"This major contract
has been significantly affected, for the contractor Mapeley in
particular, by the current economic climate. Mapeley benefited when
the property market was expanding but the economic downturn has
made the contract more onerous. HMRC must take a significantly more
astute commercial approach if it is to deliver value for money for
the taxpayer."
Amyas Morse, head of the National Audit Office, 3 December
2009
By transferring ownership or leases of around
60 per cent of its estate (591 properties) to a private contractor,
Mapeley, in 2001, the Inland Revenue and HM Customs & Excise
planned to reduce their running costs and had the opportunity to
save up to £1.2 billion by reducing the size of the estate.
However, in a report released today, the NAO concluded that the
merged HM Revenue & Customs has not achieved value for money on
the contract, as it had no long-term plan and has not obtained all
available savings.
The existence of the contract allowed for a smooth estates merger,
following the merger of the two departments in 2005. HMRC has the
flexibility to vacate up to 60 per cent of its estate over the 20
year contract, allowing it to save up to £1.2 billion. But it has
not recognised the contract as a major strategic asset nor
committed appropriate commercial skills to managing it. As a
result, the total possible savings available now amount to £900
million. To date, the contract has cost £312 million more than
originally forecast, as a result of fewer instances than forecast
of vacating buildings, unrecoverable VAT payments, and changes in
requirements.
To achieve savings on its estate, HMRC is now planning to vacate a
significant number of its buildings by 2011. This vacations
programme creates areas of specific financial pressure for Mapeley,
exacerbated by the economic downturn and falling property values.
HMRC does not yet have an agreed way forward with Mapeley. If
Mapeley were to default on the contract, HMRC could incur
significant one-off and ongoing costs.
The NAO’s 2004 report found that the Department secured a
competitive price from Mapeley but warned that good risk management
would be essential on the 20 year deal signed in 2001. However HMRC
has generally reacted to risks and issues as they arise rather than
strategically managing the contract. It lacks full visibility of
all the gains and losses that Mapeley has obtained from the
contract, which would be critical to inform any negotiations.
There is now a significant risk that HMRC will not achieve value
for money over the rest of the contract unless it strengthens its
management of the contract. There needs to be active management at
Board level and HMRC needs to develop an estates strategy. HMRC
should monitor overall value for money and form an effective
partnership with Mapeley.
Publication details:
HC: 30, 2009-10
ISBN: 9780102963298