We will now move to item 3 on the agenda, which is the first quarterly report on the Scottish Parliament building project. We have a copy of the report. I am pleased to invite Sarah Davidson to make some opening remarks.
In his opening comments, Robert Brown covered the points that we might have made when he referred to the issues of risk and materialisation of inflation over the remaining period. I have no comments to add to that. I am happy to answer specific questions on the detail.
We will be happy to move straight to questions. I remind members that risk and inflation are the matters that we are covering.
Good morning, Ms Davidson. Is the project designed out yet, so that we have a handle on future risk and possible price?
Do you mean the detailed design of the scheme?
Yes.
Yes, to a very large extent. Some of the packages, especially those that relate to some of the more complex parts of the design, are going through a phase of final detailed design between the design team and the contractor who is going to build that part of the complex. Until that design is completely concluded, there is always the chance that the numbers will not be entirely settled and may go up or down. We are at a point in the design where we have a fairly good handle on the design costs. By the time of the next report to the Finance Committee, which is due at about the beginning of next year, we will have let the vast majority of packages where changes in design could make a difference to the cost.
If you are fairly firm on the design, does that mean that your estimates for inflation will also be fairly firm, as you do not have too much variance on which to apply variation of inflation?
That is correct.
Landscaping and extra land are apparently not included in your current estimates; it seems that they will be passed across to the SPCB, albeit with some funds from the Scottish Executive.
All the funds. The cost of the landscaping budget, which was held by the Executive and Historic Scotland, will transfer in its entirety for the works that are going to be done within the landscaped area at the Parliament.
What is the total estimate for that package being delivered and landscaped?
It is £7.5 million.
Is there an issue about that not being a firm figure?
No.
Earlier, we mentioned Flour City Architectural Metals (UK) Ltd as an example of the delays and problems with the contractors. I presume that that is the only such example that we have had so far.
That is correct.
Has the additional cost been quantified yet? Is there a range of expectation? Presumably competition has narrowed somewhat on this aspect.
That is right. At the end of September, an estimate was made of what a worst-case scenario might be. That was when it started to look as though we were going to get into serious trouble with Flour City Architectural Metals (UK) Ltd. At the time, a figure of £2 million was put against what might be the cost to the Parliament of having to terminate that contract.
The second bullet point on page 2 of the report states:
The delay is largely explained by the sheer complexity of some of the elements, especially the debating chamber, which is very much at the cutting edge of structural engineering. In particular, the beams that hold up the whole structure and the nodes that hold those beams together are, I am told, highly complex. Ove Arup and Partners, the structural engineers, have almost been inventing a new approach to that work, and it has taken longer to come to a satisfactory solution than they had hoped. To take account of that, it has been possible to readjust other things as we have gone along. The paragraph on page 2 to which you refer alludes to a fairly comprehensive survey that is being done of the overall impact of the design problems. We are now past that stage—it is no longer an on-going problem. However, we need to work out how we can absorb and cushion the resultant delays.
When was it recognised that inflation was a risk that could not be contained within the original £195 million?
From autumn last year, when the progress group started to study the reports it was receiving on the packages that had been let, it became clear that, although packages were being let more or less in line with 1998 prices plus inflation, it became increasingly unlikely that it would be possible to absorb that inflation. However, it was only in spring or early summer this year that Parliament received the report that set out exactly what the impact would be. At that stage, we were looking at a total budget, taking inflation into account, of £197 million. By that time, it was clear that if inflation continued as it had been going, it was unlikely that the total cost could be contained within the original £195 million cap.
Just for the record, what was the estimate of inflation that was included in the £197 million?
I think that it was about £21 million. Is that right? No, I am sorry—included in the £197.7 million was £8.3 million of inflation, which had already been accrued. The £197.7 million did not include the estimate of what might be incurred in inflation on packages that had not yet been let. However, the report to Parliament at that time recorded an estimate for future inflation—£10.4 million.
I understand the uncertainties about future figures, but I would like us to get the best estimate that we can. On page 3 of the quarterly report, you give the figure of £211.2 million, but on page 2 you mention £24 million of packages that are excluded. That makes £235 million.
Let me clarify. The figure for packages yet to be let is included in the £211.2 million. It is included, on the table on page 3, within the cost plan value of packages still to be let, which is shown as £43.4 million.
So the £211.2 million is the best estimate—excluding landscaping costs—of what the project will cost.
Yes—before inflation that has yet to be incurred and before considering the outstanding risks. If we wanted to come to a notional best-guess figure for budgeting purposes, which is obviously what we try to do, we would add to the £211.2 million the £21.67 million for outstanding construction and design risk and the £8.1 million for inflation yet to be incurred. That gives a total of £241 million.
So, at the moment, that is your best guess, allowing for the fact that things can go up or down.
Yes.
Landscaping costs do not come out of your budget but are paid for from the public purse.
That is correct.
At the top of page 2 is a list of sums that are
They were already being anticipated by the time that the report was made to Parliament last June. That accounts for the fact that the forward projection of risk that was made at that stage—£26.3 million—has now gone down to £21.67 million. In effect, the risks that were foreseen have now crystallised into actual expenditure. Some had been foreseen a little while before and some became clear only at that stage.
Will the complexity of the building design cost us more money?
In so far as it will cost us more money, it already has done. In the table at the top of page 2, the £460,000 against "Node Cover" is part of that. As was said in the June report, there will be about £3 million of additional costs on that package. That was an underestimate against the final design.
I would like clarification on the packages still to be let. The last paragraph on page 2 says:
That is correct.
Does the difference between those two figures—about £19 million—represent what you describe on page 2 as
That is right. By the time we report to you again in about January, we expect that almost all the major construction packages, which amount to roughly £24 million, will be tied up. The other packages are less prone to risk and are of smaller value.
The figures on the list on page 3 are at 1998 prices. What is expected to happen to the figure of £43.4 million when current costs and inflation are taken into account?
We say that £8.1 million is the current estimate of the additional premium for inflation on top of that £43.4 million.
Is the figure of 14 per cent taken from 1998 to date?
Quarterly, the cost consultant works out what the prevailing rate of inflation may have added between 1998 and the time when the packages are expected to be let. The 14 per cent figure is an average from now to the end of the project. Obviously, a package that is let in two months' time will have less inflation to be added on than one that is let in a year's time.
I see—and the average figure for those lets is 14 per cent.
Yes.
I would like to ask about Queensberry House. I see that the roof has been removed and is being repitched. Has that been done for safety reasons? Did the roof have to be replaced anyway, or did you want to restore it to its original design at the request of Historic Scotland?
The pitching of the roof was not to do with Historic Scotland. The additional storey was added much later than the original date of the building—during its military period.
Yes, about 200 years ago.
The work that is going on will return the building to its proper roof line. That is being done for design reasons as well as for renovation reasons. The architect wanted to do it and the client has fully supported that.
The quality of the roof was completely inadequate.
That is really what I am asking about. If the roof had to replaced anyway—
It did. It did not have proper tiles or anything. It had to be replaced, and a decision was taken to do so. As you say, bits have been added to Queensberry House over the years, so what the original really was has always been a difficult question to answer. We took the best advice on what would be an acceptable restoration and we decided to change the pitch at the same time.
The top floor will be usable, despite the return to the original pitch. I presume that it was modified for good reasons and that, 200 years ago, people thought that it was appropriate to do so.
The building will have a fully usable top floor.
In contrast to what it was like when we got it—it was a mess.
It will be interesting to see how much the restoration of that list A building has cost as a separate entity. It has been responsible for part of the additional expense.
When we pull together all the accounts, we will have separate figures and we will be able to identify what Queensberry House has cost.
Can we have it on the record that the wild cost estimates of £300 million that some architects have published in certain books can now be put to rest as fantasy?
Certainly, on the basis of our current estimates, we do not recognise those costs.
The risk elements obviously include any client body decisions—in other words, changes that the client has asked for since the process began. Is there a figure for that?
No. In fact, we have explicitly excluded from the forward projection of risk anything that might be incurred through client body decisions, largely because the SPCB and the progress group both take the view that the time for such decisions is past. We have a settled brief with which we are happy. We now consider that any minor changes that individual MSPs or staff want to make to their accommodation are best done post-occupation. I certainly do not expect any dramatic changes on the part of the client.
Let us consider the history a little. Once the packages began to be let, how much additional spending did the client body request?
I cannot give figures, but there have been no substantial changes since major works packages were let.
Substantial changes occurred earlier, when there were major issues with the chamber and the size of the accommodation. The Parliament project increased considerably in size once the Parliament came into existence and we had to consider staff needs, for instance. All that information was available at the time of the Spencely report, which was largely before major works had begun on the building. Client body decisions do not particularly affect the construction of the Parliament now.
So all your requested designs were incorporated before the Spencely report came before Parliament for the vote on the £195 million.
That is not entirely correct. The design process involving the progress group and the designer continues. All sorts of little changes take place all the time. They are not major changes, such as would happen if we wanted another floor or more rooms. I do not think that there has been anything of that sort since the Spencley report.
The way in which the project team manages the change process ensures that, as the committee would expect, any change at all is fully costed before a director signs it off. We always quantify what, if any, costs are associated with making even a small change, such as the recent one to do with the number of clocks in the debating chamber. Certainly, in my time as project director, the changes have always been very minor.
The only major change that has arisen is the change to Queensberry House that Dr Simpson mentioned, which was not anticipated at the beginning.
The change to the roof has been included for years now. The reconstruction of the belvedere tower, which is mentioned in the table on page 2 and with which members are probably familiar, is a cost that the Parliament agreed to take on in response to representations from Historic Scotland and the City of Edinburgh Council. That is therefore, technically speaking, a client body change. The cost associated with that change is shown in the table.
Such a design freeze is essential to allow a project to be taken forward.
I will ask about the risk register, which, I read in your submission, is "a fluid management tool"—a handy thing to have. The submission says at one stage that you have
As is stated in the annexe to the paper—which repeats things that we reported in June—there are two different kinds of such risk: design risk and construction risk. We are well through the finalising and letting process. It looks likely that most of the design risk that was foreshadowed in June is coming to fruition. Inevitably, at this point in a project, we encounter a tension between cost and programme. If a design that has been fully worked is tested in the market and comes in over budget—as has been suggested in the risk register might happen—the client has to decide whether it is better to spend four weeks redesigning it to try get some money back, which inevitably has a cost to the programme, or to press on. Because the client takes keeping to programme seriously, the chances are that the rest of the design risk in the risk register will crystallise rather than disappear.
Thank you. As I understand it, most of the outstanding packages will be let over the next period and certainly before you produce the next quarterly report. That will obviously bring a lot more clarity. We may ask you to speak to us again at that point.
We have indicated that we will return with a further report once the fresh assessment is before us. We will be able to firm up answers on some of the matters on which Sarah Davidson has given information to the committee.
That would be acceptable to the committee. I thank you all for coming.
Meeting continued in private until 11:55.