construction of quarry house - nao

NATIONAL AUDIT OFFICE

REPORT BY THE

COMPTROLLER AND

AUDITOR GENERAL

Construction of Quarry House

ORDERED BYTHE HOUSE OF COMMONSTO BE PRINTED29 MARCH 1996

LONDON: HMSO

HC 333 Session 1995-96Published 19 April 1996 f9.15

CONSTRUCTION OF QUARRY HOUSE

This report has been prepared under Section 6 of the National Audit Act, 1983

for presentation to the House of Commons in accordance with Section 9 of tbe

Act.

John Bourn

ComptroUer and Auditor General

National Audit Office

28 March 1996

The ComptroUer and Auditor General is the head of the National Audit Office

employing some 750 staff. He, and the NAO, are tota~y independent of

Government. He certifies the accounts of all Government departments and a

wide range of other pubtic sector bodies; and he has statutory authori~ to

report to Parliament on the economy, efficiency and effectiveness with which

departments and other bodies have used their resources.

CONSTRUCTION OF OUMRY HOUSE

Contents

Summary and conclusions

Part 1: Introduction

Part 2: Wig of the project

Part 3: Cost of the project

Part 4: QuaSity of the bdtig

Appendices

1: Chronology of key events

2: Organisation of the Department of Health and

Department of Social Security

3: Management responsfifities for the Quarry House project

4: Budgets and costs for the Quarry House project

5: Examples of ener~ efficiency measures tith a pay-back

period greater than three years

Page

1

7

11

19

30

42

44

45

46

47

~d ...........

Source: Benefits AgencyEntrance

Core

““””-%@~ ),,............

Attiuti Otice space

Qu,,rry HuusI!: East E,ltrarlc(! S~)urc(!: I)t)rcl][:sl[!r- 1.tdt)(!ttl:r I’llf)togr;il]t)(rs

West Entrance (;owyard atrium (paragraph 4.26)

.... ........

,)


Summary and conclusions

1 In November 1989, Ministers announced that a substantial amount of the

headquarters work of the Departments of Health and Social Security wodd

relocate to Leeds. The main aims of the relocation were to improve efficiency

through lower accommodation and salary costs and easier recruitment and

retention of high quatity staff.

2 Under a contract with NorWest Hoist, Quarry House, Leeds, was accordingly

constructed to accommodate about 2,100 staff of the Benefits Agency’s Central

Sefices, the Central Adjudication Service and the NHS Executive, The National

Audit Office examined the management of this project and its outcome.

Was the building completed on time?

3 Meeting planned occupation dates was a crucial part of the project. The

Departments succeeded in occupying the final phase of Quarry House by the

planned date of February 1993. They addressed au fire, health and safety issues

before occupation, but some building work remained outstanding

(paragraphs 2,7 to 2.10),

Was the building completed tithin budget?

4 At a total cost of E79,7 mi~on the Departments constructed and fitted out

Quarry House tithin the budget of S85.2 mi~on. The National Audit OfOce

calctiated a cost per s~are metre of S1 ,095 which compares favorably with

similar headquarters buildings (Figure 7, paragraphs 3.3 and 3.10),

Did the btiding meet the Departments’accommodation needs?

5 The office areas of the buildlng have been btit and fitted out to a standard

comparable with private sector head office accommodation (paragraph 4.30)

6 The building provided about 1,850 square metres (nine per cent) of office space

less than the Departments had specified. This was because the design made

instilcient a~owance for circdation space and for plant and machinery. These

shortcomings were identified by the Departments when they began detailed

space planning, by which time it was too late for designs to be changed. To

compensate for this shortfaU the Departments accepted the contractor’s offer to

convefi roof space, intended for futue expansion, into offices at no cost to the

Departments (paragraphs 4.22 and 4,23).

1


7 The Departments did not carry out any financial appraisal of this work, but

recognised that it allowed them to meet their timetable for occupation of the

building and avoid the possibility of lengthy and cosdy litigation. But there sti~

remained a shortfall of 460 square metres (two per cent) and this, along tith an

increase in the size of the Benefits Agency and an increased re@rement for

cellular office space by the NHS Executive, led each of the Depar~ents to rent

separately space in another building in Leeds at an aggregate annual rent of

S705,600 (paragraphs 3.8 and 4.23).

Did the Departments achieve plannedaccommodation savings?

8 The Departments estimated that the relocation would achieve savings in

accommodation and staff costs of 821.6 milhon a year. The Departments now

expect that such savings will be about El 5.6 million a year at 1993-94 prices,

El 3.3 miMon of which relates to the release of vacated space to Prope~

Holdings. But reahsing these savings to the Exchequer depends on the abihty of

Property Holdings to dispose of surplus accommodation in the prevaihng

market or to find an alternative use for it (paragraph 3.17).

9 The relocation coincided witi a major rationahsation of the Departments’

London estates. By the end of 1993, the Departments had vacated about

82,000 square metres in 22 buildings. The Department of Health calctiated

savings on the basis of the average per capita cost of accommodating staff in

London after rationalisation. The Department of Social Security based their

savings on the cost of accommodation occupied at the time of the relocation.

These were reasonable methods of assessment, given that it was not possible to

determine precisely the savings which would arise from relocation and those

from rationahsation (para~aph 3.17 and Figure 10).

10 Property Holdings found it difficult to dispose of or find tenants for au of the

space surrendered and in February 1996 continued to pay rent on vacant space

in one office building previously occupied by the Department of Health, Because

of the concurrent rationa~sation it is not possible to qnanti~ to what extent the

savingsattributedbythe Departmentto relocationmighthavebeen affected.However, it is unlikely that the financial case supporting the move wotid have

been affected materially (para~aph 3.17).

my did the Departments place the contract withNorwest Hoist?

11 The Departments awarded the contract to NorWest Hoist because their design

was strongly favoured by au the major parties concerned with the project. They

also considered that it would provide a building with a better environment for

staff and folly justified an additional cost of S2.67 milhon over the lowest bid

which was from BaEour Beatty (paragraphs 4.15 and 4.16).

2


12

13

It is clear from the papers that the Departments made a detailed analysis,

involving both qualitative and quantitative factors, in reaching their decision to

award the contract to NorWest Hoist on value for money grounds. However, as a

subsidiary point of good contracting practice, the National Audit Office found no

evidence that the Contract Award Panel saw a report by ~EC who, as the

Departments’ project manager, provided an evaluation of the bids and who

argued in favour of BaKour Beatty. The Department used WEC’S report to

make a detailed comparison of the bids on a hke for hke basis. However, in the

opinion of the National Audit Office there would have been advantage to the

Panel in seeing the ~EC document itself (paragraph 4.18).

Lessons learned

The Departments foUowed good practice in a number of instances, but there are

a number of lessons relevant to future relocation projects.

Examples of good practice adopted by theDepartments:

a) The Project Team had no previous experience of construction work but

arranged relevant training. They also employed a technical adviser who was

recommended by the Treasury Central Unit on Procurement

(paragraph 1.12),

Codssiontig departments shodd develop an hteffigesst cfient role by

acqniriig expertise in managing btitig projects

b) At the outset the Departments set a timetable for occupation of the new

building, prepared a detailed specification which defined their requirements

and agreed cost estimates. These factors determined the Departments’

contract strategy (para~aphs 2.13 and 2.14).

Departments shoufd set quant~led and prioritised objectives in terms of

time, cost and qutity before selectiug the contract strategy

c) The Departments chose a design, develop and construct contract as the most

appropriate method for achieving fast dehvery and price certain@. This

strategy placed the balance of risk for time and cost overruns with the

contractor, but Emited the scope for the Departments’ control of design

changes. In the event design shortcomings led to a shortfa~ in office space

(paragraphs 2.14 and 4.21 to 4.23).

Departments shoufd choose the contract strategy most appropriate to

their needs. A design develop and constrnct contract, for example, may

not be snitable where a department wishes to retati fnff control over the

design

CONSTRUCTIONOF QUMRY HOUSE

d) The Project Team were closely involved in the management of the

construction. They were successful in hmiting the number of variations to

tbe contract, thereby avoiding any significant time and cost overruns.

Variations were kept to about three per cent of the contract price. Only one

change, to the specification for information tecbnolo~, delayed the early

phases of occupation. But it did not affect completion of the final phase

(paragraphs 2.15 to 2.17).

Departments shotid be fwm in keeping projects tithm their timetables

and shotid, wherever possible, avoid contract variations which might

cause signiRcant time and cost overrnns

e) Nthough clearance of some defects is taking a long time to resolve, the

Project Team monitored defects and discussed these at re~ar internals with

the project manager and contractor (paragraphs 2,8 to 2,12).

Procedures shmdd he estah~shed so that defects are corrected as soon

as possible

0 Close involvement with the progress of construction was effective in

minimizing legal claims with consultants and contractors. Potential claims

were dealt with as they arose through meetings with the project manager

and contractor instigated specifically for this purpose. This enabled the

project team to agree provisional the final account for the bnildlng contract

when building work, excluding defects work, was completed

(para~aph 3.22).

Departments shotid address claims by contractors as they atie and

agree a provisional fmd amount on completion of construction

g) The Project Team recognised the importance of developing a good ~aEty

design for the exterior of the building. They began discussions tith Leeds

City Council some five months prior to the apphcation for outhne planning

permission and sought the views of the Royal Fine&t Commission at an

early stage. This prompt action helped the design for Quarry House to gain

planning approval without compromising the Departments’ tight timetable

[paragraphs 4.8 to 4.1OJ.

Departments can minknise the time taken to secure plantig approval

hy early crmstitation at the concept design stage

Other lessons from the Departments’ experience

h) The initial timetable for constructing Quarry House was unreahstic. The

revised final completion date was feasible but tight and did not include any

contingency for deahng with problems. This created difflcdties for the

Project Team because the size and structure of the occupying organisations

4

CONSTRUCTION OF QUMRY HOUSE

were ucertain and continued to change throughout the project. The

Departments did provide a contingency for possible cost increases

(paragraphs 2.5 and 3.4).

Departments shoufd consider inclntig time and cost contingencies

tithm budgets for deahg with unforeseen problems, such as the size

md strnctnre of the occupying organisations

i) The Departments opted for phased occupation because it slowed the earhest

relocation of staff into the building. However at each phase there was

outstanding building work which caused some disruption to staff while it

was completed. The presence of staff in torn added to the time taken to

complete this work (paragraphs 2.4, 2.9 and 2.12).

Departments should consider the disruption to staff and contractorsbefore adoptimg a phased handover of a btitig, particularly where

there is tilted site space

j) The Departments drew up separate business cases for Quarry House which

showed a strong financial justification for the project. The revised and

outturn cases continued to suppofi the project but they contained some

omissions and inconsistencies, the effect of which was to over-state the

financial case for the relocation (para~aphs 3,13 to 3,17).

Were joint projects are involved Departments should co-ordinate

business cases so as to avoid inconsistency of treatment

k) The Depa~ents developed procedwes for regnfar monitoring and

discussion of design issues. Despite these measmes it was not mtil

construction was well advanced that they identified a shortfaU in available

office space. Neither ~EC nor Nomest Hoist were aware of the shofifa~

(paragraphs 4.22 and 4.23).

Depwtments shoufd protide sufficient time for design development and

monitor design work closely

1) The National Audit Office’s consultants put a value of E300,000 on items in

the Departments’ spectilcation, such as floor loadings and electricity

capacity, which they considered were in excess of indust~ good practice,

They accept that these specifications had been prepared in accordance with

Property Services Agency guidance at that time and on the basis of advice

from MEC. The National Audit Office recognise that a reduced specification

might not have produced a lower tender price (paragraphs 4.30 to 4.32).

The National Audit Office’s consultants also considered that there were some

omissions, for example single-glazing of the atfia which had been

recommended by the Depatiments’ adtisers. The National Audit Office’s

constitants considered that double-glazing might have increased costs by up

to E250,000, but would have improved the working environment where

there have been continuing problems since the building was completed, A

5

CONSTRUCTIONOF QUAORYHOUSE

technical audit undertaken by constants in September 1994 drew attention

to problems of temperature control related to the single glazing of the atria

waUs. The Departments told the National Audit Office that they fo~owed the

guidance provided by their consultants at the time and that in their tiew

groups of experts will take different views on these matters

(paragraphs 4.33 to 4.36).

Departments shodd assess the cost consequences of setttig

requirements in excess of industry good practice. Departments shmdd

make nse of value en~eering techniques, in order to test resumptionsand ebtiate unnecessary costs

m) The design specification for Quarry House required long Me and low

maintenance costs for the building’s finishes. The Departments reheal on

their project managers to ensure that this requirement was met and did not

set specific quantitative targets, making it difficult to measure whether the

building is as e~cient as intended (paragraphs 4.38 and 4.39).

Departments shodd requhe long Me and low mbtenance costs for a

btiding’s Mlshes and shodd express ttis in quantitative rather than

just qnahtative terms

n) Energy efficiency measures in Quar~ House were hmited because, on the

advice of the Departments’ energy advisers, such measwes had to pay for

themselves within three years. The National Audit OffIce’s advisers

considered that a period of five to seven years may have been more

aPPrOprlate (parawaphs 4.4o and 4.41).

SpecW1cations shmdd hclude Me cycle costs and an appropriatepay-back period for energy efficiency measures

The National Audit OffIce consider that these are important lessons for

departments in view of their increasing responsibihties for works projects.

6


Part 1: Introduction

1.1 Quarry House, Leeds protides 33,900 square metres of office and support

space. It was constructed between December 1990 and June 1993 to

accommodate about 2,100 staff of the Benefits Agency headquarters, the

Central Adjudication Semite and the NHS Executive.

Reasons for the relocation

1.2 Since 1988, the Government have required departments to consider whether

relocating their offices might secure cost savings and improvements in staff

recruitment and retention and in service dehvery.

1.3 During 1989, in response to this requirement and to rising accommodation

costs and shortages of ski~ed staff in London and the South East, the

Departments of Health and Social Security examined the scope for relocating

their headquarters functions. Their reasons for relocating away from London

and the South East included:

. the cost of renting and maintaining old, outdated and inefficient buildings;

. persistent problems of recruiting and retaining quatiled staff;

. the dlficufties in the epread of work across 19 different sites in London; and

. the expense and dificufty of attracting staff to move to London from the

provinces, even on promotion.

1.4 The relocation was planned at a time of rapid change in the Departments

(Append& 1). In January 1989 the Department of Health announced their

intention to create the NHS Executive and in May 1989 the Depa~ent of Social

Security announced their intention to create the Benefits Agency.

1.5 The relocation review identified financial and operational benefits from

relocating the new organisations, together with the Adjudication Service

(Appendix 2), However, at this stage, the Departments had not determined the

functions, structures and staffing of the Benefits Agency and NHS Executive.

Site selection

1.6 In January 1989, the Departments commissioned property professional, Jones

Lang Wootton, to undertake a location analysis. This identified Leeds and

Manchester as locations which met the Departments’ criteria. These covered a

number of factors relating to the Departments’ operational needs and the hving

environment for staff, such as an area’s accessibihty and educational facihties.

7


Jones Lang Wootton concluded that there were a nmber of suitable sites in

both cities. The Deparwents selected Leeds because they considered it wodd

offer advantages in the Hving environment for staff such as easier commuting

and a buoyant local economy and housing market. A GaUup survey of staff

showed a preference for Leeds rather than Manchester.

1.7 In October 1989, the Departments commissioned the former Proper@ Setices

Agency to evaluate four development sites in Leeds. The Agency’s evaluation

and the Departments’ inveshent appraisal in January 1990 both identified

Quarry HiU as the most suitable site. The Depar@ents estimated that the cost of

constructing Quarry House would be fl 2.5 miMon less than the cheapest

single-site option offered by a developer. The Departments prefemed co-location

because it would provide economies of scale, flexibihty and a viable career

structure for their staff.

1.8 In November 1989, the Secretaries of State for Health and of Social Secmi@

announced the relocation of a substantial number of head office posts to Leeds.

The moves were due to start in late 1991.

Organisational changes

1.9 The relocation was hnked to two exercises to rationahse the Departments’

Central London estates. In 1990 the Departments occupied 23 btidings in

London, but this fell to 13 buildings by the end of 1993. Of the 2,070 posts

which relocated to Leeds, some 1,630 came from London and 440 came from

nine other locations including Southampton, Lytham St Anne’s and Preston.

1.10 The structures and staffing of the NHS Executive and Benefits Agency have

continued to change during the construction of Quarry House, and since its

completion. This has required the relocated organisations to occupy space in

other buildings; in 1995 the Depar~ent of Social Secmity occupied Quarry

House and ftve other buildings in Leeds and the Depaaent of Health occupied

one other building. The Department of Social Securi@ akeady had a presence in

fonr of these buildings before the relocation; the Department of Health had no

buildings in Leeds prior to relocation. TrevelyanSquareis the onlynewlyleasedaccommodation. In November 1994 the NHS Executive annonnced plans to

reduce their staffing levels in Quarry House by about 20 per cent (200 posts) by

31 March 1997.

Roles and responsibilities

1.11 Quarry House was one of tbe first major buildings on the Government’s civil

estate to be constructed following the untying of depa~ents from the former

Property Services Agency. Each Department established a project team to

manage the relocation and a steering group to monitor progress. The

Department of Health led tbe management of personnel matters. while the

Department of Social Securi@ led the management of the construction project.

The two project teams worked together closely.

8


1.12 The Department of Social Security’s project team (the Project Team) consisted of

17 staff who dealt with buildlng, planning and control, personnel and contract

matters. The Project Team had no previous experience of construction work, but

arranged some relevant training. The Departments recognised their shortage of

relevant expertise and employed a technical adviser, Martin Drake, who was

recommended by the Treasury Central Unit on Procurement. He worked with

the Project Team to advise them on building and contractual matters

(Figure 1 and Appendix 3).

—

ProjectTeam MartinDrake

A group of 17 Depatimental staffTechnicalAdviser

responsible for overseeing allResponsible for providing advice

building and contract issuesto the Project Team on building

and contract issues

AMECProjecl ManagementTemrr

Responsible for managing thedesign and construction of

the building

Norwest HolslMain Contractor

Responsible for the design andconstruction of the building,including the management of

sub-contractors

Source: National Audit Office ana&sis of Oepaflment of Social Security records

Note: A more detailed description of management responsibilities for the Quarry House projectcan be found at Appendix 3,

1.13 After competitive tendering, the Departments commissioned MEC to produce a

concept design and specification and to manage the detailed design and

construction; and appointed NorWest Hoist, a firm of building contractors, to

produce the detailed design and construct the building (Figure 1 and

Appendix 3),

9


Scope of the examination

1.14 The National Audit Office study examined:

. how the timetable was set for the project and the reasons for the timescale

achieved;

. how the financial targets were set for the project and how far these were

met and

. how the quahty of the building was spectied and to what extent the project

achieved the required quatity.

1.15 The examination did not address the human resources aspects of the relocation

or the extent to which the move has affected operational efficiency.

1.16 The National Audit Office’s analysis is based on a review of depar~ental

papers and discussions with staff. It also draws on intetiews with Martin

Drake (the Departments’ technical adviser), AMEC, Nomest Hokt, Leeds City

Council Planning Department, the Royal Fine Art Commission, Property

Holdings and the Treasu~.

1.17 The National Audit Office employed Ove Arup and Partners as advisers on

aspects of the examination, They also constited Professor Brian Atkin BSC

MPhil PhD FCIOB and Graham Robinson BSc(Hons) MCIM of the Centre for

Strategic Studies in Construction at the University of Reading.

10


Part 2: Timing of the project

2,1 This part examines the Departments’ achievement in dehveriug Quarry House

to timetable. It considers:

. how the Departments set the original and revised timetables;

● whether construction was completed within the revised timetable; and

. the steps taken to achieve occupation by the target dates.

2.2 The National Audit Office found that

. the Departments extended their tentative target date for completing the

relocation from January 1992 to December 1992 on the advice of the

Treasury and MEC. They adopted phased construction and occupation to

a~ow for the earhest relocation of staff. They revised the timetable as the

project progressed and circumstances changed (paragraphs 2.4 and 2.5);

. the revised target date for completing the building was tight, because it did

not include any contingency for deahng with problems (Figure 2 overleaf and

paragraph 2.5);

. the Project Team were closely involved in the management of the

construction, including contract variations. Their action was effective in

minimizing delays. Only one variation had imphcations for timing, where a

change in information technology re@rements delayed the f~st two phases

by up to eight weeks, but did not affect completion of the final phase

(paragraphs 2.15 to 2.17);

. the Departments occupied the final phase of the building in February 1993.

To achieve this timetable, it was necessary for phased occupation to take

place before au outstanding buildlng work was completed. The Departments

told the National Audit Office that this did not disrupt the flow of business

intolerably. They ensured that health and safety issues were addressed

before each phase was occupied and that commissioning programmed for

mechanical and electrical services were sufficiently well advanced.

The National Audit Office noted, however, that the practical completion

certificates were not issued until several months after occupation

(paragraphs 2.7 to 2.10); and

. phased handover caused some disruption to staff who were occupyiog

Quarry House while building work was sti~ being undertaken. The presence

of staff added to the time taken to complete the work. Clearance of

outstanding defecte has been protracted and was stiU ongoing in

October 1995 (paragraphs 2.9, 2.11 and 2.12).

11

CONSTRUCTION OF OUARRY HOUSE

~~”z:p~~]~ctid and actual cimple~on dates for the construction Of’QUarry House

Projection as aNovember 198!(Announcement

of relocation

Projection aa aMay 199(

(Concept deaig!stage

Projection as aNovember 199(

(Leting of buildin!contract

Projection as aJuly 199

(Change of 1“specification

Actuaoccupation

date

Iaaue opractical complefio)

certificate

May 1990 October 1991 Januaw 1992

,k

Key to phaaea:

k, ,&1: East Wing

Stati 12 Z Notih and South Wnga3 West Wng4 Expansion space

October 1990 27 March 1992 26 June1992 leOecember1992

h kii

Stati 12 3

Oecember 1990 7Mayi992 3August 19925 February 1993

k kid

Stafl 12 3

Oecember 1990

h

6July1992 31Au ust1992 5February1993

\2 d

Start 12 3

Oecember 1990

\ 6JU’Y’99Y, ‘~t ’992 ,/:::uaw1gg3

Stafl 12 34

December 1990 160ecember 1992 15 January 1993 12 July 1993

k, A,,& ,&

Stat 21 3 and 4

Source: National Audit Office analysis of depatimental papers

Note: Eachsing/e numberbelowa keydatedenotes thecompletion of therespectivephase of the building. Jhefinalcomp/etioncertificate for the building has not yet been issued. Phase 4 was added in November 1991 with the same completion date asPhase 3.

12


How the Departments set the ori~nal and retisedtimetables

Ori@nal timetable

2.3 In the early stages of planning the relocation, the Department of Social Secmity

intended that the new headwaiters wotid be ready for occupation when the

Benefits Agency was estabhshed in April 1991. However, it @ckly became

clear that this timetable was not feasible. Later timetables were developed with

the aim of aUowing relocation to take place as soon as possible after this date.

The Department of Health did not want to start relocating before tbe bti of

planning the National Health Service reforms was completed.

2,4 In November 1989, the Project Team prepared an outhne timetable which

would allow occupation of the first phase of the btilding in October 1991 and

project completion in January 1992 (Figure 2). The timetable reflected the

Departments’ desire to minimise the period of uncertainty for staff, and tbe

disruption caused to people working away from home while the relocation was

completed. The Departments opted for phased completion because it slowed

for the earhest relocation of staff.

Retised timetable

2.5 In November 1989, the Treasury Central Unit on Procurement advised the

Departments that their tentative initial timetable was Unreahstic. In May 1990,

AMEC drew up a revised timetable, which planned for completion and

occupation of the bnildlng in three phases - by March 1992, June 1992 and

December 1992. This timetable did not include any contingency for deafing with

problems. It was further revised during the project (Figure 2):

. in November 1990, because of delays in obtaining planning consent and

awarding the construction contract

. in Jdy 1991, because of the need to revise the Information Technology (1~

specification; and

. in November 1991 through the addition of a fourth phase, with the same

completion date as Phase 3. This was for fitting out space in the roof area,

which had been intended for expansion at a later date, to compensate for a

shortfaU in office space.

~ether construction was completed within theretised timetable

2.6 Staff occupied Quarry House as soon as the Project Team’s constants advised

them that the building was safe to occupy and mechanical and electrical

systems were operational. Certificates of practical completion were issued by

the Departments on AMEC’S advice when aU building works had been

13


2.7

2.8

2.9

2.10

completed, but the twelve month period during which the contractor was

required to correct any defects and carry out snagging work started with the

commencement of partial possession of each phase. These partial possessions

took place in advance of the practical completion certificates. Snagging refers to

minor works and adjustments which are often carried out before handover.

Occupation

The Departments’ planned occupation dates drove the construction process.

Occupation began with Phase 1 in Jdy 1992. The Departments occupied

Phase 2 in September 1992 and Phases 3 and 4 in February 1993 (Figure 2)

Practical completion certificates

Mthough there were a number of areas still to be addressed by NorWest Hoist at

Phase 1 handover, such as hfts and air conditioning, the Project Team decided,

on the advice of ~EC and fire and safety building control constants, that the

building met health and safety standards and that it was possible to start

occupying it. Newest Holstmdertook todealquickly with ou@tandingworks

and defects.

As part of their monitoring role ~EC reported in Jtiy 1992 that incomplete

work and defects were causing disruption to staff and directed NorWest Hoist to

take appropriate action. MEC did not recommend issue of the practical

completion certificate for Phase 1 until over sixmonths after tbe Departments

had accepted it for occupation and one month after they had granted the

certihcate for Phase2 (Figure 2). Ove Arupadvised the National Audit Ofice

that, although the final completion date for the building set out in the

Departments’ November 1990 timetable was feasible, the target date for the

completion of Phase 1 works wasnotrealistic. The Departments told the

National Audit Office that all companies tendering for the project management

role, andallcompanies tendering forthemain contract, hadtioughtthe date

achievable. They hadachieved tieirtarget date ofopening Phase 1 of theofflce

in Jtiy 1992 andconsidered that incomplete work onoccupation did not

seriously disrupt the handhng of business.

As the Phase 3 occupation date approached, ~EC reported that progress was

behind schedule. The Depa~ents agreed to defer certain elements of the

project because their later completion would not have affected the staff or

business activities in Quarry House. This action helped the Departments to

occupy the building hy the planned dates. The deferred work included:

partitioning to create ceUular offices not required until the end of the occupation

programme; some work to the courtyards and to the leisure block; and the

fitting out of basements. The Departments dld not grant practical completion

cetilficates for Phases 3and4until July 1993, Overfour months after

occupation (Figure 2).

14


Snag@g and defects

2.11 The Project Team considered it essential to ensure occupation of the building by

the planned dates. However, while the building was ftiy occupied by

April 1993, snagging and defect rectification work remained outstanding. By

October 1995 this work sti~ had not been completed. Ove Arup advised the

National Audit Office tiat this timescale for remedying defects was longer than

they would have expected for a building of this size and complexity.

2,12 The main causes of the slow progress were:

. some building work was outstanding at the time of occupation (Figure 2).

N parties gave this work a higher priori~ than snagging work. Defects

were, however, discussed regularly with the project manager and the

contractor.

. the volume of work re~red. For example, a routine defects examination

revealed that some fire dampers in the building had been insta~ed

incorrectly. There were several hundred dampers to examine, some of which

were difficult to access;

. the retirement to rectify defects outside office hours so as to avoid

disturbance for staff working in the building; and

. a technical audit commissioned by the building management team in

Jtiy 1994 (Appendix 3). This resulted in a new defects fist. Some of tbe

defects re-opened issues which had previously been addressed to the

satisfaction of the Project Team.

Steps taken to achieve occupation by the targetdates

2.13 The National Audit Office examined the steps taken by the Depatients to

select an appropriate contract strategy which wmdd meet their timetable. The

National Audit Office also examined how the Departments monitored the

construction and managed contract variations.

Contract strate~

2,14 There are a number of contiact strategies which may be adopted in construction

projects (Figure 3 overle~. The Depaments decided to adopt the desi~, develop

ad construct strategy because it offered the potential for fast dehvery, as

development of the design overlaps with construction. It abo enabled a fied price

to be esttihshed ewly in the design process and placed responsibfity for tie and

cost overruns with the contractor, unless proven to be the resub of chent

intervention. N prospective project managers recommended this contract strategy.

In the economic recession of the early 1990s, the Departments were able to

15

A contract strategy sets out the respective roles of the chent, architect, contractor and project manager, and

helps to apportion the potential risks between thsse paties.

StrategyTraditional

Construction

management

Management

contract

Design and manage

Design and build

Design, develop and

construct

Definition

Architects first draw up a detailed design for the building. Contractors then tender

for, and carry out, construction of the building.

The petiod of design by the clen?a consultants and the construction period

overlap. A fee earning construction manager defines and manages the work

packages. All contracts are between the chent and the trade contractors. The final

cost can only be accurately forecast when the last work package has been let.

The period of design by the client’s consultants and the construction peflod

overlap. A management contractor is appointed early in the process to let elements

of work. The contracts are between the management contractor and the trade

contractors. The final cost can only be accurately forecast when the last work

package has been let

Similar to the management contract, with the contractor also responsible either for

producing the detailed design m managing the detailed design process.

A single contractor accepts responsi~tify for design and construction in return for a

lump sum price.

As with design and build, except that a concept design is developed before the

contractor is appointed. This strategy places the risk of responsibility with the

contractor.

Source: National Audit Ofice and tieasuy Central Unit on Procurement guidance.

Note: The design, develop and construct strategy selected by the Depaflments had the advantage of

determining a contract price earti in the construction process. This meant that many of the

problems encountered during the project were resolved at no additional cost to the Depaflmenfs.

transfer these risks to the contractor at httle or no cost, but this may not always

be the case. The Departments appointed Newest Hoist in November 1990 to

design and construct the building.

Monitoring arrangements

2,15

2.16

The timetable for occupation was tight and close monitoring of the bnildlng

work was essential if target dates were to be met. At the outset, the Project

Team drew up a detailed action plan showing the milestones to he achieved.

The Project Management Board met every fortnight and progress against the

action plan was discussed each month by the relocation steering groups

(Appendix 3).

As project managers, AMEC monitored pro~ess on the building contract and

the Departments exerted control through detailed monthly reports and monthly

meetings with AMEC and Nomest Hoist. Throughout the project, NorWest Hoist

had difflcdties in keeping to the programme. Figure 4 shows the roles of the

various parties on a typical design, develop and construct contract and the

additional input made by the Project Team and technical adviser on this project.

16


ClientDeDatiments

Select and appointcontractor L

‘ey: ~ Main action

O Input

Source: National Audit Office

Depatimentai ProjectTeam and

technical adviser

zSelect contractstrategy

Select and appointproject manager

AMECPrOiect manager

(Concept designer)

*

mIssuecompletioncertificates I

Norwest HoistContractor

(Design, developand construct)

T

A COmulete 1

This figure shows typical management responsibilities for design, develop and construct building projects. The numberedcircles represent additional management input required in the construction of Quarry House.

Key to numbered circles1. The Project Team leader and technical adviser became involved in the management of the project during construction to overcome a

potential breakdown in communications between the project manager and the contractor.2. The Project Team leader maintained direct contact at senior level with the contractor’s organisation to ensure that deadlines would

be met.3. The project manager became directly involved in meetings with sub-contractors as deadlines approached.4. The length of the defect rectification period means that responsibility for completion of defects work has passed to the Benefits

Agency’s building management team.5. The Project Team’s involvement continued for two years after occupation because of diticulties in cleating snagging and defects.

17

CONSTRUCTION OF QUAORYHOUSE

2.17

They found that informal direct contact with the contractor produced better

results than the more confrontational document-based approach adopted by

~EC in the early stages of the project. They sometimes withheld M payment

to encourage NorWest Hoist to recover shppage. Their action was successfti in

minimizing delays. To maintain target dates, the Project Team a~owed some

relaxations of the specification, such as rescheduhng the installation and testing

of semices.

Contract variations

The Departments’ Project Management Board had authori@ to alter the

specification, but only did so after first estabtishlng the Ml time and cost

imphcations of proposed contract variations (AppendM 3). In total there were

141 variations. Only the change to the IT cabfing extended the timetable - for

Phase 1 by eight weeks and Phase 2 by four weeks (paragraphs 2.5 and 3.20

and Figure 2). Ove Arup told the National Audit Office that this reflected weU on

the Team’s efforts (paragraph 3.20).

18


Part 3: Cost of the project

3.1 This part considers how the Depatients set financial targets for the

Quarry House project and whether these targets were met. It considers:

. the cost of Quarry House compared tith the budget

. the preparation of the budgets and business cases; and

. how project costs were contro~ed and monitored and the action taken to

minimise outstanding financial commitments.

3.2 The National Audit Office found that

. the total cost of the building project was S79. 7 mi~on which included

S55.4 mi~on (at 1993-94 prices) for constructing Quarry House.

This compared with the Departments’ revised budget of E85,2 miMon

(1993-94 prices). The Departments are also paying rent of S705,600 a year

for extra accommodation in Leeds, This arose from an increase in the

number of Benefits Agency posts relocated to Leeds, a greater than expected

requirement for ceUular office space for the NHS Executive and loss of office

space in Quarry House as the building design was developed (paragraphs 3.3

and 3.5 to 3.8);

. detailed budgets were prepared and revised as the project progressed. The

Departments monitored and controled costs closely (paragraphs 3.12, 3.19

and 3.20):

. the cost of building Quarry House was at the lower end of the range of

construction costs for similar headquarters buildings (paragraph 3.10);

. the initial business cases showed that relocation would save the Departments

S21.6 mi~ion a year in running costs (1993-94 prices), with a break even

point for the project at year 14 (paragraph 3.15 and Figure 8);

. the final business cases show that the net annual savings are expected to be

El 5.6 milfion at 1993-94 prices; as a result, the break even point wi~ take up

to five years longer to achieve than expected. The cases rely heavily on

notional savings mainly from vacated office accommodation in London,

which are reahsed when Property Holdings manage to dispose of the

accommodation. In February 1996 Prope@ Holdings continued to pay rent

on vacant space in one office building preciously occupied by the Department

of Health; it is uuhkely that the financial case supporting the move would

have been materia~y affected by delays in disposing of property (Figures 8

and 9 and paragraph 3.17);

19

CONSTRUCTION OFOU~RY HOUSE

3.3

3.4

. the National Audit Office noted some omissions and inconsistencies in the

business cases, mostly in the revised and outturn cases; but because of the

notional nature of some elements they were unable to Wanti& their impact

(paragraph 3.17 and Figure 10); and

● the Project Team agreed provisionally the final account for the bnildlng

contract promptly on completion of building work. They successftiy avoided

any financial disputes. In April 1995 the Departments retained S280,000

pending completion of outstanding defects work (paragraphs 3.22 and 3.23).

The cost of Quarry House compared tith budget

The Departments succeeded in dehvering Quarry House within the total project

budget of S85.0 miMon set in February 1990, which was revised in Jtiy 1991 to

E85. 2 million (at 1993-94 prices). The total cost of the project was S79. 7 mi~mr

at 1993-94 prices [Figure 5 and Appendix 4).

Initial budget Revised budget Actual

February1990 July 1991 expendituref million f million f million

Builr6ng contract with 48.7 56.8 55.4

Norwest Hoist

Other capital coats, eg 31.5 22.4 18.7

land

Non-recurring running 4.8 6.0 5.6

costs

Total project costs 85.0 85.2 79.7

Source: Arationa/Audit OMce ana~sis of depatimerrtalpapers

Notes: 1. A more detailed comparison of budgets against actual expenditure can be found atAppendix4,

2. All figures except those for the building contract with fdorwest Ho/stare expressed in

1993-94 prices.

Hgure 5 ahowa that total Depatimental expenditure relating to the building project was lower than both the

budget set at the stat of the project and the revised budget set in July 1991. The cost of the buildng

contract with Norwest Hoist was higher than the initial budget but lower than the revised budget.

Major project costs

Mter competitive tendering, the Departments contracted NorWest Hrdst to

construct Quarry House. Following the award of the contract the Departments

set a construction budget of f57.7 milhon. This was based on the contract price

of S53. 7 mi~ion and S4 milhon for contingencies (Figure 6 opposite).

20

CONSTRUCTION OF OU~RY HOUSE

3.5

3.6

3.7

, ~~.. .... ,.- :..,,s ~~.’~,., .. ... .~,, : < ,, ~’~‘~ :-:.. .; , ?!.-!,~.,,,?r..,, . ,~! ,.. ?.?.>.:... . “:,,W9ure6:Bud9el:estl,rnaiesforthe;tiulldin9:conlractwl!tiNor.Yg:tHpJ:!... .,....,:.:,,:..,.,....4--.,=,; :?,..,.:.,:....... ,..::.:,,,,;',,..,:.-,~:...,...,...,,.,,>*:,.:..?2,.. ....... ,,..... : . . .:. ., ,’.::.’. <....,- ‘.. -.,,

Date Budget Budgeted cost

f million

Febmaw 1990 Initial budget, excluting contingency 4B,7

March 1990 Revised budgetBuilding work f60,0 millioni

Contingency f 0.5 milfionz 60.5

December 1990 Revised budget following contract

award

COntrati sum f53.7 milfionl

Contingency 23.2 milhonz

York stone f 0.2 milhon3

Further contingency f 0.6 mi160n4

July 1991 Estimated outturn

March 1993 Actual outturn

57.7

56.6

55.4

Source: NatiorralAudit Office ana~sia of departmental tiies

Notes: 1. Includes a provision for inflation.

2. The contingency was increased to 6percent of the contract sum to reflect ~easu~guidance.

3. Additional York stone was required to that included in the contract sum.

4. The furfhercorrtingency covered poterrfiaiadditional costs relating to furniture and fitting out

for the restaunnt, leisure facilities and public areas.

The final cost of the building, excluding land, was f55.4 mi~on (Figure 5 and

Appendix 4). The additional fl.7 million of expenditure over the contract price

(but within the budget for contingencies) arose from changes re@red by the

Departments. These included a revised IT specification, increased partitioning

and enhancement of the West Entrance (paragraph 3.20).

The f55.4 milhon cost of the building included the leisure facihties. In addition,

the Departments contributed to the Government’s “Percent for ~ initiative,

mder which those responsible for major building projects are asked to use a

proportion of the capital budget to commission works of afi or crafts. The

Project Team decided that the work undetiaken within the huildlng contract to

construct and landscape the courtyards, valued at S543,000, could be attributed

to the scheme. Further commissions brought the total expendltore under

“Percent for M to f706,600.

The cost of land, at S8 mi~on, was in fine with the District Valuer’s valuation.

The Property Semites Agency conducted, on the Depatiments’ behaff, early

negotiations for a site at Quarry HiU. However, in December 1989, the Project

Team considered that the fou acre plot was too small for the Departments’

needs and was poorly situated. They re-opened negotiations and secured a

more prominent site of 5.7 acres at Qua~ Hill for no extra cost.

21


3.8

3.9

3.10

3.11

3.12

Other project-related costs

Other costs, excluding land, associated with the project (E16.4 milhon) iucluded

the contract with ~EC, furniture, telecommunications and the Departments’project teams (Appendix 4). The Department of Health spent an additional

S8.4 miUion on advancing the development of a new office information system

to coincide with the relocation. The Benefits Agency and the NHS Estates

Agency also took out separate 25 year leases on additional space

(3,880 square metres) at 1 Trevelyan Square, Leeds at an aggregate annual rent

of S705 ,600. The additional accommodation was needed because of an increase

in the number of Benefits Agency posts located in Leeds, a Weater than

expected requirement for cellular office space for the NHS Executive and

because of the loss of office space in Quarry House as the bnildlng desi~ was

developed.

The total shotifall of office space was some 1,850 square meties; even after

fitting out the expansion space there remained a net loss of 460 square metres.

There will be an oppotiunity cost to the project as the expansion space wi~ not,

as intended, be available for futme development. However, tils cost is dlfflctit

to quantify, partly because the cost of fitting out the expansion space is not

known. The Departments told the National Audit Office that had additional

office space been needed, it wodd probably have proved cheaper to lease other

accommodation than to undertake this conversion.

Comparison of building costs tith other projects

In order to assess the reasonableness of the construction costs for Quar~

House, the National Audit Office’s consultants compared them with five

buildings constructed between 1987 and 1992. The comparable btidings were

constructed to a head office standard for reasonably sized, weU estabhshed

companies and offer similar office accommodation to Quarry House. The

analysis showed that the cost of Quar~ House compared favorably with the

costs for constructing these buildings (Figme 7 opposite),

Quar~ House includes leisure facihties: two squash COWS, a bar, fitness room,

spotis hall and swimming pool. The costs of these facihties were not separately

identified.Staffpay to use thesefacihties,whichare alsousedbygroupsin tielocal community,

The preparation of budgets and business cases

The Depatients’ main financial controls were the monitoring of outtin<.

\

against budgets and the business cases for the relocation, The National Audit

Office found that the budgets had been well prepared and included au relevant

costs. The initial business cases fully supported the Departments’ decision to

proceed with the relocation.

22


3.13

3.14

3.15

3.16

Quarw House

Building 1

1,095

947

Buildng 2 1,055

Buildng 3 1,293

Building 4

Building 5

1,294

1,631

Source: Natimar/Audit Ofticeb cmrmdtrmts

Notes: 1. Costs sre based on the total floor area within the inside face of the buildirrgk walls.

2. Actual costs pmsquare metre for buildings 1 to 5 have been aflusted to match the

specification for Quarv House, excluding the swimmhrg pool. For the purposes of this

exercise, the cost of the swimming pool was estimated by Ove Amp as the actual

construction cost was not separately identified,

figure 7 shows that the cost of constructing Quarv House is towards the lower end of the range of costs

of constructing five similar buildings. The comparable buildngs provide head office standard ofOce

accommodation for reasonably sized well eatabflshed companies.

Business cases

The Treasury require depatiments to assess the financial viabih~ of proposed

projects by carrying out investment appraisals which discoont costs and savings

to a base year. The difference beween discounted costs and savings is the net

present value of the investment proposal. To be cost-effective, projects should

produce a positive net present value over the expected project fife. Investment

appraisalsshodd be updated regularly to ensure that a project continues to be

cost-effective.

The Departments prepared separate business cases for approval by their

respective Treasury Expenditure Ditisions. In October 1989, Treasury approved

the general decision to relocate to Leeds on the basis of the outline appraisak.

Project finding was aUocated on the basis of the first fu~ business cases which

the Departments produced in February 1990; these indicated a combined

positive net present value of S165.1 milhon (at 1993-94 prices) over 60 years,

with the project breaking even by year 14 (Figure 8 overleaO

At that time, this conclusion assumed that relocation wodd secure the

Departments accommodation and staff satigs of E21.6 miltion a year at

1993-94 prices (Figure 9). The Department of Health did not subject their full

business case to sensitivity analysis for changes in circumstances, for example

the changes in staffing levels, the effect of time or cost overruns. Neither

Department assessed the effect on the cases of changes in the rents of vacated

accommodation.

The Departments retised the business cases during the project to reflect

changes in phasing dates and as firmer information on costs and benefits

emerged. Outturn cases were based on actual costs as far as possible. However,

23


October 1989February 1990

July 1991

July/August 1991FebruaW1993July 1993

October 1993July 1994

July 1995

Department ofSocial Security

f million

46.0

74.9

25.0

44.8

Net present value

Department of Project total Department of

Heallb Social Security

f million f million

55.8 101.8 Year 6

90.2 165.1 Year 13

Year 23

92.1

108.374.9

Year 17

53.2

72.0

Department of CombinedHealth

Year 5 Year 5

Year 15 Year 14

Year 15

Year 15Year 16

Year 21

Year 19

Source: National Audit Office anavsis of business cases

Notes: 1.

2.

3.

4.

5.

6.

All monetary values are expressed at 1993-94 prices.

Project totalarrd combined break-even dates are given where the Depatimentsprepared business cases at a common date,

The 1989 cases were prepared to obtain outline approval from Treasurya#er the Departments had decided to relocate to Leeds

but before they decided to construct a new building at Quar~ Hill.

The first full busbreaa cases were drawn up in Februa~ f990.

The casea drawn up in October 1993 and Ju~ t994 were outturn cases.

The Depaflment of Health published the final evaluation of their business case in Ju~ f995, The National Audit Ofice noted

that this did not take account ofa reduction of200posts in the NHS &ecutive being phased in over2years from 1995-96,

Figure 8 shows that the flrat full business cases for the project had a combined net present value of 2165.1 milhon at 1993-94 prices over 60 yearn,

with the project breakng even in Year 14, Later appraisals were constructed at different times by the two Departments, and included different cost

assumofiona

the revised casea were produced nearly WO years apart (Figure 8). There were

also other significant variations between the ho (Figure 10). These factors

prevented the National Audit Office from assessing accurately tbe financial case

for the project as a whole.

3.17 In examining the business cases the National Audit Office noted:

. the revised appraisals continued to show positive returns, although with later

break-even dates than at the start of the project (Figure 8);

. in Jdy 1995 the Department of Health completed a retiew of their Jtiy 1994

outturn business case. The revised outturn was a net present value of

S72 million with break-even in year 19. The National Audit Office noted that

this final adjustment of the business case did not reflect the planned

reduction of some 200 posts in the NHS Executive headquarters in Leeds;

24


. the cases were calctiated over 60 years, the expected physical fife of the new

building, on advice of the Departments’ economic advisers and in the fight of

Treasury guidance. No a~owance was made for any refurbishment costs

during that period; normaly a major refurbishment would be required after

25 years and current Treasury guidance, issued in 1993, requires business

cases to be assessed over this period. The National Audit Office consider that,

because of the uncertainties of assessing these and other costs and savings so

far into the future, appraisals shotid have been based on the expected

economic Efe of the internal services and fit out of the building, which is

genera~y betieen 15 years and 25 years;

. the appraisals reheal heavily on the Departments’ notional assessment of

savings attributable to vacated accommodation in London. These were set at

S12. 5 mi~on a year in the final business cases (Figure 9), The Departments

have not been able to assess the actual savings because their accommodation

was affected by an exercise to rationafise au of their London estates, The

method used by each Department to calcdate the notional savings is

described in Figure 10 overleaf;

Hrstfull business cases Outturn business cases1993-94 prices 1993-94 prices

fmiltion fmillion

Accommodation savings

. London 17.0 12.5

. Other locations 0.2 0.8

Staff savingaz 6.4 5.7

Other aavingas 0.2 0.4

Total annual savinga 23.8 19.4

Total annual costs 2.2 3.8

Net annual savings 21.6 15.6

Source: Natiorra/Audit Office anafysis of the business cases

Notes: f. Th/a figure is baaed on annual kteadysfate’ costs andsavingspredicted for the petiod

year22 toyear 59.

2. Staff savings include savinga for: London weighting and otherlocalpay additions; increased

e~cierrcy from working an efira hours week than in London; London staff receiving higher

salaries; and additional housing cost allowance.

3. Other savings include savings for: cleaning, new /Tand telecommunications.

Hgure 9 shows that the notional savings for vacated accommodation in London accounted for over 70 per cent

of totil annual savings in the initial business casea and nearly 65 per cent in the ouftum business cases.

Department of Sociaf Security

Cases produced:

Octobar 1989 Initial case seekng mrttine Treasuy approval for

relocation to Leeds

February 1990 First full business caae submitted to Traasuy

July 1991: Revised case submitted to Treasuy

October 1993 Outfurn case submitted to Treasuw

1 Trevefyan Square, Leeds

Cases exclude coats and savings for 132 posts relocated to 1 Trevelyan

Square. 30 of the posts moved from London and 102 from Preston. The

Oepaflment planned to accommodate some of them at Quarv House.

No sepamte business case was prepared for this move.

Accommodaffmr savings

Notional savings for space vacated in London are calculated on the cost

of accommodation whch posts moved out of at the time of the

relocation. TNs gives an annual saving of f6,815 per post.

Accommodation savings are claimed from the date at which peats

moved to Leeds.

Maintenance coats and savingx

Maintenance =vings for vacated accommodation are included in revised

and outturn caaes,wtile equivalent costs for Quarv House are not.

Tefecommunicafimrs and office machfrray

Revised and outturn cases exclude any impact of the relocation on

running costs relating to telecommunications and office machines.

Post-project evaluation:

The post-project evaluation does not compare the outturn business

case with the case prepared at the stafl of the QuarW House project or

include sensitivity analysis of the outturn case.

Source: National Audit Ofice anawsis of the business cases

Depatiment of Hesfth

Cases produced

October 1989: Initial case seeting outtine Treasury approval for

relocation to Leeds

Februay 1990 First full business case submitted to Treasuy

July 1993: Case revised for Health Select Commiftee heating

July 1994 Compaflaon of outturn with initial case submitted to Treasury

July 1995 Case revised to correct wrong assumptions

t Travelyan Squara, Leeds

Cases include costs and savings for 134 poata relocated to 1 Trevelyan

Square. All posts moved from London. The Depaflment planned to

accommodate them at Quary House.

Accommodation savings

Notional savings for space vacated in London are calculated using the

per capita cost of accommodating staff in London aftar the ralocatimr.

This gives an annual saving of f8,236 per post.

Accommodation savings are phased in over three yearn in order to

allow for the possibihfy of space remaining vacant on the government

estate until an alternative use is found.

Maintenance CONSand savings

Maintenance savings have been included for all postc but continuing

costs have only been included for QuarW House, not 1 Trevelyan Square.

Telecommunications and offfca macbfrreW

Revised and outturn cases include an increase in telecommunications

costs duting the project, followed by a fall as fewer buildings are

occupied. They also include hire and maintenance of etira office

machines naeded because of the move.

Post-project evacuation:

The post-project evaluation compares the outturn business case with

the case prepared at the atafl of the Quar~ House project and includes

sensitivity analysis of the outturn caae.

Figure 10 shows that there were a number of differences between the revised and outturn business cases prepared by the Oepatiments. These

relate to the timing of revisions, the costs and savings included and the methods used to calculate them. This made it difficult to assess the

fbrancial case for the whole relocation both duting the project and affewards.

26


. actual savings accrue to the Exchequer when Proper@ Holdings are able to

dispose of the property or re-let it to another Government department. In

calcdating their business case the Department of Health assumed that an

alternative use wodd not immediately be found for vacant space. They

therefore phased accommodation savings over three years. The National

Audit Office noted that, between 1990 and 1993, the Departments had

surrendered about 82,000 square metres of space in 22 properties to

Prope@ Holdings. Two of these properties vacated by the Department of

Health were still who~y or partly vacant in October 1995, although one

property has subsequently been handed back to the lessor. Because of the

complexity of the concurrent rationahsation programme it was not possible

to quantify to what extent the satings attributed by the Department to

relocation might have been affected. However, having regard to other costs

and benefits, the continuing cost of the vacant space will not materially affect

the financial case for the move to Leeds;

. the business cases were not always updated to reflect changes in

circumstances. UnEkethe Department of Health’s outturn case, the

Department of Social Security’s case does not a~ow for the costs and savings

relating to staff relocated to Trevelyan Square, Leeds. These are relevant

figures because the Department origina~y planned to accommodate some of

these staff in Quarry House. Nthough the Depatient viewed the move to

Trevelyan Square as a separate project, neither the Benefits Agency nor the

Department produced a business case setting out the costs and benefits

attaching to the additional posts relocated. The National Audit Office consider

that the Department shotid either have included the posts in the business

case for the main relocation or prepared a separate appraisal;

. maintenance costs have not been treated consistently in the appraisals. The

Department of Social Securi@’s revised cases included maintenance savings

for vacated accommodation, but excluded the equivalent costs for

Quarry House, Correcting for this wodd reduce the outturn positive net

present value from S44.8 mi~on to S37. 7 miWon (at 1993-94 prices) and

extend the break-even date to year 18 (Figure 8). The Department of Health’s

outturn case included maintenance savings based on all posts relocated to

Leeds while on-going maintenance costs were included for Quarry House but

not Trevelyan Square. Such appraisals should include aU maintenance costs

and savings; and

. the business cases excluded fuel andutifities costs ontheassmption that

these wotid have been incurred irrespective of the decision to relocate. The

National Audit Office consider that fuel and utihties costs shotid have been

excluded only if reEable estimates showed that the costs were the same for

both the new property and that vacated.

3.18 Most of these omissions anddeficiencies relate totherevised and final versions

of the business cases. mile the final appraisals continued to support the

financial case for the project, they were not as strong as Figure 8 suggests. This

is because, although thevalue of theomissions anddeficiencies in the final

27

CONSTRUCTIONOF OUARRYHOUSE

3.19

3.20

3.21

3.22

cases cannot be quantified, it is Ekely that they woufd reduce the estimated

financial benefit of the relocation and extend the break even date indicated in

the outturn appraisals.

Cost control and monitoring

In April 1993, the Department of Social Security’s interual audit team reviewed

the procedures for monitoring and controlhg relocation expenditure. They

concluded that the Department had estabhsbed sound controls. These controh

included monthly monitoring by the Project Team of expenditure against

budget. AMEC and the Project Team checked monthly reports from Newest

Hoist against physical progress, which included a forecast of the final account

sum, before authorizing payment. The monthly forecast of the final account sum

was produced at the Project Team’s request, and was an important financial

control over the project.

To minimise the risk of variations to the building contract, au changes in users’

requirements were passed through MEC and the Project Team to the

Departmental Project Management Board (Appendix 3). No such variations

were actioned without assessing the imphcations for the project budget and

timetable. There were 141 contract variations which increased costs by

El.7 milhon. Ove Arup told the National Audit OffIce that the number of

variations reflects well on the Team’s efforts in setting up and operating the

design, develop and construct contract, the success of which depends upon

minimizing variations,

The action taken to minimise outstandingcommitments

Outstanding financial commitments can arise from claims made by constants

and contractors and from the retention of funds pending completion of

outstanding work. A tight timetable and a competitive contract price meant

there was a significant risk of claims by the contractor.

The Project Team dealt with potential claims as they arose. They maintained a

record of all actual and potential financial issues which arose. They resolved

them at regular monthly meetings with Nomest Hoist and ~EC which the

Project Team instigated specifically for this purpose. This ensured that the Ekely

total cost of the building contract was kept in tiew and enabled the Project

Team to agree provisionally the final account when bnildlng work, excludlng

snagging and defects work, was completed. It also helped to ensure that the

Departments were not involved in any subsequent financial disputes be~een

contractors employed on the project.

2s


3.23 Under the contract with NorWest Hoist the Departments retained three per cent

of the value of works (El. 7 mi~on) which was released as follows:

. hay of the retention was paid when the relevant phase of the building was

handed over for occupation; and

. the other hat was to have been paid once the defects habihty period

(12 months) had expired, However, because some defects work remained

outstanding beyond this period, the Departments were still retaining

S280,000 in October 1995.

29

CONSTRI lr.TmN OF m IhRRV unl ISE

4.1

4.2

4.3

Part 4: Quality of the building

This part examines how the Departments specified the quahty of Qna~ House

and how the building was constructed to meet these requirements. It considers

how well the Depaflments:

. achieved the required Wahty standards for the external design of the

building;

. achieved the required quahty standards for the internal desi~ of the

building; and

. ensured that the quality of the building will be maintained in the fuwe.

For the purposes of their examination, the National Audit Office interpreted

quality as covering

. the external appearance of the building being sufficient to enable the

Departments to secure planning consent from Leeds City Comcil. This

included the size, height, materials, detai~ng and visual impact; and

● the abiEty of the building to meet the requirements of its users, both now and

for the rest of its design life.

The National Audit Office found that

. the desigu for Quarry House gained the approval of Leeds City Comcil

without compromising the Departments’ tight timetable (paragraph 4.12);

. the Departments awarded the contract to Newest Hoist mainly because of

the quality of their desiW. They considered that it would protide a better

environment for staff and folly justified an additional S2 ,67 milhmr over the

lowerbid fromBalfourBeat@(paragraph4.16);

. AMEC considered that Balfour Beatty’s bid comphed more ftiy with the

Departments’ specification. They expressed concern about NorWest Hoist’s

technical proposals and ability to co-ordinate desigu work between

contractors for mechanical and electrical services. The Departments enswed

that both bids were comparable and were satisfied that they comphed

snfOciently with the specification to enable them to award a contract. They

were confident that AMEC’S concerns codd be addressed through contract

management (paraWaphs 4.13, 4.14, 4.17 and 4.18);

. design shortcomings led to the building having approximately 460 square

metres less office space than specified, even after future expansion space of

1,390 square metres was brought into use prematurely. The Departments

1

30


4,4

.

.

.

.

.

.

.

regarded this as the only option which wodd allow them to meet their

timetable for occupation of the building and avoid the possibiE@ of costly

Etigation (paragraphs 4.21 to 4.23);

the external structure shotid meet the design fife stipulated by tbe

Departments of 60 years. The office areas of the building have been built and

fitted out to a standard comparable with private sector head office

accommodation (paragraphs 4.19 and 4.30);

some building defects are stiU being corrected (paragraph 4.26);

a major change to the IT specification cost E683,000. This was required to

protect the flexibility of the building for future use (paragraph 4.28);

some items in the Departments’ specification, although proposed in

accordance with guidance from the Property Semites Agency and AMEC,

were in excess of industry good practice at the time and might have

increased construction costs by up to S300,000. The National Audit Office

recognise, however, that a lower price might not have been obtained from a

different specification (paragraphs 4.30 to 4.32);

the National Audit Office’s consultants, Ove Arup, also advised that there

were some omissions, for example the provision of double glazing in the

atria, which might have increased costs by up to S250,000. The Departments

told the National Audit Office that they had acted on the basis of expert

adtice available to them at the time. In their view the project architects BDP

were recognised authorities on atria design. The National Audit Office

consider that value engineering, which challenges assumptions and identifies

unnecessa~ costs, might have identified these items at the concept stage

(paragraphs 4.30 to 4.36);

the Departments’ specification required long fife and low maintenance costs

for the building’s finishes, fixtures and semices. The Departments reheal on

their project managers to ensure that this requirement was met and did not

set specific quantitative targets (paragraph 4.39); and

after consdting their Departmental energy experts, the Departments decided

to hmit the inclusion of energy efficiency measures to those which would pay

for themselves within three years. This hmited the scope to include such

measures (para~aph 4.41 and Appendix 5).

The specification of the btilting

The Departments prepared a brief for AMEC which defined in broad terms their

requirements for the building. This was used by MEC as the basis for

developing the technical specification, which was a detailed description of how

the Departments’ requirements would be met in the building’s construction.

The specification met government standards developed by the former Property

31

CONSTR1 ICTION OF nl lARRVHO1lSR

Services Agency. These standards had previously been mandatory for au new

government buildings but were only advisory once departments had untied

from the Agency.

4.5 AMEC were responsible for ensuring that the finished buildlng met the quahty

standards set out in the specification. Figure 11 opposite sets out the

Departments’ initial requirements and how these were interpreted in the

specihcation and reflected in the finished building.

4.6 During the project, Norwest Hrdst applied for215 relaxations of the

specification on grounds of impracticality or expense. Ml such requests were

considered by AMEC, the Project Team and their technical adviser. No detailed

records have been kept of how many of these relaxations were accepted. There

were three occasions when the Project Team asked their technical adviser to

negotiate agreements with NorWest Hoist, under which a number of relaxations

were granted in return for the clearance of otier outstanding financial issues or

the provision of enhancements at no cost. On one occasion AMEC did not

support the granting of the relations.

External quality of the btiding

4.7 The brief required that the building shmdd be an architectural status symbol

and that its fabric should have a design Me of 60 years. The Departments were

aware that it was important to obtain Leeds City Council’s approval for the

exterior design if the project was to proceed to timetable.

Planning approval

4.8 Afthough government btildings are exempt from the Town and Country

Planning Acts, departments observe au stages of the planning process. The

Quarry House design was required to meet the design constraints which Leeds

City Council had determined for their masterplan for the whole Quarry HiU site.

4.9 In February 1990, the Project Team began discussions with Leeds City Cmmcfl

and their masterplanner. This was some five months prior to the apphcation for

outiine planning permission. The Council told the National Audit Office that tils

action had helped to progress the Departments’ application quickly.

4.10 The Council found the original concept design unacceptable in terms of the

proposed building’s size and height and, in May 1990, sought the views of the

Royal Fine Art Commission, who can enquire into any btiding design which

may affect amenities of a pubhc or national character. The Commission strongly

objected to the concept design and to the Departments’ intended design,

develop and construct strategy. The Departments and AMEC accepted

amendments from the Counci~s masterplanner which altered the exterior of the

proposed building and brought it into tine with the masterplan.

32


ClientBrief

Architecture to reflect status of building

Occupation dates for the building:

Phase 1 November 1991

Phase 2 Januaw 1992

Phase 3-

Phase 4-

Space for 2,022 staff

Office space requirement

1B,601 square metres

Total usable space requirement

30,430 squars metres (excluding circulation

space)

Low energy usage

Natural ventilation wherever possible

FlexiMli~ for future use

Expansion space for up to 120 eflra staff

Cellular offices for Grade 7 and above only

Modest provision of recreation space

Restaurant, creche, videoconferencing

Source: AratiorralAudit Ofice analysis of Department of Social Securi@ records

Specification

At this stage Leeds Gfy Council altered the

concept design significantly


Phase 1 May 1992

Phase 2 August 1992

Phase 3 FebruaW 1993

Phase 4-

Space for 2,076 staff

Office space requirement

19,983 square metres

Tots usable space requirement

30,140 square metres (excluding circulation

space)

No energy consumption targets set. Advice of

Departmental Energy Managers incorporated

Air conditioned

Concept design provided for segregation of

cellular offices and open plan areas. The IT

specification required Depaflments to occupy

separate halves of the building

Expansion space equivalent to five percent of

office area

Occupants of cellular offices specified for

Grade 7 and above

Swimming pool, sports hall, fitness room,

squash coutis and bar


As Built

Leeds Qty Council and Departmental senior

management approved the final design


Phase 1 July 1992

Phase 2 August 1992

Phase 3 February 1993

Phase 4 February 1993

Workplaces provided for 1,9B2 staff

Office space provided

19,526 square metres

Tots usable space provided:

33,910 square metres ~ncluding circulation

space)

Continued teetting problems with the

computerised buildng management system. The

system ia not operating at otimum ticienv.

Ar conditioned

Full flexitili~ of movement within the building,

but difficulties in mixing of open plan and

cellular space

Planned expansion space (1,400 square metres)

utifised to compensate for space shotiall - no

hnfher expansion space available

Cellular otices only provided below Grade 7

level if justified on grounds of work

confidentiality

Swimming pool, spmfa hall, fitness room

squash coufis and bar


33

CONSTRUCTIONOF QU~RY HOUSE

4.11

4.12

4.13

4.14

4.15

4.16

Selection of a contractor

The Departments issued an invitation to tender, setting out their requirements

in a detailed tender enquiry specification. Four tenders were returned on

3 August 1990, none of which met fully the requirements of the specification.

The Departments’ Project Team, assisted by MEC, spent two months on a

detailed tender evaluation process which examined tbc four bidding companies’

commercial, architectural, technical and operational proposals. During the

course of the evaluation the two most expensive bids were dropped. The bids

made by the other two companies, Balfour Beat~ and NorWest Hoist, were

clarified and developed through a series of meetings with the firms. The

Departments referred the designs of these companies to Leeds City Councfi and

to the Royal Fine Art Commission.

The Commission rejected the Balfour Beatty design and were very critical of the

NorWest Hoist proposal. The Council strongly preferred the NorWest Hrdst

design. However, in October 1990, they granted full planning permission for

both designs, but with a hst of reserved matters. The Departments made it a

condition of the building contract that all the reserved matters were resolved to

the satisfaction of the Council.

The Project Team priced the additional work retired to make the contractors’

bids comply with the tender enquiry specification and to ensure that they were

comparable. After this revision the Balfour Betty tender was E49.5 miwon and

NorWest Hoist’s tenderf153 million.

rhe Departments told the National Audit Office that, by tie end of

September 1990, the two bids met their requirements sticientiy to proceed

with the award of the contract.

[n their report of 2 October 1990 to the Contract Award Panel, which consisted

of senior representatives of both Departments, the Project Team concluded that

their tender evaluations did not point to a clear winner. They considered that

there was nothing to chose between BaErmr Beatty and NorWest Hoist on the

technical and operational aspects. At the same time the Project Team noted that

the NorWest Hoist design was strongly preferred by au major parties to the

project. Mthough Balfour Beatty had provided the cheapest and most compfiant

tender, the Project Team strongly recommended that weight be given to the

superiority in design terms of the NorWest Hoist scheme. The Project Team also

noted that the Balfour Beatty design was acceptable to Leeds City Couucil but

not to the Departments’ senior officers or to the Royal Fine Art Commission.

The Project Team considered that the extra S3.5 milfion (6.4 per cent of the

contract value) would be an acceptable price to pay for a design which had

earned the strong support of all the major participants in the project. They

therefore recommended that the contract be awarded to NorWest Hoist.

The Contract Award Panel, which met on 3 October 1990, questioned the

Project Team closely on the price difference between the two bids and were told

that the Team had re-evaluated the bids and that the difference had faUen to

S2.67 million. The Panel decided that the general quahty of the NorWest Hoist

I

34


4.17

4.18

4.19

btiding wodd be superior and that it wotid provide a better environment for

staff. They regarded neither scheme as ideal but endorsed the Project Team’s

recommendation to award the contract to NorWest Hoist. In reaching this view

they weighed the clearly stated preferences of senior officers and the

importance they thought shmdd attach to the views of potential users.

~EC’s tender evaluation report of 2 October 1990 concluded that, hating

regard to price and the technical and operational aspects of the building, their

recommendation was for the acceptance of the BaEonr Beatty tender. Their

report was accompanied by an analysis of the main aspects of each of the four

bids. This analysis noted, in relation to the NorWest Hoist bid, their concerns

about the co-ordination of the building design with the design for mechanical

and electrical semices; and about the co-ordination of work between the

sub-contractors. They also stated that the bid did not fdy comply tith the

Departments’ re@rements for mechanical and electrical services. MEC

concluded that the support for the designs proposed by NorWest Hoist and

BaMour Beatty was evenly balanced and offered no opinions on which scheme

they preferred aesthetica~y,

The National Audit Office noted that the Contract Award Panel had seen WEC’S

analysis of the tenders, but codd find no etidence that the Panel had been

informed of ~EC’s conclusions and recommendations. The Departments told

the National Audit Office that the ~EC report had been used as the basis for

retising the bids to ensure comparabihty and that ~EC’s concerns had been

brought out ftiy in the Pane~s discussion. The Departments considered, with

~EC’s agreement, that the concerns about NorWest Hoist’s technical proposals

cotid be addressed through the management of the contract. The Departments’

position was protected since their contract with NorWest Hoist rewired the

company to construct a building which met the Departments’ re~irements,

rather than on the basis of the contractor’s proposals. They considered that

these provisions wmdd ensure that they got the ~ahty prescribed in the

specification. In the event design shortcomings contributed to a shortfa~ in

ofDce space (paragraph 4.22).

Achieting the design Efe

The spectilcation re@red high ~afity materials for the exterior of the buildlng.

The Departments’ intention was that the structure wodd remain sound for60 years, with a period of at least 25 years to first major maintenance - as

opposed to routine operating needs. Ove Arup advised the National Audit Office

that, from their tisit to the btiding, the structure and finishes appear to meet

those design fife re~irements.

35


Internal quality of the buflfing

4.20

4.21

4.22

4.23

4.24

4.25

In meeting users’ needs, an office building shmdd provide good quahty

workspace to facihtate efficient operational use. This includes sufficient, usable

space; a comfortable working environment; flexibili~ to meet changing

requirements; and satisfactory staff facihties. The building shotid also meet

normal building industry standards, except where the users have special needs.

Protision of office space

Figure 12 opposite shows the Departments’ staff accommodation requirements

set out in the brief and specification and bow these compare tith actual

provision. The building was intended to provide space for 2,076 staff, In the

event workplaces were provided for about 1,982 staff - a shortfa~ of 94

(five per cent).

In June 1991 the Department of Health identified a shortfaU of office space, This

arose from the underprovision of space for circulation within and between office

areas, space for plant and machinery and because of the poor co-ordination of

design information between sub-contractors. The total shortfall in office space

was about 1,850 square metres (nine per cent). Neither ~EC or NorWest Hoist

were aware of the shortfall,

The design of the building provided for about 1,390 square metres in the roof

area for future expansion. As a resdt of pressure from the Departments for

compensation for the loss of space, NorWest Hoist offered to convert the

expansion space to offices at their own expense. After consulting their legal

advisers, the Departments accepted this proposal as the only option which

would allow them to meet their timetable for occupation and avoid long and

costiy litigation. There remained, however, a net loss of about 460 square

metres (two per cent),

Use of office space

The concept design provided for the open-plan space and ceUdar offices to be

in separate wings ofthe btilding. In the event,operationalneedsre~red a mkof both types of accommodation. This proved difficult to achieve in some parts

of the building because:

.

.

the positioning of cellular offices within some open plan areas has obstructed

the flow of natural light to other occupiers; and

open plan areas inserted into cellular wings are sma~ and therefore Emit

flexibility.

The occupancy densi~ of Quarry House, expressed as the total usable space

(office space and support areas such as conference and training rooms, Ebraries

and computer suites) divided by the number of people, is 17.7 square metres

per person. This compares with an average occupancy densi~ in Government

offices of 19.2 square metres per person, as reported by the Treasury Central

36


4.26

Client brief Specification Variance Capacity Variancefrom brief in April1995 from(per cent) (estimated) specification

(per cenf)

Beneflta Agency and 804 819 2 890 9

Central Amudication

Service

NHS Executive 1,218 1,257 3 1,064 (15)

SuppOrf Staff 1 28

Total 2,022 2,076 3 1,982

Source: Depaflment of Social Security records and Benefits Agerrcybuilding management team

Note 1: Contracted out oflce aewices functions shared by both Depaflments.

(5)

figure 12 shows that the estimated capacity of the building is some five percent Ieaa than specified. The

8enefOa Agency and Central A~uticafion SeNice have accommodated nine per cent more staff than

planned. 8ut the NHS Executive have accommodated 15 per cent fewer than expected.

Unit on Procurement in their 1994 annual report. Since occupation, Benefits

Agency space requirements have increased while those of the NHS Executive

have fallen.

Work environment

The worting environment is regtiated by a computerised building management

system. Since occupation, a series of defects have led staff to complain about

environmental conditions in many areas of the building

. the single rather than double glazing specified for the courtyard atria has

caused cold airflow affecting staff iu surrounding areas. The problem arose

because the tender specification protided only for internal atila. However,

Newest Hoist’s desi~ included external atila. Solutions to the problem were

stifl being considered in October 1995;

. faulty insta~ation; for example, temperature sensors were wrongly installed,

leading to incorrect temperatures in the work areas; and

. a technical audit carried out on behaK of the Benefits Agency in August 1994

recommended that au air systems shodd be re-commissioned. The

Departments have yet to accept some equipment which, although in use, has

not been operating to an acceptable standard. In October 1995 discussions

with Nomest Hoist about remedial measures were continuing.

37

CONSTRUCTIONOF QU~RY HOUSE

Fletibfilty of use

4.27 As there was uncertainty about tbe size and structure of the occupying

organisations, the Departments’ brief emphasised that the buildlng shotid

permit flexible use, Staff wodd require access to their own IT system wherever

they were based in the building. The Departments instaUed separate IT systems

because they were tied to different supphers before the building contract was

placed, although they agreed a single cable specification (Figure 11).

4.28 The Departments’ IT divisions designed the cable layout assuming that tbe

building wodd be divided between the Departments on a north-south basis,

Mthough this plan changed during the concept design period, the IT design

continued on the original assumption. The Departments identified this mistake

in February 1991, In April 1991 the IT divisions produced an amended

specification, including a requirement for an additional 8,000 metres of cable,

at an extra cost of S683,000. The Project Team concluded that the problem had

been caused by the spht of responsibihties and their own lack of IT expertise.

N parts of the building are now suitable for use by both Departments, thereby

meeting tbe flexibility of use requirement,

Staff facilities

4.29 The Departments’ brief required a staff restaurant and nursery, and a modest

provision of leisure facilities. The concept design and specification (Figure 11)

included a swimming pool, sports ball, fitness room, two s~ash courts and a

bar. This was accepted by the Treasury. The Departments justified these

facihties as a way of encouraging staff to relocate and of giving practical support

to the Health at Work initiative. Staff pay to use these facihties, which are also

used by groups in the local community. The cost of constructing these factities

was not separately identified.

Btiding standards

4.30 Ove Arup told the National Audit Office that the office areas of the bnildmg had

been built and fitted out to a standard comparable with reasonable, but not

lavish, private sector owner-occupied o~ces, The Departments’ specification

was prepared in accordancewithProper&ServicesAgency@dance butincluded items in excess of normal industry standards. These included:

. high floor loadings for the building (Figure 13 opposite);

. electrical capacity considerably in excess of potential demand; and

. a high amount of heat gain from electronic equipment which the cookg

system would be required to cope with,

38

CONSTRUCTION OF OUARRYHOUSE

4.31

4.32

4.33

4,34

Silorrewlonsper square metrez

Quarw House (PSA afandard apecificafion) 6Pmpe@ Hokfinga 1993 5

Government ofice guidance

Btifiah Standard Code of Practice 3.5

Source: Department of Socia/Securi@papers, Prope~Ho/dhrgs and fhe British Counci/for Ofices

Note: f Loads borne by the finished floors

Note: 2 Includes 1 kilonewon for partitioning

Hgure 13 shows that floor loadings for Quarw House were in hne with previous standards for Government

buildings laid down by the former PropeW Services Agency, but were overspecified compared with

industv atandarda.

On the question of electrical capacity, the Department told the National Audit

Office that the power loading was within the guidehnes pubfished for highly

computerised buildings with high occupation densities. A further aUowance had

been included for future trends such as larger computer screens, more intensive

usage and more fax machines.

Ove Arup estimated the over-specification might have increased construction

costs by about S300,000. However, the National Audit Office accept the view of

the Departments that, in the circumstances of a single tender for the whole

project, it is not certain that a lower price wmdd have been obtained with a

stightly different specification.

Ove Arup also identified some areas where tie mechanical and electrical

semices are below industry good practice, for example:

.

.

.

a lack of provision of standby generation of electrical powe~

Emited flexibihty for using spare electrical capacity in other parts of the

system if needed; and

poor control over entionmental conditions in the atria. Inadequate glazing

of the atria is causing discomfort to staff in adjoining areas.

Ove Arup estimated that incorporating these facilities at the design stage wotid

have increased costs by about E300,000. Providing them after the building had

been constructed wotid cost considerably more as indicated by the technical

audit undertaken by the Benefits Agency’s constitants. The Departments told

the National Audit Office that the decision not to incorporate a standby

generator was made after an assessment of the costs and risks involved. The

building is fed by WO separate high voltage supphes, the simultaneous failure of

which would only be likely in a period of industrial action by power workers. In

such circumstances the Department wmdd expect to obtain mobile standby

39

CONSTRUCTIONOF QUARRYHOUSE

generation facihties from the Ministry of Defence or a private sector suppher.

They therefore decided that buying permanent facihties, which wmrfd probably

never be used, would not be an effective use of Government fuuds.

4.35 The Depatients told the National Audit Office that AMEC had advised that the

provision of low voltage finks between the electrical switchboards, which wotid

provide greater flexibility in using spare electrical capaci~ in other parts of the

building, was not a standard procedure for an office building.

4.36 Value engineering is a formal review of detailed design solutions in order to

estabhsh whether or not what is being proposed can be achieved in a more

cost-effective manner. It cha~enges assumptions and can identify unnecessa~

cost. The greatest return from such an exercise is during the early design stage

of a project, Had the Project Team carried out a value engineering exercise

during the development of the project brief and concept design then the issues

identified at paragraphs 4.30 to 4.35 might have hccn highhghtcd.

Maintaining quahty during the btiding’s Hfe

4.37 Many of the issues raised in the earher sections of the report, such as the

durability of materials and the building’s flexibih~ in use, also apply to the

future (paragraphs 4,19, 4,27 and 4,28). However, there are other factors to be

considered, such as Efe cycle costing energy efficiency; the rehabih~ of plant

and equipment; and the building’s suitabihty for alternative use,

Ufe cycle costing

4.38 Ufe cycle costing involves examining all the major elements and systems of a

proposed building to assess both the initial capital costs and the running costs

over the estimated hfe of the building,

4.39 The specification for Quarry House stated that internal finishes, fitures and au

aspects of the services shotid provide long life and low maintenance. It did not

set quantitative targets for maintenance costs and energy use. The contract,

however, required NorWest Hoist to indicate the Efe expectancy and

maintenance requirements of interual finishes, fixtures and services.

The Project Team required AMEC to ensure that the specification met the

requirements for long hfe and low maintenance. AMEC prepared Ests of

approved supphers whom they considered could meet this requirement.

Energy efficiency

4.40 The Departments specified that Quarry House should include a btiding

management system which wodd ensure that energy was used eficientiy

(paragraph 4.26). The brief also specified that the building sbotid have natural

ventilation wherever possible. But, during discussions shout the concept design.

the Departments decided to change to full air conditioning (Figure 11). They

decided the building wodd be physicaly unsuited to natural ventilation and,

40

CONSTRUCTIONOF QUARRYHOUSE

being bounded by busy roads on three sides, there wodd be too much

disruption through traffic noise if the main means of ventilation was through

open windows. No detailed analysis of options was undertaken.

4,41 The building specification required that the mechanical engineering service

insta~ation shodd be economical to run and, on the advice of tbe Department’s

energy experts, that any energy conservation measures had to pay back their

initial cost within three years (Figure 11). In September 1994, a technical audit

undertaken by consultants for the Benefits Agency concluded that the three year

payback period had restricted the adoption of energy conservation measures,

except in relation to the swimming pool. Ove Arup advised the National Audit

Office that a payback period of five to seven years may have been more

appropriate.

Efficient operation of plant and equipment

4.42 For plant and equipment to function effectively, ite operators shodd be ftily

acquainted with the insta~ed equipment. The contract required NorWest Hoist

to provide the Benefits Agency with operation and maintenance manuals and

plans of the services immediately following the issue of practical completion

certificate. However, in April 1995, the manuals and plans were still being

amended hy the contractors. The facihties managers told tbe National Audit

Office that this had hindered the operation and maintenance of the equipment.

NorWest Hoist told the National Audit Office that they were unaware of any

problems after January 1995.

Suitabfity for re-use

4.43 As custodians of the Government’s Common User Estate of office buildings,

Property Holdings were involved in design haison meetings with the Project

Team and Leeds City Council during the development of the early concept

design. This design was not adopted and Prope~ Holdlngs had no involvement

in the subsequent design work. Proper~ Holdlngs were provided with copies of

WO subsequent concept designs and confirmed that either would provide

accommodation suitable for re-use by other Government departments if the

occasion arose.

41


Appendix 1

Chronolo~ of key events

The Paymaster General announced that departments should

review the location of their work.

June 1988

January 1989

Apri 1989

May 1989

October 1989

November 1989

Oecember 1989

February 1990

April 1990

May 1990

July 1990

August 1990

October 1990

November 1990

Oecember 1990

April 1991

The Department of Health and Social Securny examined the

case for relocating their headquarters office functions out of

London.The Department of Health and Social Securiw announced

their intention to create the NHS Executive.

The Department of Health and Social Security spht into the

Department of Health and the Oepaflment of Social Security.

Creation of the NHS Executive.Creation of the Reaeftlement Agency within the Oepafiment

of Social Security.

The Department of Social Securi~ announced their intention

to create the Benefits Agency.

The Oepartmenta of Health and Social SecuflV produced a

feasibnity study, “Moving to the Future”.

The Department of Social Secufity appointed a Project Team

leader.

Ministers announced that 1200 Department of Health posts

and 800 Oepatiment of Social Secuflv posts would relocate

to Leeds.

Project Finance and Planning Manager appointed by the

Department of Social Secud~.

Technical Adviser appointed by the Department of Social

Security.

AMEC appointed as Project Managers.

The Treasuv approved the purchaae of land at Quarv Hill

and gave in principle approval for the whole project,

TheDepaflmentsannouncedthatQuarWNllwastheoreferred site.

The information Technology Sewices Agency was created

within the Department of Social SecufiOy.

AMEC produced the concept design.

The Departments applied to Leeds Sity Council for outline

planning permiaaion.

Return of tenders for the construction contract.

Leeds Sity Council granted planning permission. Full

Treasury approval to proceed with the construction contract

The main construction contract waa awarded to Nomest

Hoist.

Building work began,

The Benefits Agency waa created.

42


Aptil 1991

Apri 1991

July 1991

Janua~ 1992

April 1992

July 1992

August 1992

September 1992

December 1992

Janua~ 1993

February 1993

April 1993

June 1993

July 1993

August 1993

October 1993

December 1993

July 1994

October 1994

November 1994

July 1995

NHS Estates was created as an agency within the

Oepatiment of Health.

The second wave of NHS Trusts was estabhshed,

The Department of Social Security submitted a revised

business case to the Treasury.

The Benefits Agency published their Customer Charter,

The Department of Health published the Patients’ Charter,The second wave of NHS Trusts was established.

The Depatimerds occupied Phase 1 (East Wng),

The Depatiments occupied Phase 2 (Noflh and

South Wings).

Ovwspill space was occupied in 1 Trevelyan Square, Leeds.

The Depaflmenta issued a practical completion certificate for

Phase 2.

The Departments issued a practical completion certificate for

Phase 1.

The Departments occupied Phases 3 and 4 (West Wing and

expanaion space).

Benefits Agency building management team assumed

responsi~lify for the building.Instigation of weekly completion meetings attended by all

parties for managing outstanding work.

The Oeparfments issued practical completion ce~ficates for

Phases 3 and 4.

Mnisters commissioned a manpower review of the NHS,

The Child Suppofi Agency was estabflshed.

The third wave of NHS Trusts was established.

Conclusion of NHS manpower review.

The Department of Social Secuflty sent their outturn

business case to the Treasury.

The Department of Health established an NHS Information

Technology strategy,

The Depatiment of Health sent their outturn business case to

the Treasury.

The Benefits Agency assumed responsibility for managing

outstanding work from the Depaflment of Social Securi~.The Department of Health announced a 20 per cent

reduction in staffing of the NHS Executive in Quarry House,

The Depatiment of Health announced the results of a revised

outturn business case.

43

CONSTRUCTIONOF QUARRY HOUSE

Appendix 2

eDepartmental Reaourcea & Services

&7 INHS Executive Chief MedicalHeadqustiers Officer

Department of Social Security

Secretary of State

Agencie;: Im Permanent Secretary

● Headquarters Pohcy Group

. Contributions Agency ● Resource Management andPlannino GrouD

o CNldSuppofiAgency● Soticito~s Group

\r● Information Technology Services Agency Independent Statutory Bodres

● Central Adjudication Group● War Pensions Agency

● Occupational Pensions Board● ResettlementAgency

Key

Accountabiliu to Permanent Secretary as Head of Department

Managerial accountabihfy

m Relocated to Quarry House andotherbuildings in Leeds

● Independent Review Service for the Social Fund

● Independent Tribunal Service

● Office of the Pension Ombudsman

44

Before occupation:

Department of Health

MRelocation Steering Group

ProjectTeam:Responsible for personnel issues

wAffer occupation:

NHS Executive

DepatimentalManagement Soard

Relocation Steering Group:Responsible for monitoringprogress on the relocation Imanagement of the project

mResponsible for building Issues

mCentral Adjudication Service

Genefits Agency

Suilding Management Team:’Responsible for managing the

building after handover

Consultants and contractorsto Department of Social Security

EMatin Drake’

Technical AdvisecResponsible for providing

advice to the ProjectTeam on building

and contract issues

1AMEC, Pmiect Management Team:Responsible for managing

the buildino contract

Newest Holsl, Main Contracto~’Responsible for constructing

the building, including themanagement of sub-contractors

Conardtants and contractorsto the Senefilc Agency

TFM GranadaFacilities Manager:

Responsible for day-to-dayrunning of the building

after handover

I DEGWEmployed to carry out a use

of space audit ISummers Project Management

Employed to carry out atechnical audit

Source: National Audit Office analysia of depaflmental papers

Notes: l, The Project Team leaderawere both members of both Deoatiments` Relocation Steeflno Grouosand of theProject Management Board,

2. The Technical Adviser and, from September 1991, the Quarry House Building Manager, were alao members of theProject Management Board.

3. NoWest Hoist were appointed on the recommendation of a Contract Award Panel consisting of representatives ofboth Depafiments.

45


Appendix 4

Budgets and costs for the Quarry House project

fooo

8,116

(38)

23

(1,326)

(559)

(8)(7,832)

111

463

(1,040)

(160)

394469

67401

1,191

(151)

Capital costs

No~est Hoist

AMECTechnical Adviser

(Mr Drake)

Land

Telecommunications

FurnitureFitting out

Project Team

Miscellaneous

Sub total

Non-recurringrunning costs

Proiect Teams

Tempma~

accommodation

ConsultanciesFaciflties

managementTelecommunications

0f6ce machines

SubIotal

Total

48,728

1,400

153

9,694

5,768

4,9479,320

27

S0,237

4,782

4,782

85,019

56,844

1,362

176

8,568

5,209

4,9391,486

138

463

79,197

4,622

394469

87401

5,973

S5,170

17

(3)

15

(13)

(lo)

o

(64)

411

nla

(1)

(3)

nlanla

nlanla

23

0

55,361

1,411

227

7,977

3,364

3,6511,218

153

733

74.lla

499271

102

318

519

5,577

79,692

(1 ,483)

49

51

(591)

(1,825)

(1,288)(270)

15270

(5,082)

(754)

105

(196)

(;3;

519

(396)

(5,478)

(3)

4

29

(7)

(35)

(26)

(18)

11

58

(6)

(16)

27

(42)

(;1;nla

(7)

(6)

Source: Arationa/ Audit Oflce anaksis of depaflmentalpapera.

Notes: 1. In addition to the above costs, the Depaflment of Health aperrt an estimated f8.37million on introducing a new otice information

system, the development of which was brought forward by relocation. Both Depaflments also leased additional accommodation

in Leeds.

2. All figures are expressed in 1993-94 prices except those for Norwest Hoist.

AppenrOx 4 shows that Departmental expenditure relating to the building project was lower than both the budget aet at the stat of the project and

the revised budget aet in July 1991.

46


Appendix 5

(1) Heat recovery on fresh air systems

(2) Heat recovery on recirculation air handling systems

(3) Upgrade temperature controls in air conditioning

(4) Sequence control of ctiller plant

(5) Reduced air change rate in car park

(6) Solar control to efiernal fighting

(7) Control of car park hghfing

(8) Indvidual cassette air conditioning units to shops, bars etc.

Source: Summers & Partnera techrdcaiaudit, September 1994

Esllmaled cow

fooo100

400

50

15

30

10

5

2.5

Note: Ove Amp advised the Natimra/Audit Office that the pay-backperiod for these items would be in the three to seven year range.

47

construction of quarry house - nao

Documents