Finance Committee, 27 Jan 2004

Meeting date: Tuesday, January 27, 2004

Official Report 261KB pdf

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Scottish Parliament Building Project

Good morning, colleagues. I open the third meeting in 2004 of the Finance Committee. We have not received any apologies, so I hope that Wendy Alexander will join us soon. I welcome the press and public to the meeting and I remind members and everyone else to turn off their pagers and mobile phones.

The first item on the agenda is consideration of the latest monthly report on the Holyrood building project, and correspondence that is dated 9 December 2003 from Paul Grice, which has been issued to members. The monthly report was sent to members yesterday by e-mail and copies have been made available today. The information on trade packages contract values that was sent out by e-mail yesterday contained an error. Under column 8, the information should read "column 7 minus column 2". A corrected version has been made available today, so members now have the correct information.

I give members the opportunity to discuss any issues that arise from either the monthly report or the correspondence. We should discuss how to proceed in relation to both this month's report and next month's report, which is due in time for our meeting four weeks from now.

I am a bit disappointed and surprised that we do not have representatives from the Scottish Parliamentary Corporate Body, the Holyrood project director and the Parliament's chief executive before us to answer questions. That has been the practice of the committee, and the Presiding Officer has encouraged the use of this committee as the only means by which those who are in charge of the Holyrood project can be questioned. Can you explain why those witnesses are not here today? Without them, we cannot get answers to questions that arise either from the report or from matters that have come to light since the last time they were here, which I think was in November last year.

In fact, the practice of the committee has been to take evidence from witnesses when we think that it is appropriate to do so. We have not done that in relation to every monthly report. It is for the committee to decide whether it wants to take evidence on the monthly report that is before us today—we could do that next week or the week after—or whether it is better to wait until the February monthly report. I note that the February report will contain details of Davis Langdon & Everest's estimate of what the project will cost to complete in July. The indications are that when we have that report, the questions that members want to ask about the final cost and completion date will be clearer. We will want to take evidence from the witnesses as soon as that report is received.

It is, of course, open to the committee to take evidence on this month's report if it wants to do so. However, my view is that it would be better to wait until February and to take evidence then.

Do other members want to comment?

Waiting for clarity in the Holyrood costs is a bit like waiting for Godot, if I may say so. I would certainly welcome the appearance of the witnesses at the earliest possible opportunity. They are not here today, but I will raise a matter that I have brought into the public domain since their previous appearance. It concerns the provision of a parent company guarantee by the construction managers. I ascertained that, although a parent company guarantee was always to have been provided free of charge by Bovis Lend Lease (Scotland) Ltd from its parent company, which was initially P&O and is now Lend Lease, such a guarantee was never asked for and has not to this day been sought. It seems to me that if, in respect of any building project, one is offered a guarantee that one of the wealthiest construction companies in the world will underwrite and guarantee the obligations of a local company, one should grab it with both hands and without question. I have made representations to the Presiding Officer that that should be done. I am not suggesting that Bovis Scotland is in financial difficulty, but before we heard the news about any recent liquidation, such as Lilley Construction Ltd, Ballast plc, or—

Parmalat.

John Swinburne suggests Parmalat. I would not make any comparison between Bovis and that particular company. The point is that companies do not tell the world that they are going out of business the night before it happens. Unless the corporate body can guarantee that there is no risk whatever to the Scottish taxpayer, failure to secure a parent company guarantee is an act of unpardonable folly.

If no one else has comments, there is another matter that I would like to raise.

On you go, Fergus. Let us get your issues out and then we can respond to them.

Now that I have put that matter firmly on the record, as well as having made private representations to the Presiding Officer, I trust that we will get a response immediately. It would have taken me a nanosecond to grab a parent company guarantee with both hands, and any right-thinking person would have done likewise. I should point out that the SPCB was never informed—I presume that that would have been done by the chief executive—that the decision had been taken not to obtain a parent company guarantee. It was only after my correspondence with Mr Jim Fairclough of the project team that the matter came to light. With that in mind, I trust that the SPCB will act swiftly.

The other matter that I want to raise—again, I do so on the record so that the witnesses have a chance to address it in detail during their next visit—is the fees that are payable to the architects. Specifically, I want to ask whether clause 1.5.2 of the contract between the Parliament and the architects has been applied. That clause was inserted on Mr Bill Armstrong's recommendation when he was project manager and it refers to schedule C, which provides that the architects' fees be paid in various portions on the completion of each stage. Ten per cent of the total fee would be paid on completion of Royal Institute of British Architects work stage C, 20 per cent on completion of stage D, 30 per cent on completion of stages E, F, G and H, 35 per cent on completion of stage J, K and L, and 5 per cent on

"Completion of Making Good Defects".

I will make the document available to the Official Report.

First, was that provision applied? Secondly, was the reduction in fees that the Presiding Officer negotiated in addition to the application of that formula? Thirdly, have the architects ever been paid in advance of their contractual entitlement? Bill Armstrong indicated in his evidence to the Fraser inquiry that payment was made before the architects were entitled to it and, in particular, before they had completed work stage C. If so, that would be wholly improper—I use that phrase advisedly. Has there been any payment other than in the terms of the contract? Can the SPCB assure us that in the period for which it has responsibility, the only payments that have been made to EMBT/RMJM have been proper, regular and in accordance with the terms of the contract?

Some of the issues that Fergus Ewing raises are properly matters for the Audit Committee, rather than for the Finance Committee. However, the questions that he has highlighted are on the record; we can bring them to the attention of the SPCB and suggest, as the member suggests, that early answers will be appropriate—especially to the first of the two questions that he has asked.

Do members have questions about the written report that is before us?

I am reasonably relaxed about the fact that representatives of the SPCB are not with us today, but there are a number of issues on which we need to seek clarification in February, when the required information may be available. In particular, I would like to know the cost implications of the slippage in work on the towers and of the delay in internal finishing. We also need to know more about the revised strategy for completion in July. That information will not be available until the middle of next month, but it is important that we receive details of it. The Presiding Officer's letter seems to indicate that we may eventually have an accurate estimate of how much money is required to complete the project by July. It is important that we take oral evidence from the SPCB when that information is available.

I am trying to assimilate some of the data on the trade package schedule. It strikes me that quite a lot of information is missing from the schedule that could easily have been added. If I compare it with the schedule that I was able to produce in July from information that is in the public domain, it seems that we have lost the package contractor ownership of the various components of the project. In the first schedule that I produced in July, we were able to say that package A1510 was owned by Select Plant Hire Ltd and so on. Information of that sort was provided throughout the document. The element of ownership appears now to have gone.

In addition, the trade package spreadsheet indicates that there is a material difference between the "Difference" column, which shows the final total cost less the adjusted cost plan that was envisaged at the start, and those approved changes that have been made. There are approved changes costing £78 million, but the total for the "Difference" column is £89 million. That is a net difference of about £10 million, but within that figure there are many pluses and minuses. It would be well worth our getting an explanation of why those variations have taken place over the piece. A one-liner or separate schedule that cross-references this one would suffice. The figure of £10 million may be the minor number. In some aspects of the project, the major number may be quite significant.

The committee should welcome the fact that we now have more detailed information. That marks a step forward. The cover note attached to the figures states:

"the Project Director has indicated that she will be happy to look at any further proposals for clarifying the presentation of this information."

I would be happy, along with Jim Mather, to identify how that can best be achieved and to communicate that to the project director, if that is acceptable.

That would be fine.

Are there other issues arising from the report that members want to raise?

Fergus Ewing has raised issues that probably require attention before the end of February, although I accept that some of the items may be for the Audit Committee rather than for the Finance Committee. However, the latest report that we have received raises questions that might benefit from our attention before yet another month goes by. I do not know whether it is possible to arrange for evidence to be given either next week or the week after that. However, it would be slightly perturbing if we did not have an opportunity to ask questions before the end of February or the beginning of March. That would mean that we would not have had a meeting with the SPCB in the first two months of the year. To leave the matter until the end of February would be to leave it a little too long.

I understand that the issues that Fergus Ewing has raised do not arise specifically from the report—he has raised them separately. It is possible for us to seek clarification of those specific issues in writing before we receive the February report.

A separate issue is when we can get more information about the matters that particularly concern the Finance Committee: an update of the financial cost of the project and the time scale for its delivery. The report that we have suggests that that information is unlikely to be available until the next report is issued. In that context, I recommend that we make it clear to the SPCB that we are expecting that information, and that we take evidence from witnesses when the next report appears. However, the committee may decide to hear from witnesses in advance of that, although it seems that the SPCB may not be able to answer the questions that we most want to have answered until the February report appears.

I think that witnesses should appear before us at the earliest opportunity and am very anxious that the PCG be obtained forthwith. The evidence that we have heard at the Fraser inquiry suggests that litigation may result from the selection of Bovis, which was chosen as the construction manager despite the fact that its bid was about £1 million higher than that of the lower bidder. I am concerned that if the issue flares up on resumption of the Holyrood inquiry next week, as I suspect it will, we might move into a potentially adversarial situation. I have received information from Mr Fairclough that if the PCG is asked for and demanded now, it will be obtained. Representatives of the SPCB should appear before us next week to explain whether it will secure that protection for the Scottish taxpayer—albeit that one expects and hopes that the risk of its having to be used will be minimal. However, unless the SPCB can reassure us that the risk is non-existent—0.000—we should not look a gift horse in the mouth.

Can the SPCB explain why even now we have not received copies of the priced contracts between the Parliament and the construction managers, the Parliament and the architects, the Parliament and the construction engineers and so on? Will we receive that information before the next meeting, as we expected to receive it long before now?

My final comment relates to the point that Jim Mather made. We now have a table that shows the difference in the trade packages between the original cost plan and the estimated final cost, but we have no explanation of how that difference has been arrived at. Some of the extra costs are quite staggering. In particular, has there been an explanation of whether the process of adjudication was used in respect of loss and expense? I understand that that process was introduced following legislation in 1998 and allows subcontractors to demand adjudication of their claims, appointment of an adjudicator within seven days and resolution of the adjudication within 28 days or, with the agreement of both parties, within a different shorter period.

That process essentially places subcontractors and trade contractors in a much stronger position than previously because they can, if they are in dispute with the construction managers, demand adjudication of a claim. Has that process been used? If so, are we to have an analysis of it and of the extent to which it has been used? Perhaps crucially for the task of teasing information out from the Executive—

It is not from the Executive.

I am sorry—the SPCB. For the task of teasing information out from the SPCB as to what the final cost will be—I fully understand that the Executive takes no interest in such matters—we need to know whether the loss and expense adjudication process might push the Holyrood bill up even higher, possibly massively higher. I wanted to raise that to give the SPCB, the project director and the chief executive advance notice that we expect detailed and complete answers on all those matters.

I have one other point: I do not accept that the timeous payment of fees is a matter entirely for the Audit Committee. I say that because if bills have been paid before they were due to be paid on one occasion, perhaps that has been the practice on other occasions, and if it has been the practice on any other occasion, it would have the effect of paying money out before it is due, which would place an additional burden on the finances. It is therefore highly relevant for us to ensure that there has been no practice of payments' being made to help out, for example, with the cash-flow problems of creditors, whether they be architects or trade contractors.

A number of those issues do not pertain to the report but are issues that Fergus Ewing wishes to raise. I am clear that some are audit issues, but in some instances, there is a link to issues with which the Finance Committee might legitimately be concerned. We need to bear that in mind.

Two proposals arise from the discussion. One—Fergus Ewing's proposal—is that we bring witnesses along next week to discuss the January report. There are issues that Fergus Ewing has said he wishes to raise with them. I make the alternative proposal that we hear from SPCB witnesses at our meeting following receipt of the February report, which should be about 24 or 25 February—four weeks from today. If we did that, we would have the cost information that is referred to on page 3 of the report.

I propose an amendment to your proposal, convener. It is important that we do not lose the trail of issues in the process—Ted Brocklebank referred to the elapsing of time in that regard—and it would be useful if the clerks could draft two letters. One letter could go to the SPCB or the Presiding Officer—whatever is appropriate—and would simply list the outstanding issues that have arisen from our consideration so far, draw attention to the new issues that have been put on the agenda today and say to the SPCB or the Presiding Officer that they should appreciate the urgency of addressing those issues in writing to the committee at their earliest convenience.

Factual matters arise about the status of protection, the adjudication process and timings of payments. A separate letter could be sent to the Audit Committee because—as you said, convener—some of the issues are matters for that committee and our responsibility is to draw those matters to its attention.

If we look at the trade packages, we see that four have led to cost overruns in excess of a couple of million pounds, most particularly on windows and specialist glazing, which was originally costed at £4.5 million plus inflation and is now costed at in excess of £24 million. It seems to me that our letter should refer simply to the three or four major overruns rather than footer around with the small ones. That would get those four on the agenda for the next meeting.

My amendment to your proposal, convener, is that the SPCB come before the committee after the February report, but that we write to it in the next week. Perhaps the clerks might want to circulate to committee members two draft letters: one to the Audit Committee on matters that are appropriate to that committee and one to the SPCB outlining what is outstanding from previous progress reports and additional matters that have been put on the agenda today but do not arise directly from the report.

I am happy to accept Wendy Alexander's amendment and to buckle the letters to what I had already suggested to Jim Mather about seeking clarification from the project director on the format and layout of the trade package report.

Wendy Alexander's points are characteristically helpful. I note in particular the difference—the extra amount over the original estimate—for the assembly building concrete frame contract, which was granted to O'Rourke Scotland Ltd. It originally had a cost plan of £16.8 million but has an estimated final cost of £39.5 million, so the difference is nearly £20 million more for the assembly building concrete frame. How on earth did that happen? What on earth is happening on that contract?

Wendy Alexander's suggestion that we have a proper explanation of those contracts on which the overrun is massive is sensible. To be fair, that will take time to prepare; I think that a week would be enough. I therefore amend my proposal so that, instead of have the usual suspects on 3 February—when, I gather, we have a busy schedule, with the minister coming for our Scottish Water inquiry—we consider 10 February as a compromise. I hope that that might find favour with members.

I second that proposal because the last thing that I want the committee to be seen to do is let people off the hook. Written questions and answers are all very well but, when we have somebody sitting in front of us, we can ask direct questions, even on something that arises from a written answer. It is important that we are not seen to be letting anyone off the hook and that we get the SPCB in.

There is no question of anybody's being let off the hook. The issue is which date we choose: 10 February or 24 February. Those are the two proposals, but we are otherwise in agreement. If I understand Fergus Ewing correctly, he is happy to go along with Wendy Alexander's suggestion about the letters that we wish to write to the SPCB, so the real point of difference is whether we have witnesses on 10 February or 24 February. Perhaps the only thing to do is to put a question on the matter.

Who is in favour of our having the witnesses on 10 February?

Mr Brocklebank indicated agreement.

Fergus Ewing indicated agreement.

Jim Mather indicated agreement.

John Swinburne indicated agreement.

Who is in favour of our having the witnesses on 24 February?

Ms Alexander indicated agreement.

Kate Maclean indicated agreement.

Des McNulty indicated agreement.

Dr Murray indicated agreement.

Jeremy Purvis indicated agreement.

In that case, we will take evidence on 24 February and we will take the steps that have been recommended. In particular, I will write to the convener of the Audit Committee highlighting the issues that Wendy Alexander suggested we highlight and I will liaise with Fergus Ewing to ensure that I get the precise terms correct.