Select Committee on Public Administration Minutes of Evidence



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 NumbersOwnership
Government Offices Great George Street (GOGGS)400Government Freehold (HM Treasury propose to redevelop as a PFI project)
53 Parliament Street17Government Freehold
Queen Anne's Chambers100Government Freehold Tenant of Treasury Solicitor
Hepburn House18Commercial Lease
Ashley House30Government Freehold Tenant of PACE
Belgrave Road5Commercial Lease—Sub-tenant of Inland Revenue
10 Great George Street44Commercial 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:

 1998-991999-20002000-012001-02
£ million225285

  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 Block20
Fitting out and IT costs40

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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Prepared 26 February 1999