I welcome colleagues to the seventh meeting of the Finance Committee in 2005. I also welcome the press and public and apologise for the delay in starting. I remind people to turn pagers and mobile phones off. Apologies have been received from Elaine Murray and Andrew Arbuckle. Jim Mather and Wendy Alexander have been delayed, but we expect that they will join us soon.
Yes. I apologise for being late as a result of train delays. I should have arrived half an hour before the scheduled start of the meeting, but I arrived slightly later. I understand that Paul Grice is stuck in traffic. Those are the reasons for delays, for which we offer our sincere apologies.
I should have mentioned that Fergus Ewing has joined us for this item.
There are two elements to snagging. First, the work that is currently known about is programmed and is scheduled to be completed by around the end of April. That work includes, for example, all the small joinery and woodwork jobs that are apparent around the building. The other element is the longer-term emergent defects that will become apparent during the next year or two. The defects liability period will run for one year from the date of the certificate of practical completion, which Robert Brown mentioned. That period will probably expire around the middle of March 2006. During that one-year period, the trade package contractors will continue to be responsible for snagging and for defects that emerge.
I want to ask about the process of dealing with contracts. I am surprised that only one contract has reached its completion in three months. How many packages do you expect to deal with during the next three months and how many will remain outstanding?
The general issue was raised by the SPCB when it discussed the matter. We had perhaps expected rather more packages to be dealt with. However, I mentioned that a number are coming through; perhaps Paul Curran will elaborate on that.
A number of accounts are financially settled in that the numbers are certain, but I will not report them as settled until a signed-off statement of final account has been presented to the post-completion advisory group and then to the SPCB.
You mentioned eight accounts that are ready and another 10 that are almost ready. What is the pattern of settlement? Is it along the lines that you expect, or is there significant variation? I appreciate that, in the round, variations will exist between contracts.
The eight accounts that we possess are all within or below the cost plan value; none exceeds that value. It is probably reasonable to predict that the remainder—the balance of 10 accounts that I talked about—will be in that category, too. None of the accounts is causing us great budgetary concern.
How many accounts will remain outstanding after the eight and the 10?
About two thirds of the packages will remain, but many are with the same trade package contractors. An awful lot of work has been done to reach agreement on global packages, which involve more than one package with a trade package contractor. About 34 packages will remain.
Broadly, what value does that represent?
Probably about 75 per cent of the costs have still to be agreed.
Are those costs of the building?
Yes. However, a substantial proportion of packages have been settled financially. What remains is to settle the paperwork, which will happen on a longer timescale than we have talked about.
Parliament has approved Holyrood expenditure in the year in which it is drawn down. Will the delay in settling the final accounts have knock-on effects on annual expenditure packages?
Some of that was dealt with in the letter of 27 January about the resource accounting framework, which I do not pretend to understand fully, but which was given the committee's authority.
First, I apologise for being late in arriving because of the snow.
I am slightly surprised at that, because we have heard from Paul Curran that agreement has still not been reached on a significant percentage of packages. The annualisation of the budget year by year shows that a significant amount has been paid in this and previous years. I am concerned about the next financial year, in which—I presume—some bills will fall liable.
I have received specific assurances from our finance team that under resource accounting, expenditure accrues against the year to which it relates, and we are talking about expenditure either previously committed or in this year. Just a week or so ago, I received a note from our finance team that assured me that although the cash will not be spent, for the reasons that Paul Curran gave, it will under resource accounting be accounted for in the current year and will therefore accrue against this year's budget.
So, in effect the money is banked until the final deal can be established.
That is my understanding.
I have a general question to which the answer is not in the papers that are in front of me. When we examined figures in the first parliamentary session, an amount for each package was always allocated to risk or the risk reserve. I am not looking for a precise figure but, broadly, of all the money that was allocated to risk, what percentage has been spent?
That is a difficult question to answer, but I would be happy to find out whether we can do that calculation, at least in broad terms. I do not have the figures to hand, but I am sure that we could look back and come back to you with some.
The reason why I ask is that it seemed at the time as if most of it was being spent.
My impression is also that most of it has been spent. In some specific cases the risk has not materialised, but in others it has. I would be happy to go away and find out to what extent we can do a general assessment of the percentage of risk that has materialised. I am afraid that I do not have that information to hand.
It is fair to say that the figure is something of a moving target, in that some risks that are in the risk register at earlier stages drop off and new risks are identified.
Yes. I suspect that the amount might be difficult to determine in detail, but I am sure that we could find out whether we can give the committee a feel for the percentage or proportion of risk that has materialised.
Keeping a risk register might be a normal technique in such building projects—I know that, as you make clear in your report, we will not undertake one again in the near future—but to the layman, risk has perhaps a 50:50 chance of materialising, although I suspect that that has not been the case for the risk in this project and that it has not been so much a risk as a near certainty.
The problem with the exercise is that items come out of the risk register for two reasons: either they are realised or they are not realised. Therefore, it would be misleading to say that, because the risk started at a certain level and is now at another level, everything in between has materialised. The situation has to be analysed to find out why each risk came out of the risk register. In some cases, that might not be easy, particularly in respect of risks from the early days of the project. We could, however, try to do something on that.
I certainly do not want to incur even more costs in trying to analyse that.
I have two general questions. I merely want some information and I think that you will be able to handle the questions easily. My first is on snagging, about which we have been told. Throughout the project, a number of members have had reservations about the peculiar angles in the roof of the building and the possibility that in bad weather leaks will appear. That is already happening. I found water coming into my pod; I have heard that other members have had similar problems.
Does that make you a wet?
I will leave it to Fergus Ewing and others to decide on that. Are you finding a greater number of leaks than were expected?
It is always the case that we come across occasional leaks in new buildings. The type of roof that we have creates a higher risk of such occurrences, but I do not think that we have experienced anything that we would not expect. When individual leaks have happened, they have been dealt with by the contractors that are involved because they are defects rather than something for which we would have to pay. It is something of which we are aware and, to be honest, there has not been a massive problem.
Do you mean that leaks are not an intrinsic design defect of the building because of the angles?
No, they are not. We need to deal with one or two small areas where there are little bits of ponding—the trade contractor is dealing with those—but the roof design does not create such problems.
My other question concerns landscaping. We have heard that £1.2 million had to be pulled in because, I presume, the cost of landscaping was greater than had been expected for the various reasons that you have outlined. I understand that before the opening of the building, some lawn and grass was laid for appearance's sake because we wanted Parliament to look as smart as possible for Her Majesty, but that grass was then lifted so that further work could be done underneath it. Is that a correct assumption and are the extra landscaping costs related to that work?
A small amount of grass had to be taken up because of a drainage problem that was discovered once the grass had been laid. Additional field drains had to be installed to help drainage in the general area, so the grass would have had to be lifted anyway. The amount of temporary turf that was laid for the opening was very small.
Was that related to the extra cost of £1.2 million for landscaping?
Partly, but the main element of the additional cost is to do with prolongation of packages and acceleration of some packages, not just for the October date, but for the move into the building. We had to get some areas, such as fire escapes, to a certain safety standard so that people could escape from the building. Therefore, special measures had to be taken, which was done through 24-hour and weekend working, all of which had to be paid for.
To echo that point, because the landscaping was done at the end, it was the residuary beneficiary—if that is the right way to put it—of other issues. That meant that the phasing of the landscaping was not ideal. If we had had just the landscaping to do and nothing else, we would have rolled it out and that would have been that, but it had to wait for the completion of other works. As I understand it, that meant that the mechanism for dealing with landscaping was less efficient than it would otherwise have been.
We discussed the post-completion advisory group at a previous meeting and were informed that an external individual was appointed to deal with some issues. What has been delivered through the work of that group and that individual?
Dave Ferguson convenes the group, so he will fill you in on the details, but it performs several key functions. First and foremost, it takes direct reports from the people who lead on claims and it provides a critique and scrutiny of that process. The group gives the SPCB and me professional advice that supports or questions what is coming up the line, which is an important part of good governance.
The group started functioning in June, but we took some time to put procedures in place and to get the SPCB to approve a strategy. From a practical point of view, we are a bit concerned about the flow of cases that are coming through. We have expressed that concern to Paul Curran and other members of the management team. Our action has been to put a little pressure on Bovis by trying to get management to encourage Bovis to move the project on.
Fergus Ewing has questions, but I have one more question. The issue has two dimensions. One is completion of the relatively unproblematic matters that we discussed earlier—the 10 packages and the 8 that are in the pipeline.
It is important to point out that the advisory group is just that; the whole of the project team will be involved in advising on and processing claims. Furthermore, we have brought in claims specialists to support that work. As a result, I expect the burden of work to be borne by the Holyrood project team with input from our own lawyers. It is important that we use the advisory group to provide external quality assurance and challenge functions, but I do not expect it to have to do the legwork.
I appreciate that comment and your point that there is a decision-making mechanism through the Holyrood progress group and up to the SPCB. However, given everything that has happened until now with the Holyrood project, we probably need more transparency and information about the on-going process to ensure that the committee can measure progress. After all, it is one thing to say in conversation that eight packages are nearly complete and that 10 are in the pipeline, with another range of packages coming. We would find it helpful to receive more than that description of the process; indeed, we need regular updates of where we are. We might also want to scrutinise the way in which the SPCB and the technical team are going about their business in this area. We are happy to talk to you offline about how best that can be achieved, but we simply need more detailed and analytical information on this important element to allow us to monitor what is happening and whether it is happening effectively.
One clear difficulty that we face is the confidential nature of the strategy although, in fairness, I think that the committee has recognised that. On the other hand, you have rightly pointed out that we need some transparency and a way of making a critique of what is taking place.
I take it from the nods around the table that members are content to receive more detailed information. Perhaps we can bring some mechanism back to the committee.
I had not planned to raise this matter, but I wonder whether Mr Ferguson can explain his remark that pressure needs to be put on Bovis. Are Bovis's construction managers at fault? Are they dragging their feet and delaying matters? If so, will he elucidate his concerns in that regard?
Bovis is the key player in this operation, because it has to agree final accounts with the trade package contractors. We rely on Bovis to make recommendations to us; in fact, it is contractually bound to do so. I was simply expressing the PCAG's concern that more of those final accounts, many of which relate to packages that were completed many years ago, have not yet come through.
The post-completion advisory group is not new; I believe that it was first mentioned last June, which is almost a year ago. Apparently, however, you have nothing to do. You do not know why you have nothing to do and you do not know who is responsible for that, yet you seem to be approaching Bovis through the project management. Should you not be approaching Bovis directly to get answers as to why the group has nothing to do while the clock ticks on?
It is not true to say that the group has nothing to do. Obviously, the group has done the most important thing first, which is to set the strategy and the framework and agree those with the Scottish Parliamentary Corporate Body. Secondly, as I have said to the committee—and to answer the convener's point—the PCAG is an advisory group, not an executive body. The SPCB is the ultimate legal authority and it takes the decisions. The staff who are employed by the SPCB have a responsibility to the SPCB. The reason why the group is called the post-completion advisory group is that its job is to advise on strategy and on individual packages. That is exactly what it does. As Dave Ferguson has recognised—and I recognise as well—as the flow of final account settlements increases, the workload of the group will increase. That is as it should be. I do not think that it is necessarily appropriate for the advisory group to deal directly with someone who is under contract to the Parliament. It is important to keep those lines of accountability clear and that would be our intention.
Have you, as chief executive, intervened in any way?
What do you mean?
Mr Ferguson has expressed concerns. Have you, as the chief executive, intervened to bring matters on?
Yes.
Can you give us some details about when you intervened and what you have done?
I take reports from Paul Curran, the head of the project team, and Dave Ferguson, the convener of the advisory group. When I heard about their concerns, I agreed a plan of action, as Paul Curran and Dave Ferguson have indicated, to get Bovis to improve the throughput of the claims. That seemed to be the sensible thing to do and was the action that I took quite recently.
I want to raise two other issues, convener, but perhaps other members want to pursue points relating to this particular aspect.
Alasdair Morgan would like to ask a supplementary question.
You mentioned accounts relating to various items that were completed years ago. Could you give us an example of what you are talking about?
I was trying to indicate that, although the work relating to certain packages has been finished for some time, some of them are still waiting for final accounts. Paul Curran can give details of those, but there are a number of them. I expect that those will be the first lot to come through in a batch.
The packages relate to the superstructure, the concrete frame, the basement, the MSP structure and so on. The costs of those packages have been agreed for some time and all that remains to be done is for Bovis and the contractor to put the final pieces of paperwork together to formalise the cost and set it in stone. However, there has been no variation in the cost of those packages since they were completed.
In those cases, is any money still to change hands? If so, in which direction?
Only retention money.
Okay.
Have you set Bovis a target in relation to the completion of that process?
There is a clear schedule with targets for bundles of packages. I would expect that managing that would be a function not only of project management but of the advice group. We could discuss with you whether we could strip out any information from that to enable you to view the process in a more systematic way.
That would be helpful. Just before I let Fergus Ewing back in, John Swinburne wants to ask a question.
We would be bowling you a bit of a googly if we did not acknowledge the fact that you had managed to maintain the cost at £431 million. Before the cost reached that level, the escalation was ludicrous, but since September, you seem to have managed to keep well within budget.
I will let Robert Brown answer that.
The corporate body per se has not made an official decision on that. However, the design of the building has given me and other colleagues concerns about the issue. Someone commented on the attractiveness of some of the design features for the pigeons. We are keeping a close eye on the issue. I am not sure whether anyone else can elaborate on that.
I can say a little bit more. The wires that have been erected are the recommendation of the design team. I, too, have witnessed pigeons deftly hopping over them, so it is patently obvious that they are not always fit for purpose. In conjunction with the facilities management team, the Holyrood project team is considering other possible solutions, including meshing. The matter is under review. At some point, I hope to be able to report to the Finance Committee a successful—
I thought that I had better apprise you of the situation before Margo MacDonald got hold of you.
I appreciate the heads-up.
We are supposed to be deciding what Scotland's national bird is. I presume that it will be whatever can deal with the pigeons.
I will leave the pigeons behind because I want to raise the litigation by Sir Robert McAlpine Ltd against the Scottish Parliament, which is key, given the committee's concern about future liability and future expense.
I do not want to second-guess the court action in what I say to the Finance Committee, as to do so would be highly inappropriate. At the SPCB question time and perhaps even at our most recent meeting—I cannot remember—I indicated that senior counsel were involved and that we would continue to act on their advice. Frankly, I say that I am not prepared to discuss the details of from whom we have taken precognitions, from whom we might take precognitions and from whom we might not take precognitions. Such matters are for the legal advisers to the corporate body. That information will emerge as the action proceeds. I acknowledge that Fergus Ewing rightly said that the corporate body was not responsible for the original decision that we are talking about, but it must also be recognised that it is the responsibility of the corporate body to be guided by counsel on the progress of the court action. I would prefer to say little more about that.
I understand the position of the SPCB and thought that Robert Brown would give an answer of the kind that he has given. However, in the sheriff court—less hallowed circles than the Court of Session—there was a phrase that we used to use to describe doing a case for which one was unprepared. The phrase was "flying blind", which is quite descriptive. I understand that we are concerned about the cost to Parliament of the contract that was awarded to Bovis.
Try to keep close to that issue.
My question is about an extra £200,000 that no one seems to have noticed yet. I know that the convener will be extremely concerned about that. In his report, Lord Fraser indicates that the price that was agreed with Bovis was £5.3 million. That decision was taken following the meeting of 3 January 1999, at which the panel decided that Bovis would get the contract, despite the fact that its bid was non-compliant. A month later, in a letter to Bovis, the price was said to be £5.5 million. I do not know why Lord Fraser did not notice that, but why did the price increase by £200,000 within a month? Will the taxpayer get any explanation of that from anyone? Have the lawyers who are preparing the defence been asked to look into that discrepancy and countless others?
Again, that is more of an audit issue than a finance issue.
I cannot answer Fergus Ewing's question off the top of my head, but there is no doubt that the issue will be looked at. When I last gave evidence to the committee, I invited Fergus to input observations that he wanted to make. If I am not mistaken, that invitation has been taken up. I have no doubt that the point that he makes will be taken on board. However, it is an audit issue. I have no knowledge of the issue at present.
I move on to the last topic that I want to consider. What is the current estimate of the losses flowing from the liquidation of Flour City Architectural Metals (UK) Ltd?
The latest estimate of additional costs is £3.8 million.
More than two years ago, legal advice was obtained on the recovery of the £3.8 million. For those who have not followed intimately the Flour City fiasco, it involved a company with no assets being given a multimillion-pound contract. Thereafter, the company went bust, leaving the taxpayer out by £3.8 million. The legal advice was obtained more than two years ago and the corporate body has said that it is confidential, so the public have not seen what it says. I have a question for Paul Grice. Have you pursued all recommendations or suggestions that were made in the legal advice?
The corporate body has been and continues to be guided by the legal advice.
Have you pursued any recommendations or suggestions that were made in the legal advice?
We are acting in accordance with the legal advice, just as we are acting in accordance with the legal advice in respect of the McAlpine case, as Robert Brown indicated.
You say that you are acting in accordance with the advice. With respect, chief executive, that is not really an answer to the question. Have you followed up any recommendations or suggestions that were made in the legal advice, given that you have had more than two years to do so? The clock is ticking—the events that we are discussing happened more than four years ago and the taxpayer is out by nearly £4 million. I believe that we should recover that money from the construction managers, because they must have been in breach of their duties under the contract. Have you simply given up on the Flour City losses? Is that the truth?
Obviously, I am well aware of what you believe. We took legal advice, the corporate body has read it and we are doing what the lawyers have advised us to do. That remains the case—nothing has changed.
Have you been asked specifically by your lawyers to obtain any information from Bovis? If so, have you done so?
We are acting in accordance with the legal advice. For the reasons that Robert Brown gave in relation to McAlpine and the reasons that we have given extensively on this issue in the past, it would not be wise for us to discuss our strategy publicly. Indeed, part of the legal advice is that we should not do so. I have no more to say on the matter.
I would like to make one final—
We have heard three versions of the same answer to your question. We have obtained the answer that you are seeking, unless you want to move on to a completely different subject.
I have one final question. It grieves me that the taxpayer is down by £3.8 million. According to one former employee of Flour City, no attempt whatever has been made to seek evidence from him on what happened. Has any evidence been obtained from anyone involved? For example, has Alan Ezzi been precognosced?
It is questionable whether this is a line of questioning for the Finance Committee. If it could be attached to a financial issue that relates to now, it would be reasonable, but I think that you are straying into audit territory.
I appreciate your forbearance. I can see that the chief executive will not provide any answers to the questions. I point out that if there is a case that Bovis is responsible in law for that £3.8 million, it is very much in the interests of the Parliament that we should recover that money. We have been stonewalled by the chief executive for well over two years. This is a serious matter, which I will pursue further.
I will make a final comment, in the light of that accusation.
It is unhelpful to suggest that the chief executive is stonewalling all questions. Rather than stonewalling, he is giving information to the committee to the best of his ability, in so far as it does not prejudice the interests of Parliament. That is done with the entire approval and support of the corporate body. It is important that that be stated.
The Audit Committee in this case more than the Finance Committee.
Meeting suspended.
On resuming—