Finance Committee, 12 Mar 2002

Meeting date: Tuesday, March 12, 2002

Official Report 270KB pdf

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Holyrood Project

For item 3, we consider the third report that the committee has received since the Parliament approved the motion last year that the corporate body keep the Finance Committee informed about inflation and risk associated with the Holyrood project.

I again invite our witnesses to make a preliminary statement.

I suspect that the implications of this report will be of more interest to the committee.

Apart from providing the quarterly reports, we exchanged information with the Finance Committee in December last year, when we reported on the up-to-date position on Holyrood. Let me first deal with the report in the round. On previous occasions, I have explained how the figures are made up from tender contracts, for which we have figures for elements of risk and inflation and so on.

The risk exists in theory at the beginning of the process and then gradually materialises or does not materialise as the process develops. In addition, the risk materialises at present-day prices, so we need to take account of the effect of changes in value as we go along.

In December 2001, the position that we reported showed a total cost for all those elements of £261.6 million. That figure included a prediction that £2 million would be needed to cover the then developing situation with Flour City Architectural Metals (UK) Ltd. There have been a number of changes since then. The prediction for Flour City has gone up from £2 million to about £3.8 million. Obviously, that figure is becoming firmer as time goes on.

Paragraph 10 of the quarterly report refers to several bits and pieces of particular contracts. In effect, they have been reported to the committee before, with the exception of item iii, which is for assembly cladding and roofing. That item contains three packages and has gone up by approximately £1 million since our report to the committee in December. There is also a minor item for signage, railings and miscellaneous bits and pieces, for which another £0.7 million has been provided. When those figures are grossed to include fees and VAT, the total increase since December is £7.37 million. That produces a total of £266.4 million.

Remember that we are dealing with elements of risk that may or may not materialise. The £266.4 million figure is not a prediction of the final cost, but a prediction of the best estimates that we can give. Obviously, those estimates will become firmer as time goes on.

I should also tell the committee that the figure includes two relatively technical changes. First, recoverable VAT is now deducted and included in the figures that are presented. That is a real cash advantage to the Parliament. On the other hand, that is broadly offset by inflation on the risk, which has now been added in. The figures to compare are £261.6 million in December and £266.4 million at present.

We have talked about the May 2003 target date. Obviously, the main contractors are constantly reviewing the position in that regard. We reported to the committee previously that we would consider the possibility of certain acceleration measures later in the year—probably around September—when those become necessary. Part of the figure for risk—£4.3 million—is against the possibility of certain measures that might be taken at that time. The corporate body will not reach a view on that until later in the year.

The Flour City matter, which has been the subject of fairly extensive press and other coverage—not least as a result of Mr Ewing's efforts—is the subject of an audit report. In paragraph 16 of our quarterly report, we have dealt with some of the background to the recovery of costs. For fairly obvious reasons I would not want us to be drawn too much on that matter now. It is not exactly sub judice at this stage, but clearly there is a legal background to it. We feel that that would be prejudiced if we went into too much detail at present. In paragraph 16, we give information on the inquiries that are being made and the objective that we seek. We seek as far as possible to recover the Parliament's outlay in relation to the Flour City difficulty which, I stress again, resulted from the insolvency of the organisation and not from anything over which the Parliament had direct control.

I wish to clarify a couple of things. You mentioned £266.4 million as the current outturn price. You also mentioned £7 million as the amount by which it had gone up. The figures of £261 million and £7 million do not add up to £266.4 million. Can you clarify that?

The difference is due to the £2 million from Flour City that we accounted for in the December figure. The figure for comparison is £259.6 million, if we exclude Flour City, or £261.6, if we include the £2 million.

The inflation projection in the report is £6 million gross in relation to the packages still to be tendered. Is that taken account of in the figure that you have now provided?

Sorry; to which figure are you referring?

The inflation figure in paragraph 3 is £6 million gross. That would be added to the cost plan value of the packages remaining to be tendered. Is that potentially a figure above and beyond the £266.4 million?

No.

Is that figure covered by the £266.4 million?

Yes.

That is a useful clarification.

David Davidson has been our reporter on Holyrood, so it is only fair to let him ask the first question.

We need for the record an outturn figure that we can feel confident about, which allows for the worst case scenario as far as Flour City is concerned. I presume that that is the basis on which you are operating the budget. I think that Mr Brown expressed it in that way earlier in relation to Flour City. Will you include within that figure all costs associated with the project, including landscaping, regardless of whether they come from your budget? It is about time that we had a clear indication of the total cost of the project. We can then dig down into the bit for which you are responsible within your budget. You act on behalf of the Parliament's interests in the matter as a whole, regardless of whether the money comes from the Executive or through the corporate body budget. It would be helpful if we could start the discussion by setting the scene with that.

I have given the total figures as we see them at the moment. However, until the project is finished, the predicted outturn cost will not be accurate. There is a substantial risk element, which is identified in the paper and which may or may not materialise. I ask the committee to be fairly cautious with the final figures. We have given the best estimate that we can at the moment, given the stage things are at. Risk is theoretical at the beginning. It then goes through a firming-up process as the contracts come in and the various eventualities do or do not happen, until the final position is reached.

The landscaping work has always been reported separately. For the purposes of comparison, it is useful to retain that distinction.

The figure for landscaping that was transferred from Scottish ministers to the Scottish Parliament's budget was £8.1 million.

Is that the total overall? Is that to the end point, not just this year?

That is the total overall of the bit that was transferred, but there were other costs, such as road realignment costs and so on—that had already been borne by the Executive and the council—that did not transfer to the Parliament's budget.

I am trying to set the scene—it does not matter where the money comes from. What are the total outturn costs of the project, including roads and landscaping costs? I accept that you are not responsible for part of that budget.

The corporate body is knowledgeable only about the matters for which it is responsible—the £266.4 million, and the £8.1 transfer for the landscaping.

The figures in paragraph 10 include some delay costs. What is in the risk management folder for other potential delay costs that would add to those figures?

The total remaining in the risk register against delays and overrun costs is £19.1 million. As the committee requested, that figure is broken down, in paragraph 17, into three different components. You are correct that some of the items in the table in paragraph 10 are examples of areas where costs have been incurred against delays rather than areas where costs are being prefigured.

Your budget submission indicates that there is another £39.9 million on the capital side to cover additional Holyrood capital costs and related capital charges. That is interesting, because that is what the Parliament was supposed to cost in the first place. That aside, is that a firm figure? That has been extracted from your figures. You are quite comfortable that that is the figure for additional capital costs and capital charges?

That is comparing the previous report to the Finance Committee. Since then, we have had the discussion on the previous quarterly report. That figure is as firm as the £266.4 million that Robert Brown has already discussed with you. The figures are consistent, if that is what you are asking.

Yes it is. You have not had any cause to change them since the last time you were here?

Only in as much as Robert has already explained to you.

Thank you.

You use an interesting phrase in the second line of paragraph 20, where you talk about

"the inherent fluidity of the cost plan".

What do you mean by that? It strikes me that the costs flow only in one direction, and it is certainly not downwards.

In fact, the costs do not flow only in one direction. Within the overall figures there are contracts that come in below budget and contracts that come in above budget. As we have discussed, we are also subject, as the project continues, to the effects of inflation and other such factors. That is really just a comment about the particular construction management method that we inherited from the Scottish Office prior to 1999. It is characterised by the risk being taken on by us as opposed to being put into the private sector, which results in a higher price to start with. It is a question of the best way to place that. We can have a long argument about the ins and outs of that method. However, the bottom line is that it does not proceed on the basis of a fixed price contract, but on the basis of a developing situation, with the risk register and so on, as we have been discussing.

The box in paragraph 20 deals with quite a few of those matters. You referred to the particular way in which the contract is managed, but the total of the figures in paragraph 20 that relate to the fees, plus VAT, comes to more than £40 million out of the total sum of £220 million. That means that 20 per cent of the costs are for administering and drawing up the plans, which seems excessive to me. Given that most of the management of the site has been done professionally—the management costs were £20 million when we first started to discuss the project—will there be consequences for how those who have been managing the project on our behalf deal with future projects? I know that, ultimately, responsibility lies with the SPCB on behalf of the Parliament, but we have involved professionals who are getting an awful lot of money from the inherent fluidity of the cost plan. Will the professionals accept some responsibility—particularly financial responsibility—for the inherent fluidity of the cost plan? I presume that they have been advising you all along, and they seem to have been paid rather well.

May I seek clarification of the previous answer before Robert Brown answers that question, convener? Brian Adam places particular emphasis on the

"fluidity of the cost plan",

but I understood Robert Brown to say earlier that that phrase is not a clever way of saying that costs continually increase. Rather, it is a way of expressing the fact that some packages come in below estimate, while others come in above estimate.

I do not think that many packages come in below estimate.

No—quite a lot of packages come in below estimate. As I said, the figures gradually firm up as all the contracts are let, bearing in mind the fact that some are let later than others, by which time there has been a general rise in price that has nothing to do with Parliament.

Perhaps you would deal with my substantive point that fees make up about 20 per cent of the cost. Irrespective of where individual packages come in, the overall costs have increased and it strikes me that those who advise and manage are benefiting substantially from those increased costs.

I will make a simple observation before I ask Paul Grice to address that point. By all accounts, the project has been very complex. A substantial amount of professional work has been done by the professional advisers to the Parliament, and that work is related to the price of the contract—we have always known that. There are always comings and goings on what causes, or is the background to, delays. I ask Paul Grice to address that element.

I endorse Robert Brown's comment. We are not paying just for a bit of design work—the fees cover the management of the project. Of course that involves a huge amount of design work, but the running of the project is also a substantial task. The Auditor General confirmed in his review that the fees for contracts that the Scottish Office let in the first place were reasonable by industry standards. We inherited those contracts and we are running with them.

As Robert Brown said, we will take action to protect the Parliament's financial interests if we need to. That has been our position throughout and I am not sure that I can add to that response at this stage. If, in due course, we have reason to believe that fees are not merited, we will consider that and take the action that the SPCB believes is in the Parliament's financial interests.

Paragraph 21 indicates that the outstanding risks still stand at around £40 million. I find that hard to understand, given that the uncommitted money for packages that are still to be let amounts to only £35 million. Are you saying that the packages that are still to be let are likely to double in price? It may be the case that I have lost the technical point. The box in paragraph 20 says that the subtotal of uncommitted expenditure is £34.8 million and paragraph 21 says what the risks are. If the risks relate to uncommitted money, you seem to be saying that those risks are greater than the amount of money that is still uncommitted. I may be completely wrong and I am quite willing to be corrected.

Sarah Davidson has spoken about that issue before, but I will ask her to clarify the position.

It might be helpful if we were to go back to the breakdown of the components that make up the £39.6 million. The money that is still in the risk register and that relates directly to those unlet packages is the £2.2 million design risk. That is the risk that the unlet packages cannot be let for the money that is set against them. Therefore, the amount of money in the risk register that directly relates to the £26.2 million of unlet packages is £2.2 million. The other money that is still in the risk register is broken down into two components. The first is £8.5 million for contingency—that is, for example, work on site that does not go entirely according to plan because of problems with the weather. Construction projects traditionally have a contingency. That component relates to packages that have been let already and to those packages that have yet to be let. That also applies to the second component, which is the £19 million for costs that are associated with delays. Some of that money may be associated with packages that have been let already and that subsequently become more expensive because of contractors' claims for delays that are outwith their control, so it may also be associated with packages that we have not yet let. However, that £19 million is spread evenly across the entire contract.

You mentioned the £19 million for delays and acceleration measures. I understood that the intention at the beginning was to complete the project by December 2002, but we are now talking about a completion date of April 2003—in fact, we have been talking about April 2003 for some time. Why are such substantial sums being set aside for delays and acceleration measures, given that the time scale of the project has not experienced substantial slippage?

The management contract is rather unusual but surely we could have included appropriate wording in the specification for each of the packages that has been tendered since we went through the process of deciding how to manage the contract. We could have said, "You are getting a fixed price for doing the work, and if that work has to be done at night or during the weekends, or if you need more staff, that is your risk." Under the risk arrangements, the SPCB takes the risks. However, why does the SPCB still appear to be taking the risks when it lets individual packages?

We went through the financial provision for risks at our previous meeting on the Holyrood project. Today, we are interested in the new information that we have in the form of the breakdown of the £20 million. We do not need to keep going over the same argument that we had at our previous meeting.

I do not think that we had that argument on the previous occasion, but I defer to you, convener.

I invite our colleagues to respond to your point.

On the first part of Brian Adam's question, a great deal of clever reprogramming on the part of Bovis Lend Lease (Scotland) Ltd underlies the overall increase in the programme. Therefore, some contractors, through no fault of their own, may have suffered a delay to their programme that is more than the four months between December 2002 and April 2003, while other rescheduling work has enabled the overall effect of those delays to be less than that period. The matter is not as straightforward as simply saying that the impact on all contractors is as short as 12 weeks—it is more complicated than that.

I understand that point but, given that we are stuck with the unusual way in which the contract is being managed—that is the arrangement that was arrived at—the tendering of individual packages is under the SPCB's control. As part of the specification for those packages, why were those who tendered for those packages not made responsible for the risks?

The short answer is that a great deal of money would have to be paid to enter into such a contract. We might still pay that money in some instances because of delays, but not every contractor has been delayed. I do not think that the Parliament would have wanted to take on additional costs willy-nilly against the risk of delay. On Bovis's advice, we have taken the option of different speeds of working on some packages so that the Parliament retains some decisions about whether to accelerate. However, there is no doubt that we are paying a premium for doing that.

It is fair to say that that has happened against the background of the pressures on the programme that we now know exist, as opposed to those that we did not know existed earlier.

Flour City Architectural Metals (UK) Ltd was awarded the £7 million MSP building cladding contract. Am I right to say that Bovis Lend Lease recommended that Flour City be given the contract?

Bovis advises us on all the contracts that relate to the building, so the answer is yes.

At that time, did Flour City UK have assets of £2? Am I right to say that it never traded and that it therefore had no financial standing?

Those are matters that the auditors are examining. The first point that Fergus Ewing made does not conflict with what I understand to be the case.

Was the contract awarded substantially because Flour City International was deemed—in what I think is Sarah Davidson's description—to be a mega-player?

The advice that Bovis gave us would have been based on its knowledge of Flour City and Flour City International.

If the contract went to FCUK on the basis of Flour City International's standing, why was Flour City International not made a party to the contract?

We are beginning to run into the problems that I expected. Such matters will be covered by the audit investigation and the SPCB is examining the legal aspects. I do not want to cut off questions unnecessarily, but there are limits to what we can reasonably be expected to answer and to what is to the Finance Committee's advantage, when other inquiries and activities are occurring.

I am aware that we need to be careful about the boundary, but Fergus Ewing is entitled to ask some questions about budgetary aspects, on which we are obliged to report.

The matter is not sub judice, so standing orders do not prevent the issue from being raised. Why was Flour City International not made a party to the contract, which was awarded to its subsidiary shell company only on the basis of the parent company's financial standing as a mega-player?

I am not sure whether that is a question for us. You are perfectly entitled to ask questions about budgetary arrangements in relation to Flour City, but I am unsure whether we are the appropriate committee for asking what might be interpreted as an audit question, as I am sure Fergus Ewing is aware.

With respect, I am trying to work out why we face a possible loss of £3.9 million. The figure has doubled since December and has not been broken down. I am trying to work out how we arrived at the present position.

I will move on if no answer is to be given to my previous question. I understand that part of a condition of the completed contract with Flour City UK was that the company had to provide a performance bond to protect the taxpayer to the extent of 10 per cent of the contract value. The contract value was £7 million, so a bond should have been provided for £700,000. That was to have been part of the full contract, which was not completed until August. Before that, there was an interim contract, in terms of which all the payments to the value of £854,000 were made.

Given that we paid out £854,000, why was not it insisted upon that the performance bond—which would have provided the protection that was supposed to have been provided—be a condition of the interim contract? If that had been the case, the taxpayer would at least have had a fallback of £700,000 protection. The performance bond was not provided at the outset, so the interim contract should have provided that not a penny piece was paid until the performance bond was in place. In short, why did the interim contract not include an obligation on Flour City UK to provide the performance bond to protect the taxpayer?

The first point to make is that all the £854,000 was paid out for work that was done. That is an extremely important point to put on the record. The failure by Flour City UK to provide a performance bond was what led to the termination of the contract. As Fergus Ewing said, the aim was to get the 10 per cent performance bond. What we ended up with instead was a parent company guarantee that covered the full cost of the contract, which is the current position.

When people run projects such as this one, they constantly make judgments that are based on assessments of risk. We must weigh up a number of factors and the project must be completed within a tight time scale and to a high quality. That is what the Parliament required of us. Cost is the other issue. Those are the principal factors that we must consider. We must constantly make judgments about the appropriate way forward. It was judged at that time that it was safe to move forward on the basis of the interim contract. I stress again that money was paid only for work that had been completed.

We have sought performance bonds in the case of some contracts and parent company guarantees in the case of others. The failure of Flour City UK to provide the performance bond led us to terminate the contract, although a parent company guarantee for the entire value of the contract, not just 10 per cent, was in place. That is the current position.

Robert Brown has said that those matters are subject to consideration by our lawyers and auditors. If our auditors want to draw lessons to our attention, we will consider them carefully in due course.

Thank you for that answer, although I am not sure that it responds to the basic point that a performance bond should have been in place before any money was paid out. Otherwise, there is no point in having a performance bond; that is the point of such bonds, which are absolutely basic in building contracts.

I will move on. On what date was the guarantee granted by the parent company in respect of the debt?

Again, you are straying from the territory that the Finance Committee is interested in and into Audit Committee territory. I do not want to stop you asking legitimate questions—

My point will become obvious in a moment. I understand that the date of the guarantee was about the end of September or the beginning of October. Is that right?

I do not have the date to hand, but it was about that time.

Are you aware of the last accounts that Flour City International lodged with the US Securities and Exchange Commission for the quarter ending 31 July 2001, which were signed by Mr Tang on 2 October 2001? In those accounts it is stated that Flour City International at that time had no working capital and that its losses for that quarter were $16,923,000. It stated in its accounts that it had defaulted on all debts to several banks. As of 1 March, the company's shares were worth six cents. It is in serial breach of the rules of Nasdaq—the secondary market that is much favoured by dotcom firms. Although we would love full recovery, it seems that the chances of recovering any money from Flour City International must be close to zero. Is that the case? If I have got any of that wrong, perhaps you could enlighten me.

We are entering the Audit Committee's territory. As the witnesses have made clear, a legal process is attached to the matter. I am a bit uneasy about the road that you are travelling down.

All the information that I have read out is public information, which I have obtained from the internet. If I have the information, the world has it. I am surprised that the Parliament would consider for one moment that we should not put to the witnesses questions on information that is in the public domain. I will cut across all the details that I have mentioned. Do you agree that, much as we would like a full—or even a partial—recovery from Flour City International, the chances of recovery must be very close to zero? The Finance Committee must be concerned about that. Is not that how you read the situation?

We are not prepared to comment on that. We have received legal advice from our advisers on the matter. We have gone into considerable detail on the potential for recovery and the individual details of what the claim would be. The matter is progressing. It would be no advantage to the public interest to have a pre-run before we have followed through that course and it would be prejudicial to the Parliament's interest to answer questions of that sort.

I am totally at a loss to understand how anything that we say in this room could prejudice the prospects of recovery, if such prospects exist. Either one can recover money from a debtor or one cannot. If the debtor has no assets and no capital, is being pursued by all its banks, cannot even pay its listing fee on the Nasdaq index, has not lodged its accounts for the period that ended on 31 October 2001—in spite of being a public company—the prospects do not seem to be too good. I wonder how anything that I say could affect the practical issue of how we effect a recovery. Will Mr Brown explain how anything that is said in this room can affect the prospects of the people getting some money back?

I do not see how anything that Mr Brown were to say on any of the matters that you have raised would shed any light. I presume that the matter will be the subject of a legal process of insolvency. The point of view of individuals on that would be difficult—

Anything that Mr Brown said would be relevant. Paragraph 16 of the report that has been submitted states:

"We are currently seeking advice from US solicitors about the financial and corporate status of Flour City International and will proceed on the basis of that information."

The fact that Mr Ewing has brought such information to the committee must be highly relevant. I understand Mr Brown's position in that that information might not correspond with the detailed advice that he has received from his legal advisers. However, the report that is before us—which is what we are discussing—implies that there is a reasonable prospect of exploring the possibility of recovering some of the money.

Given that it is already in the public domain that the principal company, Flour City International, has virtually no assets, it is quite reasonable to ask on what basis we will pursue the matter. We might well spend even more money on legal fees on both sides of the Atlantic, with little or no prospect of recovering our money. We are talking about recovering our money, not about the reason for what has happened or other such audit matters. It is reasonable for us to invite the witnesses to explain why although Mr Ewing has the information, they do not—or have not shared it with us in the report or in an update at this meeting.

We are danger of going from the ridiculous to the sublime. With no disrespect to Mr Ewing, we are assuming that all the information that he has supplied to the committee is accurate information. We do not know that. It would not be unnecessarily hopeful to assume that if the Scottish Parliamentary Corporate Body received legal advice that there was absolutely no chance of recovering any money, it would not expend unnecessary sums on pursuing a hopeless case. Is that the case?

That is absolutely the case. Various matters might be in the public domain. Not to beat about the bush, the public domain is vast. I have read in the press some of the things on which Mr Ewing commented. All credit is due to him for making those inquiries. When they have completed their inquiries, I am sure that our lawyers will report on all the issues that have been raised. No doubt they will take on board the inquiries that Mr Ewing has made, but the fact remains that all that is premature. We must wait to see what advice and guidance we get. Once that is available to us, we will act prudently.

I would like to make another point that will be of interest to the Finance Committee. We have proposed a figure of £3.8 million to cover what we consider to be the full costs of the insolvency of Flour City UK. We are considering whether that figure might be reduced in due course. We have included in the budget the full figure and are reporting to the committee that it is possible that some of the money will be recovered, subject to the caveats that Robert Brown has just given. We will proceed on the basis of the detailed advice that was referred to only if we think that there is a realistic chance that money that was secured for the Parliament would exceed any outlays in legal expenses. That is stating the obvious.

The witnesses will be delighted to hear that I would like to raise another matter. Before I do so, I would like to ask the committee in its report to instruct or to recommend—I am not sure what the protocol would be—that the corporate body and the progress group should have a cost estimate done of the effectiveness of pursuing Flour City International for the recovery of the money.

Even if the information that Fergus Ewing has given us is only half correct, which we should be able to verify very quickly—this afternoon, for example—it must occur to most people that it would cost more than £3.8 million to pursue Flour City International in order to reduce the loss. It might be more sensible to look elsewhere to recover the money. We could look, for example, to the company that advised—against all the industry's expectations—that the contract be awarded to Flour City Architectural Metals UK, a company with £2 of assets and two directors who had never been to Scotland and who did not bring from America any of their claimed expertise to work on the Scottish Parliament project. Why is the SPCB not considering suing Bovis Lend Lease (Scotland), which gave advice in a professional capacity? Bovis served as a consultant and adviser to the Holyrood progress group, which I presume acted on that advice in best faith.

To be fair, in paragraph 16 of the report the corporate body states its

"intention to pursue all avenues to recover the additional costs associated with the insolvency of Flour City UK."

Does that include suing Bovis, which struck the terms of the Flour City UK contract?

The report states that all avenues will be explored. I presume that that statement is made on the basis of legal advice. The SPCB is not yet able to provide us with further information.

It can tell us whether my suggestion has been ruled out.

I do not think that that is reasonable. I presume that the corporate body is seeking advice. Is that the case?

Yes. We do not rule out any options. If there are options that can be usefully pursued with a view to the protection of the Parliament's interests, we will undoubtedly pursue them. That is the purpose of seeking legal advice and of the background inquiries that are being made.

The committee might feel, in the interests of the good stewardship of public money, that it might be advisable for the SPCB to consider the option of suing Bovis. According to the report, a fair amount of money—more than £39 million—is allocated to "Outstanding risk". Those who advised the SPCB on that figure are the same people who advised it to take on Flour City UK. Perhaps the quality of the advice might be sharpened if it were felt that some sanction would be deployed by the Parliament when it was judged that bad advice had been given.

I move now to the matter that I wanted to ask about. The report refers to

"Assembly cladding and roofing—specialist design development by Trade Contractor after contract award".

The budget for that is £4.5 million. I am intrigued about why that cost should have been incurred after awarding a contract. The figure seems to relate to something quite basic.

The item refers to three separate packages that have been brigaded for the sake of simplicity. They are: the package for the roof of the foyer in front of Queensberry house; the package for the specialist glazing on the debating chamber; and the package for the roof of the debating chamber. I am afraid that I do not have to hand a breakdown of the total figure for the three packages.

All three are highly technical and specialised packages and two of them involve specialist glazing work. Therefore, contracts were entered into with the specialist contractors with the intention that work would be carried out by our design team and the contractors' specialist designers to finalise the design. That was done partly to find cost savings or economies where possible, because a specialist contractor might have a proprietory system or might suggest to our designers ways of making things simpler or having fewer different patterns and so on, so that the design could be made more efficient. That work with the trade contractors did not happen accidentally; it was entered into positively to get the benefit of their expertise.

That still does not answer my question. I presume that, as the design went out to competitive tender, you had some idea about the price range of the three packages. I cannot understand why a contract was given on the understanding that the design was going to cost more than the agreed price on that contract.

An interim contract would have been entered into. That would have involved discussion about the price, but would have acknowledged that a final price could be agreed only when the final design was delivered and complete understanding of all the components was provided. In most cases, that would also be the stage at which a finalised programme would be available, because that would depend on the specialist contractor's having a very detailed understanding of what had to be done. It is not always possible for such a programme to be obtained in the first instance.

I presume that before a contract is submitted and a tender allocated, the specialist contractor and the general contractor must demonstrate their competence. How can they demonstrate their competence and effectiveness to you if they do not know how much it will cost or how long it will take them to complete the redesign?

We would not consider it a redesign. The contractors all tender on a like-for-like basis and on the basis of the designs that are made available by the design team. Detailed discussions and pre-tender investigations are carried out on our behalf by Bovis, prior to the letting of an interim contract, as are discussions with contractors about their ability to complete the contract and about indicative price.

I would like to register my total bafflement—after what has gone on with all the other packages and considering that we are talking about a considerable amount of money—at the fact that we are still telling contractors that it is acceptable for them to be allocated a contract without our knowing what the end price is.

The construction management system is partly responsible for that situation.

We are in danger of oversimplifying the issue. The project is extremely complicated. We have been informed by professionals that the design of the roof is extremely complex. It is not rocket science to know that it is not unusual to award a contract on the basis of a developing design. That happens not only on this contract, but on contracts throughout Scotland, the UK and the world. It is not happening here for the first time. We are in danger of talking ourselves down simply because Margo MacDonald does not understand the way in which such things are handled sometimes. That is her problem—it is not a reflection on the professionals who are involved, or on the project.

I am querying the way in which the contracting has been handled. I think that it has been handled badly.

Let us turn to the Official Report of the previous meeting at which the witnesses gave evidence. I asked at that stage whether the building had been designed completely. The answer that I got was that it had been. Was that statement made before or after the comment that is made in paragraph 10 (iii) of the quarterly report, about specialist design development? If that development were known about, it would have been helpful if the answer that we have just heard—about there being a growing design brief—had been given at that time. I am confused about the date on which I asked that question and the information that was held by the witnesses at that time.

I shall need to check the Official Report. I am sure that we said that the building was substantially designed out. We cannot say that it is designed out to the last line. We said—and this was true—that it was substantially designed out.

This development reflects the completion of a tender process. As Tom McCabe recognises, it is a very complex building. It is common—especially when there is a programme to meet—for contractors to be taken on board. That gets the process moving and they often have the real design expertise. In areas such as specialist glazing they are the real experts, and they are brought into the process to ensure the best design. There is also a value-for-money advantage, because we are often thinking about using patented and existing systems that tend to be cheaper. That issue can also be developed with contractors.

I take your point. Indeed, I have had similar experiences in building projects in which I have been involved. However, in the interests of clarity, could we have a note that refers back to that previous Official Report to ensure that the Finance Committee and the Audit Committee have the same information and that they are not working in parallel?

I would be happy to let you have that note.

We have received evidence about paragraph 17 in the quarterly report, which contains a breakdown of the substantial sum of £19.08 million for design and construction programme overruns. However, nothing in that paragraph or that we have heard in evidence this morning suggests that, if anything goes wrong with the project and we cannot get into the new Parliament building in 2003, you have made any provisions or have laid any money aside as a risk sum for having to retain the Assembly Hall and the offices up the road. Will you clarify that point?

In fairness, the issue has a number of implications. In itself, all a delay will do is move things forwards or backwards. Although a longer stay in temporary premises will obviously incur extra costs, we will also have fewer costs because we will not have to pay interest on the capital if costs are incurred later in the procedure. The question is not simple to answer unless—and until—we reach that position. We are budgeting on the target entry date of May 2003.

The question is simple enough because, when you have been before the committee, you have constantly mentioned the risk register. However, it appears that that risk has not been entered in the register. I am asking for details of what you have entered in the register to allow for that risk. I accept that it might not happen; I also accept that, if it does happen, it might not cost any money and that there might even be savings. My question is whether there is a budget line in your risk register to meet that eventuality.

That is a different issue, which has nothing to do with the contract. It might or might not have implications for the Parliament's revenue budget, and relates more to contingencies at that level. However, it does not affect the contractual price and the cost of the Parliament building as such.

I beg to differ. If delays are caused by contractors failing to complete contracts, we will have to enter into another recovery programme. Have you allowed for that eventuality? It does not all come down to what you wish to happen. You could have great contingencies for earthquakes and goodness what else; however, one key contractor who fails to deliver can hold up all the others. What have you built in for risk if there is a delay that takes us past 2003?

We had some discussion of the risks that we can take account of and risks that no sensible planning can realistically take into account when we talked about the Flour City experience. Perhaps Sarah Davidson will remind us of the different categories of risk that we are dealing with.

As paragraph 14 of the quarterly report sets out, from the point of view of trying to budget sensibly and having a sensible discussion with the Executive about the money that we might be putting aside for the project, it is just not practical to put in money against an earthquake or whatever. Either you put in a huge sum—which would be the money that you would need if something like that happened, but which would otherwise just sit there and make a mess of everyone else's budgets—or you assess the likelihood that that will happen and take a small slice of the total cost. However, that amount would never be enough to cover you if something did happen. Again, it would just sit there in a slightly redundant way and would probably be spent on something else, which is also not a good way to budget. We recognise that, in such a major capital project, very bad things can happen for which there is no advance provision and that, if they do happen, you just have to handle them at that time.

As I said, I accept the earthquake argument. However, if a contractor falls down, holds things up and causes an overrun, what element have you built in to cushion the blow and to come back and seek the recovery of additional costs?

Some of the £8.5 million within the total risk relating to traditional site contingencies might cover, for example, something going wrong with an individual contractor. Similarly, the £19.1 million is intended to cover particular delays to any package that might be caused by problems with contractors.

So that figure falls within the contingency figure, which is not a part of the risk register.

It is a part of the risk register.

I seek your guidance, convener. Today, we have asked some questions that lie on the boundary between the remits of the Audit Committee and the Finance Committee. Many of the Holyrood project difficulties are to do with the nature of the contract management. The people who are giving evidence to us this morning have responsibility for that, but Bovis is managing the contract.

Can you advise me whether Bovis is to give evidence to Audit Scotland about some of the matters raised earlier? Can you assure me that if, as a consequence of any audit inquiry, matters of interest to the Finance Committee arise that are not otherwise covered to our satisfaction, we will have the opportunity to talk to the appropriate people at Bovis? It strikes me that a number of our questions have put the present witnesses in an invidious position and that those who have the answers may well be from Bovis.

The Finance Committee's remit covers anything that has an impact on the Scottish consolidated fund, so we could consider any such issues legitimately. We are also mindful of the fact that the Scottish Parliament Audit Committee and Audit Scotland have specific defined responsibilities, which are not the same as ours.

On the resolution, I draw your attention to our remit, as noted under item 1. It is separate from an audit process. We are not the Audit Committee and we cannot take on its role and functions. If, however, there are budget implications, those are areas that we may legitimately consider.

In that case, I take it that you would be quite content for us to invite representatives of Bovis to come and talk to us about some of the matters that we are discussing.

We would need to be convinced that there was a legitimate reason for doing so. I do not necessarily accept that that is the case at present, but the committee may discuss such issues separately.

I wish to be helpful, convener. As deputy convener of the Audit Committee, might I suggest that you enter into discussions with the convener of the Audit Committee about the division of duties, about which committee is responsible for what and about whether this issue should drop into the hat of one or other of the two committees at an early stage, and then report back to this committee as soon as possible?

I think that that would be the best way to proceed.

We can certainly identify which issues should sit where. There is a genuine separation of functions between the Finance Committee and the Audit Committee of which we must be mindful. I cannot tell the Audit Committee what it should or should not do.

However, equally—as I understand the process—the people here today are well able to come to the committee and give evidence and their views on performance in various aspects of the project, including the performance of Bovis or anyone else. I do not think that the people here today would necessarily come here and accept the blame for someone else if they felt that there were serious discrepancies in any aspect of the project. We need to bear that context in mind.

It is worth reiterating what Paul Grice said earlier: the Scottish Parliamentary Corporate Body—apart, obviously, from managing the project and, in association with the progress team, carrying out its own checks as it proceeds—will take on board and deal with anything that arises later in connection with any audit issues. That is a proactive matter. We are not sitting back doing nothing and allowing events to flow past us. The officials will examine all aspects of the situation as it develops and as matters arise for any legal or other implications—and there often are such implications for contracts of this magnitude.

I think that that is what we would expect.

I am pleased that consideration will be given to parliamentary scrutiny by one of our committees of the background to taking on Flour City in the first place and of all subsequent events. I hope that it is clear that if Bovis had not recommended Flour City, the taxpayer would not be facing a bill of £3.9 million. I hope that an inquiry will examine that issue, because the answers that we have received today have been far from satisfactory. It behoves us to find answers.

Surely in this Parliament we should have a full and open inquiry, at which all the documents that have not been disclosed by the Presiding Officer are made public, so that the taxpayer can see why a shell company with no assets, no skills ability, no record and no UK directors was given a £7 million contract, and why the taxpayer is now facing a bill of £3.9 million. If we cannot hold an inquiry into that, one wonders what the point is of having committees in the Scottish Parliament. I am pleased that we have had a positive response—at least initially—from you, convener.

Let me be quite clear. The body that is responsible for building the Parliament is the Scottish Parliamentary Corporate Body. It is the responsible agency. The representatives of the SPCB who are before us have indicated that they are pursuing all avenues to recover the additional costs. They are taking legal advice and have not completed that process, as I understand it. Presumably, due process will be associated with the attempt to recover the costs from Flour City, and there will be matters to be resolved about the position of that company.

Fergus Ewing has given us his interpretation of information based on what he has received from the internet but, as Tom McCabe has made quite clear, that is different from due process, which I presume will need to take place in the courts. Anything that we do as parliamentary committees—and in particular anything that the Finance Committee does—is governed by the remits of the committees, and not by what Fergus wishes as an individual member of the Parliament. If it is appropriate for other committees such as the Audit Committee to become involved, that is a matter for them to decide.

I am sure that the Audit Committee will consider the circumstances once further clarification has been received from the SPCB, but I am not sure whether at this stage we can launch investigations on behalf of other committees or make the kinds of commitments that have been suggested. It would be entirely inappropriate to do so.

Mr Davidson made the constructive and positive suggestion that the convener should discuss the concerns that have been raised today with the convener of the Audit Committee, with a view to determining the best way to deal with the concerns. I accept that the SPCB has a responsibility, on behalf of the whole Parliament, for overseeing the Holyrood project and that it will take the steps that it considers appropriate. As members of the Finance Committee with responsibility for overseeing expenditure, we have raised genuine concerns about how the money has been spent. It may be the case that a further investigation would be dealt with more appropriately by the Audit Committee.

I am happy to endorse or formalise Mr Davidson's suggestion that the convener hold discussions with the convener of the Audit Committee to see how matters can best be dealt with in terms of parliamentary scrutiny. The SPCB has a responsibility to the Parliament to manage the Holyrood project, but we have a responsibility to the Parliament to scrutinise the project. The Audit Committee might take an interest in the matter. I believe that Audit Scotland has taken an interest, but that is not to say that a report will be sent to the Audit Committee.

It would make a lot of sense, as the committee that has responsibility for scrutinising expenditure, when we have concerns on matters that relate to audit, for us to discuss them with the Audit Committee at an early point to determine how we can make progress. It may be that we will not wish to seek a formal inquiry at this point. We have not got to that point yet, because the SPCB has not had the chance to deal with its matters.

However, as far as the Parliament's committee structure is concerned, we have a responsibility to scrutinise what is going on. We have tried to scrutinise the finance today, and it has been difficult trying not to go into audit areas. I have had the privilege of serving on the Audit Committee, and I understand how it works. A discussion with the convener of the Audit Committee would be useful at this point.

Convener, a discussion between yourself and the convener of the Audit Committee would never be unhelpful. As convener of this committee, you are obliged to have that discussion and to take professional advice on the best way forward, but it is important to establish that that is where we are at the moment, and that we have gone no further. Mr Ewing may have given the impression that we decided to go slightly further than we have—I am sure that that was unintentional. I see no problem with the convener discussing the matter with the convener of the Audit Committee and taking the appropriate professional advice. I am sure that he will then bring the matter back to the committee.

I can certainly speak to the convener of the Audit Committee about—

Can I get back to the money, please?

Let me finish my sentence, Margo.

Sorry.

I will consider how we might address the matter procedurally and bring that information back to the Finance Committee. The area is complex and a legal process is under way. We must be mindful of the balance between the legal process and the scrutiny process and try to move matters down the correct channels.

Right. Back to the money, Margo.

I will move on to a completely different matter. The figures in paragraph 20 cover the

"Construction project: current status of works packages, fees etc".

I note that the estimate for the fit-out, which is £19.5 million, has barely moved since the inception of the project. The building has almost doubled in size since then and today we have heard your estimates for inflation in the industry, so I am intrigued by how you have managed to keep estimate for the fit-out at almost the same level.

I am grateful for Margo MacDonald's positive comments. We have worked very hard to keep—

I will not be positive until I hear your answer.

You were positive, Margo. You just did not mean to be.

I am looking for crumbs.

My first serious point is that that estimate was produced much more recently and therefore the inflation risk is less. Sarah Davidson will keep me right, but I think that the fit-out estimate was carried out after the SPCB took the decision, which was endorsed by the Parliament, to increase the size of the building. The estimate came much later in the process.

My second point relates back to Robert Brown's earlier comment that some contracts come in below estimate, while some come in above estimate. The building contracts, which are immensely complex in engineering terms, that have come in above estimate have tended to be for difficult tenders in which there was relatively little interest from contractors. Tender prices for those contracts have been higher than expected. There was better competition, and therefore lower prices, for more standard contracts, such as electrical or plumbing contracts.

Much of the fit-out falls into that category, as the contracts for that work are more standard. For example, one would expect good prices for contracts for floor finishing. Work is still under way but, for those reasons, I have been reassured by the people who are going through the process that the £19.5 million remains, so far, a good, firm estimate. The news about the fit-out is better, relatively speaking.

You are not going for cheap stuff, such as tatty carpets, are you?

No. We have obviously been listening. The serious point is that the Parliament, in its resolution, instructed the SPCB to have regard to quality in the completion of the project, and I assure you that that is what we are doing. There is a balance between cost and value for money, but I assure you that I have not come across anything to do with the building that is cheap.

I think that we should put on record the fact that Margo MacDonald wants only the best of quality in the building.

And no tatty carpets.

Naturally. However, I would like consultants to give us cheap information on where the best quality can be found.

As there are no further questions, I thank our four witnesses. We look forward to seeing you again in three months' time.