocation of the vast majority of
staff outside 70 Whitehall to three currently unoccupied buildings
in the existing Whitehall estate. The strategic objective of the
project is to create a second London home for the Cabinet Office
by refurbishing Admiralty Arch, Kirkland House and the Ripley
Block of the Old Admiralty Buildings. These buildings will be
interconnected and will function as a single building with its
own identity. This will help the Cabinet Office to operate in
a more cohesive, corporate way, as well as providing efficiency
gains. It is important to emphasise that the refurbishment project
is not a "heritage" project. Although it will bring
back into use two Grade 1 listed buildings in need of repair,
its purpose is to provide good quality office accommodation.
BACKGROUND: THE
REQUIREMENT
4. Apart from 70 Whitehall, the Headquarters
building, Cabinet Office staff are in the following London buildings:
| | Staff Numbers | Ownership |
| Government Offices Great George Street (GOGGS) | 400 | Government Freehold (HM Treasury propose to redevelop as a PFI project) |
| 53 Parliament Street | 17 | Government Freehold |
| Queen Anne's Chambers | 100 | Government Freehold Tenant of Treasury Solicitor |
| Hepburn House | 18 | Commercial Lease |
| Ashley House | 30 | Government Freehold Tenant of PACE |
| Belgrave Road | 5 | Commercial Lease—Sub-tenant of Inland Revenue |
| 10 Great George Street | 44 | Commercial Lease—Sub-tenant of Police Complaints Authority |
5. It has been the Cabinet Office's requirement from the
outset that the solution must provide accommodation which is:
— sufficiently close to 70 Whitehall to facilitate
ease of communication between the buildings. (Ministers and the
Permanent Secretary will remain in 70 Whitehall and it is inefficient
to have senior staff at a significant distance from them);
— capable of providing at least 150,000 sq ft (the
requirement has increased marginally as a result of the Cabinet
Secretary's review of the role of the Cabinet Office);
— capable of providing a modern working environment;
and
— able to facilitate new methods of working.
6. There are few properties in the area which were, or could
have been made, available to meet these requirements. And as well
as the Cabinet Office, the Foreign and Commonwealth Office (FCO)
were addressing similar issues. All other properties of an acceptable
size within the relevant area had been considered and rejected.
7. Examples of some of the buildings considered for the Cabinet
Office were:
— Belgrave House in Buckingham Palace Road—while
this was the right size and could be rented from the private sector,
it was rejected on grounds of cost and location.
— A new building on the site of Romney House (Marsham
Street)—rejected on grounds of timescale and cost.
— A new building on the site of part of 2 Marsham
Street (the old DoE building)—rejected on grounds of timescale
and cost.
— Refurbished GOGGS—rejected on grounds of
timetable and no certainty that the scheme could provide the accommodation
we require.
PROJECT COSTS
8. As stated in oral evidence, the currently estimated costs
of the project to house the staff in the Ripley Block of the Old
Admiralty Building, Admiralty Arch and 24 Whitehall are:
| | 1998-99 | 1999-2000 | 2000-01 | 2001-02 |
| £ million | 2 | 25 | 28 | 5 |
9. Within these totals, it is estimated that the approximate
breakdown of the costs will be:
| £ million |
| Structural and other repairs to Admiralty Arch and the Ripley Block | 20 |
| Fitting out and IT costs | 40 |
THE INVESTMENT
APPRAISAL
10. A detailed investment appraisal was carried out by the
Property Advisers to the Civil Estate (PACE) covering the requirements
of several government departments in and around the Whitehall
area. This followed HM Treasury guidance on appraisal and evaluation
in central government (the "Green Book"). This requires
analysis of property options in real terms, reflecting the cost
and benefits to the Exchequer as a whole. As well as looking at
the option eventually selected, a number of other options were
examined. Included were options for the use of some of the buildings
by other government departments (the Foreign and Commonwealth
Office and the Department for International Development) which
were also considering their future accommodation needs. The other
major buildings which were considered as part of the study were
the Old Admiralty Building (freehold, owned by the Foreign and
Commonwealth Office) and 1 Palace Street (FCO, occupied under
a commercial lease).
11. The Net Present Costs were calculated on total expenditure
over a 25 year appraisal period using the Treasury real discount
rate of 6 per cent per annum. As a result, the options were ranked
as follows:
Option one—Preferred option. All historic buildings
are refurbished and reoccupied. Cabinet Office move to Admiralty
Arch, Kirkland House and Ripley Block. Foreign and Commonwealth
Office refurbish and reoccupy Old Admiralty Building and the Department
for International Development move to 1 Palace Street. Net present
cost £302 million.
Option two—Cabinet Office move to Old Admiralty Building,
but leave Admiralty Arch and the Ripley Block vacant. Under this
option a commercial lease would have to be taken on at least one
new large building. Net present cost £365 million.
Option three—do minimum, i.e., keep Admiralty Arch and
the Ripley Block (and the Old Admiralty Building) unoccupied but
secure and take commercial leases on one or more new large buildings.
Net present cost £412 million.
12. The major determinant in the results of the appraisal
was shown to be the fact that it was more cost-effective for the
Government to refurbish and reoccupy buildings that it owned rather
than for them to be left empty and for space to be rented from
the private sector. The major factor driving the timetable for
the relocation is the requirement for Cabinet Office staff to
vacate the Treasury Building in Great George Street (GOGGS) in
order to allow the Treasury to begin its PFI redevelopment of
the building. It is expected that the smaller buildings which
the Cabinet Office will vacate will find ready takers from other
government departments, given the strong demand for office accommodation
in the SW1 area.
13. A sensitivity analysis was also undertaken. The conclusions
of this were robust. The two main areas of risk which could affect
the ranking of the options were construction costs overruns and
rental growth failing to meet expectations. To provide a truly
pessimistic scenario for each sensitivity calculations were carried
out using values of:
— 50 per cent building cost increase
— 0 per cent real rental growth
14. Although actual performance would of course be expected
to be confined well within these parameters, even these assumptions
did not significantly change the relative cost of the options.
15. The course we have adopted builds on the conclusion of
the investment appraisal that the use of commercially rented office
space should be minimised, and the re-use of existing listed government
freeholds, which have lain under-utilised for several years, maximised.
January 1999
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