MOD expects to secure significant benefits as a result of letting a PFI contract for the redevelopment of its Head Office Main Building in Whitehall according to Sir John Bourn, Head of the National Audit Office in a report presented to Parliament today.
As a result of letting a 30 year PFI contract with a net present value of £746 million to the Modus consortium MOD expects to obtain secure modern, flexible and improved working accommodation in Main Building whilst using space more efficiently. The deal will enable MOD to increase by 26 per cent the number of staff working in Main Building and to dispose of five of its 7 existing central London sites resulting in annual operating cost savings of £18 million. Following the redevelopment MOD Head Office staff will be concentrated in Main Building and the adjacent Old War Office.
Through the PFI contract, MOD’s contractor is incentivised to complete this major project by November 2004 without varying the cost to MOD and to then provide the specified standards of service. Only once the new accommodation is provided in accordance with the contractually specified standards will Modus be entitled to its full average annual fee of £55 million. Modus stand to lose £1 million in revenue for each month of delay. MOD is not required to pay Modus for accommodation that does not meet the specified availability standards even if it chooses not to use the space. In addition up to 20% of Modus’s facilities management costs are at risk if its standard of service provision is not satisfactory. The deal was better than the alternatives available to MOD in May 2000 when it signed the deal. The MOD expects to secure these benefits at a cost that is similar to the forecast cost of conventional procurement.