HM Revenue & Customs’ estate private finance deal eight years on

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.

"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

Notes for Editors

  • The Inland Revenue and HM Customs and Excise merged in 2005 to become HM Revenue and Customs.
  • The Departments signed the contract with Mapeley STEPS Contractor Limited, and transferred the properties and leases to Mapeley STEPS Limited. Both companies are part of the Mapeley Group, which also has contracts with Abbey and the Identity and Passport Service, and has invested in properties that it rents directly, mostly to government, local authority and private sector.
  • The NAO report released today (at www.nao.org.uk/hmrcestate09) considers how the contract has operated, including how it has enabled HMRC to adapt to efficiency targets and economic changes. We examine the performance of the contract, HMRC’s management of accommodation changes and HMRC’s management of contract risks. The NAO also reported on the STEPS deal in 2004 (PFI: The STEPS deal, HC 530 Session 2003-04, 7 May 2004) and the Committee of Public Accounts reported in 2005 (PFI: The STEPS deal, Twentieth Report of Session 2004-05, 14 June 2005).
  • Press notices and reports are available from the date of publication on the NAO website, which is at https://www.nao.org.uk/Hard copies can be obtained from The Stationery Office on 0845 702 3474.
  • The Comptroller and Auditor General, Amyas Morse, is the head of the National Audit Office which employs some 900 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

Contact

NAO Press Office (Phil Groves)
Tel. NAO Press Office: +44 (0)20 7798 7400

PN: 59/09