Finance Committee,

Meeting date: Tuesday, May 8, 2001

Official Report 155KB pdf

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Scottish Parliament Building

The subject of our next item of business may explain why the press gallery is more full than usual.

David Davidson has submitted a report that I have not yet had a chance to go through fully. Would you like to speak about it, David?

I apologise for the fact that the report was e-mailed to members only at the weekend. I realise that some members may not have received it yet: I could get the home e-mail addresses of only two members. I apologise for that, but a member of my family is ill and that has distracted me somewhat.

This interim report lays out in simple terms the background to the project and was written after discussion with the political members of the progress group, the clerk to the progress group, Paul Grice and Stewart Gilfillan. I have tried to highlight areas in which variants might arise as the contract system is implemented. I do not think that enough people realise what is involved in the process.

I have highlighted the history of the project, the management process, the tender process, the fact that the MSP block—which is traditional building work—is virtually complete and the technical difficulties that arise from the construction of the chamber and the committee towers, which could lead to a variance in the outturn prices. I have made it clear that the contract system was in place when the Scottish Parliamentary Corporate Body took responsibility for the project. Members of the progress group have told me in informal discussions that tremendous work has been done to constrain costs on the part of the complex that is being build traditionally and which accounts for the first £50 million.

I am about to get access to the outturn figures for the contracts that have been let, which will become public knowledge anyway, and I will report back to the committee when I do.

The two areas in which there might be the biggest variance are Queensberry House and the chamber and committee towers, as there are technical difficulties associated with turning the concept of those areas into a practical working design. Also, as it evolves, the contract process will bring in technical changes and specification changes that could affect later parts of the process. A risk register is being maintained by the group. The fit-out of the building is being recosted, but there appears to be little measurable variance in it at the moment.

I have commented on the use of home sourced materials, which will be of interest to the people who are trying to manage the project for us and to the public at large. There is a cost implication of using such materials. I am assured that the group is doing its best to incorporate home-sourced materials. A further report will detail that more specifically.

As part of the budget process, the Scottish Parliamentary Corporate Body will routinely convene a comeback to the Finance Committee in the autumn. Some reports may be made earlier than that, but I have been given no firm dates—the information could become available just before the summer recess or when we resume after it. I hope to meet all the members of the progress group this week. That meeting will be confirmed later today.

Members may read the rest of my report at their leisure; it merely reflects a position in time and has no definite numbers in it. I should like to make it clear that the motion—which is of some political concern but which was not my business in this report—was fairly naïve, especially as all the complexities of the project had not been worked out. That is not to say that the project may not come in at that price—I am not in a position to be adamant about that—but it raises concerns, especially as outside comment such as the Spencely report has cited a range of greater figures.

We also have the problems of a poor background for competition for technical reasons and the fact that property for construction in the Edinburgh marketplace costs about the same as property in the London marketplace, which is the top end of the spectrum. Inflation and the lack of competition have been difficulties that the group has tried to work with.

Thank you, David. I have been able only to skim through the report while you were speaking and I would like clarification of a couple of points. In your conclusion, on the final page, you say:

"Further reports will be produced once access to firm figures can be obtained but it should be assumed that, if the project is to be delivered to the agreed timescale, then drastic redesign to make large savings would probably not be cost effective."

I know that you do not have detailed figures, but does that mean—

That is the gist of the information that I have received from the people who are involved in the project.

That is not your conclusion—it is what you have been told.

I have been told that there is a huge risk because of the time scale of delivery—there is a set delivery time—and that if major redesign has to take place, the process will be very costly and fast-track construction work may have to be undertaken to cope with changes as they are made. I highlight that as an area that we cannot yet cost specifically.

The costs are the most important issue, but another issue is the timing. Over the weekend, you will have read media reports about a book, which is apparently to be published later this week, that suggests that the completion date could be 2004. If there were a major redesign, that would surely put the completion date beyond the expected date of the end of 2002.

I do not know about the press report.

I am using that as a backdrop. You have established that any redesign would make it impossible to meet the 2002 deadline.

No. From what I have heard from people and from my knowledge of the construction industry, I believe that a major redesign—for example an aesthetic choice to use cantilevers rather than pillars—would not necessarily involve a radical increase in time scale, but would involve a major increase in cost. The engineers' reports, planning permission and everything else would have to be acquired. The project has not used Crown immunity, but is going through the normal process. I am informed that the progress group is not in a position to say whether the project will overrun. It has made clear to me the fact that there could be problems and that one solution would be to throw money at the project to design out any difficulties, which would be costly. That is a possible variance, not a firm variance, and it is still to be discussed by the progress group and the SPCB this week.

You said that you will meet the progress group later this week.

I hope to do so. I have asked to attend its meeting this week.

Would I be correct in saying that the risks of cost variance that you have identified are the same as they were when Gordon Jackson's motion was passed? At that time, some of us argued that it was probably right to pause, given the attendant risks and the fact that it would be difficult to settle on a figure. Nevertheless, that motion was passed. Has anything changed since then?

What has changed—in qualitative, not quantitative, terms—is the fact that the first £50 million tranche of contracts are reasonable; I have used that word since someone else was quoted. Cost savings and some practical changes have been made, of which I have referred to only one in my report—the Miralles light walls—which have not only made the building cheaper and easier to maintain, but have made the office blocks more useable. I am assured that there have been additional costs as well as savings, but that the first stage is more or less complete. It is the next stage that poses the largest query.

Was that apparent before the motion was passed?

That is one of the issues that I shall raise with the progress group as a whole. Sir David Steel said that he is happy to meet the group on behalf of the corporate body, but that he wants me to sort out all the details with the full progress group first, which is a fair request.

For the Finance Committee, the implications of the overall budget and the cost issues are separate. Will you give any consideration to what will happen to the forward budget if there are variances? Right at the start of the project, when Ken Macintosh was appointed as reporter, the question was asked: why is the project being paid for out of current budgets rather than through some other financial route.

Those are issues that I shall take up. I shall have another meeting with Paul Grice and Stewart Gilfillan, to follow through the practical implications of funding and so on. The point has been made that the construction will incur a cost for three years, after which the costs will be the normal maintenance costs of the Parliament. I have received an assurance, which I mention in my report, that the progress group has had its eye on future maintenance costs when it has considered the fine print in the pre-tender process and the post-tender discussions. However, I am not in a position to confirm or deny where the process will end up. It is an issue.

I ask that consideration be given to how many of these costs are sunk capital costs and to what scope we have for examining different routes to financing future heavy capital costs to determine whether there is a better or cheaper way of financing them.

I touched on that issue with Paul Grice and Stewart Gilfillan and I intend to pursue it. Once the outturn figures for the first tranche of contracts are firmed up, I can enter into that discussion and report back to the committee.

I would like to know the time scale for that discussion. The SPCB will not report to us on revised expenditure proposals before the summer recess.

It was hinted to me that we will see the outturn figures for the first set of contracts over the next couple of weeks. That is a loose hint, as discussions are continuing between the progress group and the corporate body. As I say in my report, the progress group is the de facto management team that is making decisions, although it maintains full contact with the corporate body in the process. Once we move away from the more traditional building issues to the conceptual design—it is to be a unique building; I do not argue with that—we will need to get more closely involved.

Does David Davidson expect to report again before the autumn?

Yes. I hope to report again before the summer recess.

As David Davidson rightly points out in the first section of his paper, the Parliament building's costs have risen significantly. Although there has been a decrease in the amount of car parking, the cost increase is associated with the Parliament's requirement for a substantial increase in size. Has the size of the Parliament stabilised, or are further changes in size planned—upwards or downwards—in any of the three parts of the Parliament building site; the MSP offices, Queensberry House or the debating chamber area.

At this stage, I have not been told that there have been any major changes to the volume of the building. The MSP block is virtually finished and is therefore an entity in itself. As far as I am aware, the costs that are associated with Queensberry House have not altered. However, what changed the expectation of costs was the state in which that building was found to be in. Although that is a major consideration, it is not one that has been affected by changes in volume. However, changes that are of a fine tuning nature might be made to some of the committee chambers and to other such parts of the building.

If David Davidson is going to ask further questions of the progress group, could he please focus on the Queensberry House side of the building. I have heard a number of rumours about Queensberry House. I do not wish to go into them in a public meeting, but I ask David Davidson to examine closely what is happening in that respect and what Historic Scotland is doing. I have heard rumours about difficulties in terms of cost and reduction in space at Queensberry House.

My report addresses the points that Richard Simpson raised. The progress group awaits a final response about Queensberry House from Historic Scotland, but I understand that discussions about it are on-going.

I hope that there will be a sensible conclusion to that problem. If Queensberry House had been in any other country, it would have been demolished and rebuilt as a replica. Considering the state that Queensberry House was in, that would have been perfectly satisfactory and it would probably have been done at about a third of the cost. However, that is water under the bridge.

David Davidson referred to inflation costs as being at the top end of the banding levels, relative to prices in London. Do we have any concept of what inflation costs in the construction industry are as they relate to the current banding levels?

To date, I have been told that the Edinburgh market is very much the same as the London market, which is at the top end of the UK banding level. Regional variations exist, including the centre of Birmingham and the centre of Manchester, where building costs are also quite high. The financial controller of the Holyrood project is going to give me a further briefing on such matters. The report that members have from me is an interim report to set the scene. If members have areas that they wish me to examine further, I will be happy to do so.

It is probably too late to ask a specific question about the cladding costs of the rear wall of the MSP building, as the contract has probably been let. Given that the cladding is not going to be seen by anyone except people peering out of the flats next door to the MSP building, it would seem that savings could have been made on those costs.

I believe that cladding is still a live issue for the progress group.

In that case, I ask David Davidson to take a close look at the rear and side cladding on the MSP building, because cost savings could be made in that area.

It is clear how Richard Simpson spent his May day holiday yesterday. Given the amount of detail that was evident from his questions, he has clearly walked the site recently.

I thank David Davidson for his replies to Richard Simpson's questions.

Queensberry House did not come with grant aid for its rescue. At the time, that seemed unusual to me and that is still the case. Is it too late to try to get money from conservation sources to help with the costs? As Richard Simpson said, the Parliament has gone several extra miles to preserve the building.

The progress group is actively considering that issue. If I sound defensive, it is because the progress group has not been in a firm position and all that its members have been able to say to me is that that matter is under review. I will continue to ask those questions of the progress group.

The progress group will continue to have to make a series of decisions to get a balance between cost and quality. From what he has seen so far, is David Davidson happy that it is achieving that balance?

The progress group aims to get as good a balance between cost and quality as possible. Whether it achieves that will become clear when we look at the outturn figures for the first series of let contracts. That will allow us to look in detail at the actual spending, to see where changes were made and to see what was the drift of the activity of the progress group during that phase.

I have received an assurance that, as part of the commonsense decisions that are being taken, the progress group has looked at the long-term maintenance of the Parliament building. For the sake of argument, let us take cladding as an example. Although there was an opportunity to use some cheap and cheerful cladding, in 10 years time that would require to be repaired. The progress group has been trying to weigh up that matter. However, given that the motion that went through the Parliament was for a cash sum, that has led to problems. In saying that, I return to the point that was made by Andrew Wilson about where the up-front costs are to be laid in the budget process.

I apologise for the problems that I have had at home. My interim report merely sets the scene for where we should dig deeper. As I said, if the committee suggests areas that it would like me to examine in more detail, I will be happy to do so.

From the way that the contracts are let, can the progress group bring a clear-cut decision to the Parliament? Is it possible for the progress group to say to members that we can have Parliament building A, but it will cost an extra so-many million above the £195 million or, if we stick to £195 million, we can have a somewhat inferior Parliament building B? Does the system lend itself to allowing the Parliament to make that sort of decision, or is that suggestion too complicated?

The tendering system is done in stages and on a fast-track basis. That means that, when everything else is done, decisions will have to be made at the time that the chamber and committee towers are being built. The progress group has not told me that it wishes to come back to Parliament with a series of drawings and measurements. It is trying to operate within the concept, and it is looking at the practicalities of how the concept can be delivered in building terms. In the case of the Parliament building, it is not as if somebody designed something that could be measured, which they then entered in a competition. There was a concept, which had to be turned into a design that could be measured and built.

At this stage, I am not of the view that the progress group has reached the stage of saying that it will have option A or option B. It is more concerned to maintain budgetary control over what has been done to date. At the same time, technical work is going on behind the scenes. Earlier in my evidence, I mentioned problems with one wall. That sort of technical problem might lead to questions about whether things are done one way or another within the concept. At the moment, that is how the progress group is developing the building.

However, until I have had a meeting with the full progress group including, in addition to the politicians, the technical people whom I have listed in my interim report, I will not be in a position to answer that question. I can certainly ask that question of the progress group.

On behalf of the committee, I thank David Davidson for that interim report. He will give a further report before the summer recess.