Good morning everyone and welcome to the Finance Committee's second meeting in this session. I ask people to ensure that mobiles and pagers are turned off so that they do not disrupt the committee's proceedings. Bill Aitken and Margo MacDonald are with us as non-members of the committee. I understand that Brian Adam may also join us.
I saw him in the lift.
But what did you do to him in the lift?
Okay. Our first agenda item is the committee's on-going scrutiny of the Holyrood building project. We will take evidence from witnesses: Paul Grice, who is clerk and chief executive of the Scottish Parliament; Robert Brown MSP, who is a member of the Scottish Parliamentary Corporate Body; John Home Robertson MSP, who is the convener of the Holyrood progress group; and Sarah Davidson, who is project director of the Holyrood project.
I thank members of the committee for agreeing to see us this morning. I would like to make a few comments by way of introduction.
Thank you very much, Robert. I am sure that you appreciate that, given the strong expectation that there would be no further significant rise in the cost of the project, there is widespread anger that the cost has increased. I make it clear that that is the committee's initial view.
As a new member of the committee, I suppose that I am in the fortunate position of not having had to listen to all the previous assurances. The members of the committee who have had to listen to such assurances on an on-going basis must find the situation very depressing. I suspect that nothing that I hear today will make me feel any better about the way in which the project has been handled. The project's mishandling has been a disgrace and the biggest issue that has brought the Parliament into disrepute during the past four years.
I will put it this way. We did not fix the framework within which the Parliament operates—we inherited it in June 1999, when we took over the project. At that stage, our predecessors had chosen the site, the contract, the design and the architect. It is not helpful to seek to blame people in our discussion. We should be talking about controls, mechanisms and better ways of doing things.
My point was that, although the building is not the most complicated building in the world, it is probably the most out-of-hand building in relation to finances and time scale.
I will ask Sarah Davidson to talk in more detail about the complexity of the project.
I would like an answer to the second part of my question, which was whether you can give any guarantee at all about the cost.
I have tried to explain that the cost is determined by the contractual arrangements into which the Parliament and those who were previously responsible for the building entered. That means in effect that, once the button was pressed at the beginning, implications flowed from that point. Today we are giving members the best estimate that we can of the final cost, based on the professional advice that has been given to us. We are not professionals; we have to rely on the advice from the professional advisers to the Parliament on the contract that was set up. Our estimate is as precise as possible at present. As we get nearer to completion, the figures will gradually become more certain.
Robert Brown has covered part of what I want to say. I cannot give offhand comparisons with other buildings. However, at the meeting with the corporate body last Tuesday, the construction manager, the cost consultant and the architect—all of whom represent some of the largest firms in their fields—said independently that they had never before come across a project of such complexity. Many of the difficulties that they found arose not only as a result of trying to do complex things, but because of the delays to the programme and because they have had to work on complex aspects of design and construction right across the site on all faces at the same time.
Let me summarise the answer to Kate Maclean's second question: today's estimate is the best that you can give us and no absolute guarantees can be provided.
I gave notice of my questions at 8 am this morning and I e-mailed them to all the witnesses. I will not have time to ask all those questions so I hope that I can receive e-mail responses to them later. George Reid made the welcome announcement last week that, on his initiative, he had capped fees. My first question is to Robert Brown. Could you not have capped the fees earlier?
There is a time and a place to do those things. We capped fees with the structural engineers at an earlier stage because that was appropriate—the structural engineers were much nearer to finishing their job. I am a layman, but I do not believe that it would have been possible to get agreement to cap fees at a significantly earlier stage. The situation from the point of view of the consultants is that they will ask how long they have to go until the end of the contract and what risks affect them. George Reid and the corporate body seized the moment well when they obtained the cap on fees and we now have an agreement in principle that has happened at the right time. It could not have happened any sooner.
I will add briefly that the negotiations to cap fees had already been entered into with the architect. When the progress group received the alarming report of late increases to the construction costs, we took the view that it would be outrageous to pay fees on top of that whack. It is important to underline the fact that the consultants are contractually entitled to charge their fees. When the proposal to cap fees was put to them, they were under no obligation to accept it. I welcome the helpful response that they gave to the Presiding Officer last week.
The previous Presiding Officer did not even seem to ask for any reduction in fees.
That is not correct. Negotiations have been under way for some time and were dealt with in the Auditor General's report—
When were the negotiations started?
Way back. Negotiations had been under way for some considerable time before the immediate issue arose. The fact of the matter—
When were they were started?
Every time there is an increase in construction costs, there is negotiation with all the consultants over the fee. The fee is very complex. It is made up of different parts that relate to different sections of the whole project, which we cannot go into at this time for commercial confidentiality reasons. However, negotiations have always taken place with every consultant in relation to their fee. I cannot think of a time when there have not been on-going consultations over fees.
The fee arrangements are set out in the contract, a copy of which is publicly available. The level of fees was set out in the Auditor General's report of September 2000. The fees were made public and I have the table of figures here. At that time, the latest approximate forecast outturn cost of Bovis's fees was £11 million. How much is Bovis getting now?
I do not have the breakdown of individual consultants' costs with me. Under the contract, that information is commercially confidential and we could make it public only, as the Auditor General did, with the agreement of the individual consultants.
I have examined the contract and no clause in it says that we are not entitled to publish the level of fees.
The previous Presiding Officer indicated at some point, in correspondence with Mr Ewing, that it would be the hope of the Parliament, once fee negotiations were finally settled, to make available information about the fees that had been agreed. I understand that that is still very much the hope of the current corporate body.
I am really trying to get to the facts here. There is no legal impediment to publishing the level of fees that every consultant is getting, is there? The former Presiding Officer took a decision, but the current Presiding Officer can scrap that and publish the fees. I sincerely hope that he will, because how can we have openness—as the First Minister has promised—if information is being kept from the public?
Our understanding is that there are commercial confidentiality issues. To answer Fergus Ewing's question so that the committee is clear, the position from here on in is that the corporate body and the consultants have agreed in principle on capped fees to the end of the project. We will be negotiating intensively with the consultants over the coming period. When we have the results, we will report to the corporate body. We will discuss with the consultants whether, on an individual basis, we can make information available. We will certainly make the global figure available on fees and we will certainly discuss with the consultants what their position—
I ask Paul Grice, the clerk and chief executive of the Scottish Parliament, to come back to me in writing to answer this specific question: is there any legal impediment to the publication of the consultants' fees—yes or no? Could I please have the answer in writing some time soon?
I am more than happy to write to Fergus Ewing, and to copy the letter to the rest of the committee, to inform him of the advice that I have received from lawyers on the commercial position with respect to all the contractors.
On a point of information, convener. In the Finance Committee's meeting on 11 February, Sarah Davidson told us:
I am more than happy to pick up Margo MacDonald's question. In the past—and we would certainly do this again—we have reported the global position. There is no problem at all with telling the committee the position of fees overall. The problem is simply breaking that down by individual consultants. My understanding is that issues of commercial confidentiality arise. I am happy to undertake to Fergus Ewing that I will look into that. Any advice that I give to him I will most happily copy to the rest of the committee.
The figures on total fees are available for where we are now. The increase was made clear in the Presiding Officer's letter.
In correspondence that we have had from Robert Brown before, he has said:
I am in no doubt that, at the end of the day, the figures will be available. They will certainly be available to the reviews. However, while the contract is on-going, we have the issue of commercial confidentiality. The advice that I was given was that there would be difficulties and that we would require the agreement of the contractors to release that information. We will sort that out and come back to the committee, if we may, with a clear statement on that point.
We have heard of Robert Brown's anger and Mr John Home Robertson's alarm. In addition, in his letter of 10 June, the Presiding Officer said:
I can answer as far as the progress group is concerned. The convener has already alluded to this, so members will recall that Davis Langdon & Everest—DLE—reported to us and, indeed, to the corporate body, that the topline figure of £338 million would cover the cost through to completion. That was reported again to the progress group on 26 March. However, contingency moneys were being spent at that stage. In reply to questioning, the cost consultant told the progress group that he was satisfied that the topline figure stood and that he was not seeking to revise it at that stage. The same topline figure was reported to us again in May. The progress group received the report of the £18.7 million increase—plus consequential fees—at its meeting on 4 June. The papers for the meeting were circulated on 3 June. That was when we got the information about the increase. I do not know whether Sarah Davidson got that information earlier.
To an extent, I will repeat what John Home Robertson said. The cost consultant reported regularly throughout February and May to the progress group and the project team. Each report indicated how the construction cost was increasing and how the risk reserves against that were decreasing. In that respect, there was no significant movement over that period.
Was the clerk of the Parliament aware of that as soon as Sarah Davidson was?
Yes. On 22 May I became aware that there was a big problem. I received a formal report from the progress group on 4 June—the progress group reports to the corporate body through me—but I was made aware on 22 May that something had gone seriously adrift.
Because of the anger that has been expressed by people from the Presiding Officer down, the sensitivity of the issue and the mix of processes that elected representatives have to understand, it is important to communicate such information even if, as John Home Robertson said, alarm bells are ringing. We need to have a further look at whether the process was handled competently from early notification to the final figures being presented and to today's meeting.
We have to go back to the way in which information is made available. Earlier I made the point that the people who are running the project and giving us professional advice on the costs as they come up are the construction managers and the cost consultants. My colleagues will correct me if I am wrong but the cost consultants seem to take the view that they are not prepared to give formal reports and precise figures until they see formal programmes. The corporate body and the progress group take the view that an international firm of cost consultants should be prepared to give us their best estimates, given that they know how such projects work. That is one issue, but I do not believe that there is an issue over the dates when the progress group was told about the problem or when the corporate body was told thereafter.
With respect, I am separating the corporate body and the progress group from the process. We are tasked with considering the project from now until completion. The committee has to have confidence that that will be handled appropriately. It is fair to ask whether the project director and the clerk of the Parliament are the people who should be handling the end of the project.
I will ask Paul Grice and Sarah Davidson to comment.
I can answer for both of us because Sarah Davidson operates under my delegated authority. Of course one considers one's position—it is only right to do so. I have done that on several occasions while I have been chief executive.
We need to move on. All members of the committee, plus the other members who have joined us, want to ask questions. We must have short, sharp questions and short, sharp answers whenever possible, please.
Convener, the project director did not have an opportunity to answer Mr Purvis's question.
With respect, it is clear that there is a line of accountability: the corporate body is legally responsible for the project and I have two responsibilities. First, I have delegated authority from the corporate body, which I share with the progress group under the terms of the Parliament's resolution. Secondly, I have a separate, accountable officer role, which is why it was fair to ask when I knew about the increase. That role is placed on me under an act of Parliament. Sarah Davidson and the rest of the directly employed staff on the project team, including the professionals, operate under my delegated authority. Therefore, there is a fair question to be asked of me.
The corporate body wants adequate methods of reporting, but it is significantly more important that we have in place adequate methods of control over any changes that are made under the contract and management of any claims that come in. That is what I was trying to say in the earlier part of my introduction. Those things are in place and are the responsibility of the client side. The driving forward of the job on site is the responsibility of the construction manager and the other professionals who are employed by the Parliament.
There are concerns about whether those things are working as effectively as we would wish.
Like most members of the committee and the electorate, I believe that the shattered reputation of the Parliament will not begin to be restored until we start to get some hard answers to these questions. I do not think that we are getting the answers that we should expect from such witnesses, who seem to be defending the status quo and not cutting to the chase or getting to the nub of the problems that we face.
I am happy to deal with those questions. Many stories emanating from the site have appeared in the press in the past couple of weeks; some are entirely fantastic and some have their genesis in misunderstandings or a misinterpretation of what is happening on the site.
Should not that issue have been addressed at the design stage, before the blocks arrived on the site?
My understanding is that, as yet, none of the components of the boundary wall has arrived on the site.
We have different information.
Two separate issues are involved. First, as Robert Brown alluded to earlier, the figure is the cost consultants' informed estimate of the claims that the contractors are likely to make. All such claims go through a rigorous assessment process, which includes consideration of the cause and effect of the delays that incurred the additional cost for the contractor. The claims will be paid only if the project team, on the basis of information given to it, is absolutely satisfied that they should be paid. In my view, it is likely that there will be room for pressing down some of the claims. As Robert Brown said, the clear steer from the corporate body is that, wherever possible, we should try to find opportunities to bear down on the claims, which is what we will do.
Perhaps you will answer one question. How much money has been saved through the capping of the consultants' and architects' fees?
We have not begun those negotiations, but we will report back to the committee on their outcome. We will be looking at the broad picture of the fees.
Will the figure be £10 million or £15 million? Can you hazard a guess?
Although it is tempting to hazard a guess, you wanted hard facts, which I accept. It is best if we come back to the committee when we have hard figures.
That would be helpful.
Half of the £37 million is for fees and VAT. Members know that we are entering into negotiations on the fee element; our aim is to depress the figure as much as possible.
I want to probe a little more deeply into the annex to the second letter to the committee from the Presiding Officer, who had instructed a breakdown of the additional £18 million of construction costs that have been identified. The annex contains five estimates of construction costs or possibilities. For example, I draw members' attention to the figure of £5,869,000 for
You are absolutely right: you have put your finger on one of the perennial problems in cost reporting on the project. The way in which construction management is reported against—package by package, giving the tender price agreed and then any negotiated addition to that—gives an impression of slightly spurious accuracy, to a single pound or penny. You are right to suggest that care should be taken with those figures.
I appreciate that you do not know the exact extent of the claim until it has come in. However, the role of the Finance Committee is to look forward and evaluate the risk.
The short answer is yes, but the more expanded answer is that those figures contain an element of various degrees of risk. We can certainly break things down and show ranges. We can show what the figure would be if the expected completion date of an individual contract were met, and what it would be if that individual contract were to slip by a certain point. Again, we have to bundle the figure at the moment in order to protect our commercial position, but we can do what is suggested quite easily.
The issue relates to the meaningfulness of the tools that we use. Can the issue be considered further?
A fair point has been made about how we forward reports. If we can express figures as ranges without undermining the cost consultants' negotiating position with individual contractors, we will certainly do so. I take the point about apparently giving accuracy that does not exist. We will consider the idea of ranges and, if possible, report on that basis in future.
I want to ask a supplementary question that is linked to what Elaine Murray has said. How much design work has still to be done in the process leading up to completion? The point has been made that design complexity is one of the key sources of difficulty.
It should be remembered that there are different sorts of design. We are not talking about the conceptual design and the architect's drawings, but about more detailed matters to do with manufacturers and so on. Perhaps Sarah Davidson can say something about the extent of the remaining issues.
Robert Brown is absolutely right. Unlike under a traditional contract whereby not only is the entire building designed before it goes to site, but all the buildability issues are designed and understood, under a construction management contract, packages are managed individually, as members know. Therefore, when one comes to a site to complete the construction, issues arise relating to interfaces and junctions between different components. Contractor A and contractor B may have designed exactly what they were expected to design, but when they come together, there is a tolerance problem through no fault of their own. Such detailed design is on-going, but is almost entirely complete. Most of the design that is happening on site is exactly the kind of design that one would expect to find at this stage of resolving problems.
Is it possible to quantify the areas of construction for which design has not yet been completely finalised?
The progress group asked that question yesterday. The one area of outstanding concern in respect of specialist contractor design is the completion of the external glazed public stair, which will take members of the public from the foyer up into the committee rooms and the debating chamber. Some completion of specialist contractor design has still to be done on that element, but other than that, all areas of such design are complete.
Projected costs are now 100 per cent higher than they were forecast to be in April 2000. I want to mention three priority areas. The first—itemising and listing the lessons to be learned—will largely handled by Spencely, the Auditor General and the new inquiry. Therefore, it falls to us to consider two major areas in which we can add value: cost containment and possible cost recovery. On cost containment and fee capping, why has there not been a similar attempt to cap or limit expenditure in other areas of the project, such as in site running and construction management costs, which are projected to rise by a further £8.25 million?
Part of the fee negotiations will certainly include fixed staff and fee costs in respect of the construction manager. Many site organisation costs are fixed as they have been sub-contracted to contractors and so on. As part of the fee negotiations, I assure members that we will certainly consider those elements that we can consider. We are talking about the principal costs in addition to where the main pressures are coming through on individual packages, the approach to which we have explained in some detail.
I would like to put a proposal to you that might intrigue you and illuminate matters. If we had a detailed schedule of recipient suppliers that showed the breakdown of the £190 million at April 2000—that is, who was receiving what at that time within the £190 million budget—and a separate column that showed what the component figures are now uplifted to as part of the £375 million, would that encourage people to take a more conciliatory approach in negotiating the upgrades in their costs?
First, let me say that I am hoping for a conciliatory approach to that and we will take with us the Finance Committee's views as well as the Scottish Parliamentary Corporate Body's views.
We should bear in mind the lower marginal cost, given the fact that companies already have plant, equipment and personnel in situ. The cost of an extra day or so would be marginal.
I take your point. When we do the fee negotiations, we consider such elements specifically. I must say that I have had only positive indications from the lead consultants on their willingness to enter into the negotiations. We will proceed on that basis. We will definitely consider such issues as the number of people on the site and how much they are being paid. That would be a fundamental component.
On the issue of cost recovery, I point out that Westminster has experience of other cost-plus contracts. My memory goes back to the Ferranti contracts of the 1960s, when the motivation to cut back the budgets when they overran was somewhat limited. Has any homework been done on what the Treasury did to help the Ministry of Defence fulfil the rest of its budgetary requirements at that time? Is there a precedent there that could help us? If not, could a case be made to Westminster to close the gap between the current cost of £375 million and at least the £190 million that was estimated in April 2000?
It is difficult for me to answer the second part of your question, as it contains a political dimension.
While it is true that having an incentivised element in the original contract might have helped, I do not think that the principal consultants have a vested interest in prolonging the process, as the embarrassment to the Parliament is matched by the embarrassment to the consultants. That is a significant pressure on them.
They have an interest that runs to millions of pounds.
I accept that.
We should move on; I am anxious that we get through as much as possible.
Before we do, I want to mention something that arises from Mr Mather's first question, which related to ways of bearing down on site management costs. The best way of doing that is to get the job finished as quickly as is humanly possible. Every week that the site remains active costs us a lot of money. The more quickly we can drive the project to completion, the more quickly we can get the cranes, scaffolding, canteens and so on off the site. That should be our top priority.
I want to ask two brief factual questions. In June 1999, when the project was inherited, what was the estimated floor space?
About 21,000m2.
And now?
It is about 30,000 m2.
The type of procurement contract has, rightly, become a matter of some controversy. Some of the puzzlement out there is due to the fact that, in the commercial world, if, four years ago, a flagship project with the sort of contractual risk that is being cited today had been inherited, consideration might have been given to renegotiating that contract. I wonder whether anyone ever sought legal advice on the options for renegotiating the contract—for example, converting to a fixed price at the point at which the design was finalised—and, in that regard, whether the Presiding Officer, the project team, the progress group, the corporate body, any finance minister or any First Minister sought legal advice on the contract and the options for renegotiating its terms.
I am not entirely convinced about legal advice. Clearly almost anything can be renegotiated subject to agreement on both sides, but the question is what the price would be. I know that from time to time consideration has been given to the question of fixed price contracts. Of course, the difference there would be that the risk would lie with the main contractor or whoever took on the contract. All the indications are that we might have ended up—at a much earlier stage of the contract, admittedly—with a significantly higher price than what we are getting at this stage on this contract.
Not really. It is certainly a matter that has been considered. I could not tell the member whether detailed legal advice was taken. One point that is worth bearing in mind is that the contract was tendered on the basis of construction management, which meant Bovis acting as our project manager. A lump sum contract main contractor is fundamentally different. It is not just a question of asking "Would you put a cap on it?" It is a very different type of procurement.
The issue may be more appropriate for other places, so I will not pursue it here. I simply observe that, when a project has inflated almost four times in the past four years, it begs the question whether, once the design and the floor space had been fixed, if the risk of the contractual structure was apparent at any point, anybody explored a different sort of contractual arrangement, or considered what the appropriate contractual arrangement would be.
I will comment on that, as a member of the corporate body from an early stage. As non-experts, we began to be increasingly concerned about the contractual method and the way in which it was dealt with. As Wendy Alexander can probably imagine, if we stopped the whole ball game and went for some sort of public thing, the risk element that would have piled on to any contract price would have been enormous in any view of the matter. As you said, rightly, it is up to others to judge on that, but my view, as a total layman in this matter, is that it would have been highly unlikely to have produced an advantageous arrangement to the Parliament, by the time that we took it over.
Robert Brown mentioned non-experts. I appreciate Paul Grice's candour, and I think that it is important that the whole process is not characterised by witch hunting. However, given the risks of a contract in which the risk is borne by the procurer of the project, there are anxieties about the wisdom of investing project leadership with people who do not have extensive experience of the construction industry and ensuring that that is available to the project team.
That sort of question shows the difficulty that we all face in trying to finish the job and simultaneously conduct inquiries into what has taken place and the price issues that are involved. The reality of the matter is that Bovis Lend Lease is our construction manager. It is employed specifically to drive forward the project and manage it to completion. It is in the centre at the moment to do just that. The corporate body has invested Bovis Lend Lease with the necessary authority to ensure that it can deal with the contractors and designers and drive the project forward to completion. It would be unhelpful, frankly, to make any public comment one way or the other on the question that Wendy Alexander has understandably—but with some difficulty for us—raised.
Good morning, all. I come here with clean hands. I am a new MSP, as are three other members of the committee.
Come on, John—you need to ask a question, not make a lengthy statement.
Right. We read things like £14.2 million or thereabouts for landscaping. I come from East Kilbride. We could landscape the whole of East Kilbride for £14.2 million. I understand that the building is getting bigger. I do not know whether it is growing vertically or out the way, but if it is growing out the way, that surely cuts down the scope for the landscapers.
Your question, please.
That is a fair comment.
We have answered that to the best of our ability. November 2003 remains the target date. It is still possibly achievable, but may slip by a week or two beyond November.
It is worth reminding members, particularly those who are new to the committee, that this project was referred in its totality and with associated funding from the Scottish Executive to the Scottish Parliament. As such, since that time, the project has been taken on and managed by the Parliament.
It might be helpful if John Swinburne and other members had a look at the site, because they could see for themselves where the direction of the road between Holyrood Palace and the site has been changed and the steel work that is in place. I am sure that the people in charge of the site would be happy to show members round it.
I want to pursue one or two issues that arise out of that matter. First, is it intended that the £600,000 in landscaping contingency costs that have been identified will transfer as the previous £14 million did?
Yes. Since the transfer of the £14 million, the matter is now in the property of the Scottish Parliament, which means that the £600,000 additional contingency costs against that do not have to go through the transfer process. It is automatically an issue for the Scottish Parliament to manage.
The proposed date for the end of the construction period is November. Have you quantified what the additional costs per week or per month might be if that date were to drift by a month or two? Is it possible to make such a calculation?
I think that the costs of going beyond the date by up to a month or possibly two months have already been factored into the costs that have been identified. John Swinburne, rightly, spoke about what would happen if the date for the end of the construction period were to go beyond November. Both Robert Brown and John Home Robertson have made the point that the best way of bringing about cost certainty is to drive the programme forward.
That comes back to my response to Elaine Murray's question about showing ranges. The range that we will present will reflect ranges of the risk that attach to completion dates.
For clarification, the range of uncertainty is from November to the end of January. That gives us two months of risk.
As I understand it, that is reflected in the costs in the report. Going beyond that date would be the key driver to further cost increases, which is why everyone is so anxious to drive the project to completion from here.
I have a further supplementary, but I think that Fergus Ewing has a question.
Like Robert Brown, I visited the site yesterday. Although I am not involved in the construction industry, I would be astonished if the building were practically complete by the end of this year. You said that you were 95 per cent certain that the cost would stay where it is. In percentage terms, how confident are you that all the building will be practically complete by the end of this year?
I am not giving you my assessment of the matter; as a layman, I have no view on it. Instead, I am giving the committee the professional advice that we have received. I had some discussions with the people down at the site yesterday—I am sure that Fergus Ewing had similar discussions and it was evident that one could distinguish different bits of the building. The MSP block and Queensberry House look likely to be finished quite soon. They are well on their way to completion; I think that the last bits—
But the chamber and the boundary wall will not be finished soon.
The boundary wall is a different issue altogether. We have already made it clear that that is an area of some difficulty. The towers and, I think, even the chamber will make a significant visual move forward as the workmen begin to take down the scaffolding and work from the roof downwards to finish things. I am reasonably encouraged by the potential of the situation. Beyond that, I cannot give any other assurances. All I can say is that the information from our professional advisers on this matter is exactly the information that we have given to the committee.
The costs of fit-out and of migration to Holyrood from the current site are factored in to be budgeted for in this financial year. However, if the migration does not happen before Easter, the expenditure could be incurred in the next financial year. What consideration is being given to that in budgetary terms?
We are looking closely at that. The problem is that, until we decide on migration, it is hard to see where the costs will fall. If the building is completed even by the end of January, we will probably have begun migration before that. Things such as the boundary wall would not necessarily impact on starting to move staff down to site. We need to have a detailed discussion on migration with the corporate body, probably in the autumn, at a point when people really begin to feel confident about completion. It might be best to come back to the committee at that point. On the current programme assumptions, however, migration would fall largely in the current financial year, so most of the costs would fall before the end of March 2004. If that programme gets derailed, we would clearly have to come back to you. We could probably give you a more meaningful report in the autumn, once the corporate body has taken a firmer view on the migration timetable.
I agree with Elaine Murray that the committee's purpose is to try to look ahead. However, lest we add to the mythology surrounding the project, I would like to put one or two things right. I see no basis at all for Robert Brown's assertion that a different style of contract would have resulted in a much higher cost building. Comparable buildings in Edinburgh are sitting at about a third of the cost of the Holyrood building.
There are no comparable buildings in Edinburgh; that is the difficulty.
With all due respect, let us not go into that. If we look at the footprint of the Scottish Widows building, for example, and compare it with the footprint of the Scottish Parliament, we find that Scottish Widows is bigger and it cost £68 million plus information technology costs.
Ask a question please, Margo.
That is my question. Did anyone know before 1 May that that £338 million figure was not sound? Was no one on the corporate body informed? Although the MSPs were fighting an election, the corporate body continued and was still the client for the project. Did the cost consultants keep the corporate body informed?
Let us hear answers to those two questions, and then I will let Margo MacDonald come back.
I will ask one local question on top of that, if the convener does not mind. Have the discussions with City of Edinburgh Council been completed as regards who will pay for the road improvements and alignments? The last I heard, that was still under discussion, but Sarah Davidson gave the impression that that issue had been completed.
That was three questions. Perhaps Robert Brown will respond first.
I welcome Margo MacDonald's comment that we should now look ahead, which is the job of the Finance Committee in this context. I disagree with some of the points that Margo MacDonald put on record, but this is not the time and place to continue that discussion.
Let me clarify that my earlier reference to the road was to do with getting partial possession of the road so that works could go ahead on the Canongate. That is a separate matter.
So the council will pay for the road?
It will be funded through the Scottish Executive.
I want to be clear about the answer to who knew what and when. There is some slight uncertainty about that. Could the answer to that question be reiterated?
John Home Robertson can answer for the progress group, but I will answer for the corporate body. I attend every meeting of the corporate body, which met once during dissolution to deal with matters. I can give the committee an absolute assurance that members of the corporate body were not told any information. Principally that was because I did not have any information to tell them. They were certainly not on the campaign trail with the information that became available to them in May. The corporate body met once and I attended the whole meeting. The corporate body was certainly not given the figures that have since come out.
I express my shock that a 10 per cent increase should be recorded in those three or four weeks during which people were not informed by the cost consultants. Presumably, the cost consultants can make an estimate only on what the construction manager tells them and the construction manager can make an estimate only on what the designer tells him.
Margo MacDonald is not alone in being shocked at that.
Can you explain that time gap?
The cost consultants report to the progress group regularly. They report at every one of our fortnightly meetings. A leaked copy of part of our minutes for our meeting of 26 March confirms that DLE stood by its £338 million at that stage.
With all due respect, this is a 10 per cent rise. We can all understand a 1 or 2 per cent drift, but not a 10 per cent rise in the short period that we are discussing. Who made a mess of things in that short period?
We made the same point very forcefully at the meeting of 4 June. It has since been pursued by the corporate body and the Presiding Officer.
The version of events that we are being given is that the information that came from the cost consultants to the progress group in the period running up to and immediately after the election focused on the original figure of £324 million plus £14 million. In response to an earlier question, Paul Grice indicated that his first intimation of a potential increase came around 22 or 23 May and that that information was forwarded to the progress group on 4 June.
Information does not flow from me to the progress group, but in the other direction. Sarah Davidson indicated to me that things had gone badly awry, but there were no numbers attached to that. The numbers emerged a week or two later. The process was that I received a formal report from the progress group, which was passed on to the corporate body within 24 hours. The corporate body made the report publicly available the same day.
It is worth coming back to the sequence of events that has been set out. Paul Grice's description of how the information becomes available is right. It is correct that the minutes show that the cost consultant reported repeatedly to the progress group that there was no change in the bottom line—in other words, any movements were from risk into construction. From the beginning of April, he also reported that when the Bovis programme was on the table he and his team would have to analyse that complex document very closely to satisfy themselves that the risk amounts would be sufficient to complete the project. As the leaked minute indicated, the progress group knew that there was limited scope for dealing with any new events that might arise and that were not yet on the horizon.
I want to pursue the issue that Margo MacDonald has raised. There is an issue relating to the sequence of events and reporting. We must also highlight the magnitude of the costs and identify the different elements within those costs. When you scrutinised the programme, item by item and line by line, did specific elements of the 10 per cent cost increase cause you particular concern or considerable surprise?
Those elements are broken down in the annex to the letter that we considered earlier. They consist of claims for particular delays, resequences and prolongation. As has already been mentioned, the size of the increase was a surprise to everyone. Even when the cost consultant talked about the potential risk attached to the programme, no indication was given at any point of a cost increase of this size.
We must press you on that issue. You now know what the main components of the increase are: on-going construction, outstanding claims and continuing design work. When the cost consultant indicated to you that there would be a 10 per cent jump, did you identify the reasons for that? Did you ask the cost consultant and did he provide an answer that made sense to you?
We have a complete breakdown of the costs. All the increased construction costs may be due under the contract. In other words, they are all attributable to delay, prolongation or disruption; none of them are attributable to increased scope or to fundamental changes. My project managers have examined where the costs lie and, having seen the revised programme, have confirmed that they lie against packages that include considerable disruption, prolongation and resequencing. In so far as we can analyse them, the cost consultants' estimates reflect significant changes in how the programme is being delivered. We will only really be able to satisfy ourselves that the costs are correct when it comes to claim-settlement time.
So are you saying that construction management did not allow for the resequencing of packages? Are you suggesting that that is where the biggest cost increase arose and that the escalation in cost was not design-led or design-inspired?
All the resequencing had to take place because programme 6b, as it sat on the table at Christmas, could not be achieved. When the principal consultants spoke to the SPCB last week, they all confirmed that, in their view, the programme was realistic when it was presented at Christmas time. In order to put forward a programme, the construction manager receives assurances from all the people who have to produce the different types of information that they can produce it within the time scale that the programme requires. Different people have to produce information—the design team has to produce it as do the specialist contractors. There is then an iterative process between the two as they come to agreement about the final design. There is then a manufacturers' quoted time and an installers' quoted time. All that information is challenged by the construction manager. When agreement is reached between him and all those parties, the information is ultimately fed into the programme.
I understand that.
In some instances, there might have been delays that were the trade package contractor's fault, in which case we would not expect to settle all the claim. As I said earlier, there might be wider issues about the provision of information, which will have to be considered in the round. If those come back to the design team or to any other party, we would expect to take them into account in negotiating with them.
I want to pursue the point further. John Home Robertson said that there was a leaked minute of the meeting of the progress group on 26 March. References from that minute were contained in Scotland on Sunday on 15 June. According to the leaked minute, at that meeting, weeks before the election, Hugh Fisher of Davis Langdon & Everest, the cost consultant, warned the progress group that the budget was under serious pressure. He said that only £363,000 out of £10 million of an accelerated budget was left. Was it not obvious to the progress group members then that there would be an increase beyond £338 million? I direct this question to John Home Robertson and Paul Grice. Was the Presiding Officer, the First Minister or any member of the Scottish Executive made aware of the contents of the minute before the election? Will it be made public now and why was it not made public at the time of the meeting, before the election?
Minutes of the progress group are confidential for the good reason that, at the group's discussions, it is necessary to be able to have frank dialogue between members of the group and the consultants. I hope that colleagues understand that we would not be able to conduct our business properly if detailed minutes were published routinely. I do not know exactly how much of the document was leaked and I deplore the fact that it was leaked, but given what I have seen already, I will quote one or two relevant sentences. Hugh Fisher of DLE
Was the First Minister, the Presiding Officer or any Scottish Executive minister made aware of the contents of that minute before the election?
No.
Is Mr Grice able to confirm that that was the case?
I can answer only for myself. I can state unequivocally that I did not show a copy of that minute to the Presiding Officer or to the First Minister. Given that I have no link to the Executive, there is no reason why I would show it to the First Minister. I am happy to confirm for the record that I did not show a copy of that minute to the First Minister, to any member of the Executive or to the Presiding Officer.
You are saying that it is your normal procedure not to show copies of the minutes of the meetings to the Presiding Officer.
The progress group has a role to play, which was established about three years ago. Its job is to oversee the day-to-day management of the project. It has a responsibility to me and to the SPCB to report to the SPCB as it thinks fit, and it discharges that responsibility with considerable care and diligence. That responsibility does not include sending the corporate body copies of minutes of the progress group's meetings; it does include providing a regular monthly report on cost and programme and appearing before the SPCB. That is the reporting mechanism that the progress group runs.
Did anyone else show the Presiding Officer a copy of the minute?
I cannot answer that. How can I possibly know what someone else might have done?
You are the chief executive and you are in charge of the project.
I cannot possibly say what other people might have done.
As the parliamentary authority, the corporate body would consider it a very serious matter if that sort of contact took place with the First Minister on such issues. I cannot answer questions about who might have shown what to whom. If such information came to our attention, we would regard it with the utmost seriousness. The parliamentary authority is independent of the Executive. Since its early days, the corporate body has been concerned to ensure that that remains the case.
Several members want to ask questions, but I will give Margo MacDonald a final shot.
My question is for Robert Brown. You were not informed that such a small amount of contingency money was left. Do you think that you should have been informed of that?
From the beginning, we have taken the view that the corporate body should be informed of significant matters that affect cost, programme and quality.
Was the fact that there was such a small amount of contingency money left significant?
I think that it was significant, given the pressures that have emerged.
So do I.
We can argue the toss about the time at which—
It was at half past 3 on 26 March.
From what I have heard, I am not sure that I would agree with that, but that is for other people to express an opinion on.
Although I am happy that we have returned to the line of questioning with which I began, I am anxious not to take the committee in a full circle. I mentioned the competence of the project management within the relevant period of time. I questioned the competence of the project managers and asked whether they would consider their positions, as that is a pertinent issue. However, I also want the committee to be concerned with the future and to ensure that such a situation does not arise again, either with the personnel who are here today or with different personnel. It is not for the committee to decide on who the personnel are.
We have discussed contractual extras and claims. I will ask Paul Grice to deal with your question.
The member is pursuing his previous line of questioning. I am satisfied with the Holyrood progress group, which has experienced, professional advisers, and with the Holyrood project team, which includes a mixture of professionals and others. It should be borne in mind that, contractually, we rely on Bovis, on DLE and on the design team to give us the professional advice. We should always be careful to preserve that line of accountability and liability; we should be careful about second-guessing people whom we have employed to give professional advice.
I am a bit concerned about the role of the cost consultants and how much they are being paid. It sounds as though they somehow noticed that there might be a problem on 26 March. Whether that was that there was not much money left or whether they could see that delays were going to incur additional costs, they set out to ask people about the consequences for the other contractors and, several weeks later, came back with five figures of rather dubious accuracy. Unless we can be confident about what the cost consultants are supposed to be doing and the accuracy of what they tell us, how do we know that a similar situation will not arise again?
I made the point earlier that the cost consultants are adamant that they can only give good financial information once they have the programme details to go with it. That is fairly obvious up to a point. Our argument with them is that internationally reputable cost consultants should be able, from their knowledge of similar projects, to give us more of an indication whether the programming is too ambitious, whether there are pressures that should be taken account of and whether the risk has been accurately identified. We have had those issues out with them, through the corporate body, through the progress group and at official level. That is the only assurance we can give the committee on that matter.
John Home Robertson perhaps emphasised those aspects of the vexed leaked minute that give some comfort to the progress group and the corporate body. However, others who read that minute might feel that potential problems were being flagged up and that people chose to ignore those indirect warning signs.
We would be happy to discuss that matter with the Holyrood progress group; however, I am bound to say that the more likely reporting mechanism is for the group to report to the corporate body in the first instance, as it has the legal responsibility. We get regular reports from the progress group at our meetings, although our role is more strategic.
To be honest, we have a problem here. In an earlier response, John Home Robertson made it fairly clear that those progress group minutes had to be kept confidential because of their nature.
That is the essence of what I want to discuss with the group.
The minutes are either published or they are not. We need clarity.
It would be impossible to keep full minutes of the meetings if they were going to be passed on in that way.
Because you were diddled.
Well, Margo MacDonald may say that, but it is always wonderful to be wise after the event—and there is quite a lot of that.
I spotted it at the time and that is why I lodged a motion of no confidence.
We received reports from the cost consultants and they said clearly that they were satisfied that they could live within the cost plan that had been set. Yes, the contingency moneys were being spent in some way, but one would expect that this late in the course of a contract. When the same person then came along with a completely different report a couple of months later, we were extremely alarmed. We immediately started asking very serious questions, as did the corporate body and the Presiding Officer. It would be outrageous to pay fees on the basis of a late hike in costs such as this, which is why we are concentrating on that issue. We are also considering other ways of bearing down on the costs. That is our duty and it is what we intend to do.
We are tending to come back to one issue, but Brian Adam has been waiting patiently, so I will let him speak.
Many people are concerned about the performance of the advisers to the corporate body and the Holyrood progress group. I am delighted that a cap has been put on fees for the reason that John Home Robertson has just given.
A contractual framework exists. Under it, if people breach their contracts, sanctions exist for damages. Sarah Davidson will give more detail.
I think that I covered some of those points before Brian Adam arrived at the committee. Each claim for delay or disruption that is submitted by a trade contractor is analysed to the nth degree to establish the reasons for the delay and disruption. If the individual contractor that submits the claim is deemed to be entirely blameless and simply to have suffered the effects of the actions of others, the Parliament, as the client, is required to pay costs. However, there is a process for tracking back through contracts to find where, if at all, there was blame for the disruption. Under each contract, there are arrangements for set-off, so things can be dealt with under the contract or through negotiations. In other words, if contractor A causes delays that mean that contractor B has an entirely legitimate higher claim against the Parliament, it is possible for those additional costs to be reclaimed from contractor A.
That seems to have been singularly unsuccessful so far. There has been a whole series of such cases. Why have we not reviewed the mechanism to restrict and bear down on additional costs?
That matter is probably outwith the corporate body's responsibility, but I think that it can answer the first part of Brian Adam's question.
I do not think that Brian Adam is in a position to make the comments that he made about how successful or otherwise we have been on the question of claims, because they have not been reported yet. As I said earlier—perhaps before Brian Adam arrived at the meeting—the £375 million figure for the overall cost is a prediction of an eventual cost that includes an allowance for presented claims or those that are known to exist. The figure does not represent the amount of money that has been paid out, for which the corporate body will receive, as time goes on, detailed reports on settled claims and all of that. Again, those will be made more widely available in due course. Therefore, it is premature to ask whether we have been successful on the question of claims. That will come out in the wash as the figures progress.
I cannot add anything to the breakdown in the annex to the Presiding Officer's letter. I do not have other figures at the moment.
On the contractual issue, the Parliament is the ultimate client, but for how many contracts is the corporate body the direct signatory and when were the contracts signed? I do not expect to be given the information now, but it would be useful if the clerk could be informed in writing about the number of major contracts that have the Parliament as the main client. Obviously, there is an issue about how much is done directly and how much is done by subcontractors. In addition, what discretion is there to prevent cost-creep by major contractors?
I will try to give you more detail in writing, but the situation is that the Parliament is in a contractual position with all the package contractors, of which there might be in the order of 70 altogether. That is the nature of construction management. They are not subcontractors to us; they are contractors to us.
How many have signed off the packages?
I think that about 15 have done so, and that 50-odd packages are still active on-site. Again, that brings us back to the immense complexity of the project.
So you have an idea of the claims that have been made from the signed-off packages.
Yes.
So you can work out the answer to the question that we asked: what is your strike rate for getting money back?
I do not have the figures to hand. The situation is slightly misleading at the moment because the tough claims will be those that are made near the end. As Paul Grice said, in the region of 10 contracts—perhaps slightly less than that—have been entirely tied up. It is the nature of the process that the earlier ones are the simpler ones. I have seen the total figure for the difference between what was claimed for all those contracts and what we settled for, but I cannot immediately recall the figure. We would be happy to make that available to the committee.
Things such as site investigation and archaeology are the ones that—
Do not go into archaeology. You should hear what I know about that.
Wendy Alexander has a supplementary question.
It is emerging that we clearly face the possibility of extra claims—whether of £5 million, £10 million or £50 million—and it is suggested that that is inherent in the contractual arrangements. It has made it genuinely difficult for everyone involved that provisional costs have been presented as final costs. On the issue of extra claims, how many of the contractual arrangements—the figure of 70 was mentioned—are susceptible to certainty and how many are cost-plus in character and therefore provisional? It would be most unfair if the team had to come back with extra claims that were thought to be inherent in the contractual arrangements. That is why it would be interesting to know what is the character of the 70 outstanding contractual arrangements, when those contracts were entered into and what risk is associated with them.
On 17 December 2002, while giving evidence in response to a question from Margo MacDonald about how many claims had been refused, Sarah Davidson said:
I know that claims have been settled in respect of the handful of contracts that have been brought to the complete final account stage. There is a global sum, but we would probably have to get the agreement of the individual contractors on what claim was agreed per contractor, although that does not mean that we cannot give that information. We can certainly give a global figure for those that have been settled.
On 17 December you went on to say:
We can make sure that that information is made available.
I go back to the meeting of 26 March, although I know that it is easy to have 20/20 vision in hindsight. The terms of the leaked minute suggest that the progress group should have been inquiring into several issues. John Home Robertson is the person who is most able to answer my question.
Not necessarily, but you can try me.
I want to know about the extent and depth of questioning at that time. From what I have seen in the press of the minute of that meeting, there seems to have been enough to trigger alarm bells. Although I have no hesitation in accepting what Paul Grice said about any earlier leak of the minute, it seems to be more than a passing coincidence that that meeting took place and then the First Minister, who until then seemed to be remarkably relaxed about the whole affair, was suddenly firing off a letter to Margo MacDonald, undertaking to carry out an inquiry and expressing his serious concern about the state of play of the project. Is that not remarkably coincidental?
You are trying to construct a conspiracy theory. It is a pure coincidence in so far as I can judge. Certainly I have never passed on any information to anyone else and I have no reason to believe that any of my colleagues on the progress group would have done so.
Before Bill Aitken pursues his line of questioning, I will give some information that might make that easier. I asked the First Minister for a review based on the Gardiner & Theobald report. It was to that report that he responded. I had absolutely no idea of what went on on 26 March—if I had had, you would have known about it.
I have a wider question to which a fairly brief answer will suffice. Bearing in mind the fact that the contractual arrangement that we appear to have got into has caused all sorts of grief, can anyone tell me—I accept that they may not be able to—of any comparable capital project that has been undertaken on the basis of such terms and conditions, in the private or the public sector, in the United Kingdom or anywhere else in the world? Could someone please tell me what the time limit is for claims? Is it bound by contractual law, in general terms, or is there a specific clause in this contract that changes the timing? It is imperative that we are able to identify as soon as possible exactly how much the project is going to cost in the final analysis.
Construction management was a Treasury-recommended contractual method when the contract was entered into. In June 1999, the Treasury altered its guidance on the sort of contract that should be entered into here, which is unfortunate as we were by then stuck with the contract. Paul Grice will answer the more detailed question.
My understanding—I will double-check and confirm if I have got it wrong—is that no separate time limit is implied in these contracts. In other words, the normal legal position applies and there is a considerable period in which to make claims. I hope that I can reassure the committee on that point.
So, you are saying that it may be some years before we get the final figure.
I believe that we have some years in which to make claims, if necessary. Until that process is through, we will not know the precise amount. We have a considerable period of time, which we will use if necessary.
My intention is to finish this session at quarter to 1, and I have a couple of questions to ask. However, Jim Mather has a question.
I have been looking at "Scotland's Budget Documents 2002-03 Spring Budget Revision", which announces that, from 1 April 2003, the rate at which the cost of capital charges is calculated has been reduced from 6 per cent to 3.5 per cent. Will that have any impact on the cost of the project?
It will not have an impact on the cost of the project. That is my understanding, but the Deputy Minister for Finance and Public Services will be here to give evidence in a minute. Capital charges affect our operating budget. The capital value of the building will have an impact on our operating costs, just as rates do. However, that is not a cost-of-building issue; it is an operating-cost issue.
One of the proposals in the previous budgetary assessment for the project was for £10 million for acceleration, and a capital allocation was put in place to allow acceleration. The table in the annex to the Presiding Officer's letter shows a series of costs that are all associated with delay. Is there an issue to do with whether the programme of acceleration was properly thought through and properly managed? Are there any liabilities attached to the way in which Bovis has constructed that process of acceleration and carried it through?
The question should also be about the designers.
I have some points to make about that, but I ask Sarah Davidson to deal with the issue of acceleration.
One of the points that came out clearly from the review of the programme is that there has been hardly any acceleration. I do not have the figures to hand, but there has been only a tiny amount of acceleration—in fact, there has been stacking of work and prolongation. We can take comfort in the fact that money has not been wasted on acceleration when the desired outcome of the proposed acceleration has not been achieved. Given the way in which the rest of the programme is envisaged, we do not anticipate the type of last-minute acceleration work involving throwing people at things that might have been incurred in similar building projects.
Acceleration is an issue—the witnesses raised the theme with the previous Finance Committee six months ago as an important issue for the programme.
At that time, there was a potential to spend a certain amount of money—a figure of £5 million or £10 million sticks in my mind—to achieve accelerations on site. Sarah Davidson is saying that it was not necessary to carry out those measures because doing so would not have had any advantage. If I recollect correctly, when the issue arose in the autumn, we said that the question whether to carry out acceleration would be a matter of judgment when the situation came to fruition. That has not been the way in which matters have gone because of various other issues, not the least of which were the difficulties with the bomb-blast proofing, which overtook the acceleration issue.
Are you saying that acceleration issues do not form a part of the revised budget?
A small sum—I cannot remember precisely how much—is held in reserve against the possibility of accelerating the internal finishing packages in some areas, but that is the only traditional acceleration cost in the budget.
Have we secured from Bovis a commitment to provide fully transparent accounting for the project, including a record of all its relationships with subcontractors? I realise that only the project director might have access to such information, but I also understand that, in negotiating construction contracts, some clients insist on fully transparent accounting from the project team, whereas others do not.
We have full access to all Bovis's files and, with our agreement, the Auditor General will also have full access to them, as he had at the time of the previous audit.
On behalf of members, I thank the witnesses for undergoing robust questioning. I suggest that we have a five-minute break before reconvening to deal with the next agenda item.
Meeting suspended.
On resuming—