Session 2007/2008

First Report

Committee for Finance and Personnel

Workplace 2010 and Location of Public Sector Jobs:
Department of Finance and Personnel's Response
to the Committee's First Report of Session 2006 - 07

Ordered by the Committee for Finance and Personnel to be printed 12 September 2007
Report: 2/07/08R (Committee for Finance and Personnel)

Membership and Powers

Powers

The Committee for Finance and Personnel is a Statutory Departmental Committee established in accordance with paragraphs 8 and 9 of the Belfast Agreement, Section 29 of the NI Act 1998 and under Assembly Standing Order 46. The Committee has a scrutiny, policy development and consultation role with respect to the Department of Finance and Personnel and has a role in the initiation of legislation.

The Committee has the power to:

• consider and advise on Departmental budgets and annual plans in the context of the overall budget allocation;
• approve relevant secondary legislation and take the Committee Stage of primary legislation;
• call for persons and papers;
• initiate inquires and make reports; and
• consider and advise on matters brought to the Committee by the Minister of Finance and Personnel.

Membership

The Committee has eleven members, including a Chairperson and Deputy Chairperson, with a quorum of five members.

The membership of the Committee since its establishment on 09 May 2007 has been as follows:

• Mr Mitchel McLaughlin (Chairman)
• Mr Mervyn Storey (Deputy Chairman)
• Mr Roy Beggs
• Dr Stephen Farry
• Mr Simon Hamilton
• Mr Fra McCann
• Ms Jennifer McCann
• Mr Adrian McQuillan
• Mr Declan O’Loan
• Ms Dawn Purvis
• Mr Peter Weir

Correspondence

All correspondence should be addressed to the Clerk to the Committee for Finance and Personnel, Northern Ireland Assembly, Committee Office, Room 419, Parliament Buildings, Stormont, Belfast, BT4 3XX.

Telephone: (028) 90521843 Fax: (028) 90520360 e-mail: committee.finance&personnel@niassembly.gov.uk

Special Report

The Committee for Finance and Personnel published its first report of session 2006-07, titled First Report on Workplace 2010 and Location of Public Sector Jobs, on 4 July 2007 and this is available on the Assembly website at:

http://archive.niassembly.gov.uk/finance/2007mandate/reports/report01_07R.pdf

The Department’s response to this report was issued on 23 August 2007 in the form of a letter from the Minister of Finance and Personnel and an attached memorandum. Both the letter and memorandum are printed in the following section of this report.

Response by the
Department of Finance and Personnel

Response by the
Department of Finance and Personnel
to the Report by the Committee for
Finance and Personnel on Workplace 2010 and Location of Public Sector Jobs

Workplace 2010

Committee conclusion/recommendation (Report paragraph 16):

1 The Committee acknowledges the context in which WP2010 has been initiated and developed and fully supports the strategic objectives of the programme which aim to:

• enable the NICS to transform the way it delivers public services, in terms of efficiency and effectiveness;
• provide accommodation in which staff are proud to work; and
• safeguard funding for priority front line services.

The Committee also supports the more immediate objectives of addressing the backlog of maintenance within the NICS estate, of preserving existing investment and of improving the working environment for staff generally. The political objectives of contributing to local economic growth and of providing the flexibility to respond to political commitments on the location of civil service jobs are also to be particularly welcomed.

Department’s response:

2 The Department notes and welcomes the Committee’s findings.

Committee conclusion/recommendation (Report paragraph 21):

3 The Committee has concerns with some of the findings from the initial ‘health check review’ of the pathfinder project for WP2010 at Clare House and considers that the Department can learn valuable lessons from this exercise. In particular, there will be a need to ensure that in all future relocations under WP2010, provision is made for the proper introduction and testing of IT equipment, thereby avoiding disruption to staff and to the provision of public services. The Committee awaits with interest the outcome of the fuller post-occupancy evaluation in September 2007, as this should provide a clearer assessment of the merits and implications of moving to an open-plan office environment. Also, in terms of future accommodation provision, the Committee expects that, in the consideration of the WP2010 accommodation options, equal office accommodation standards will apply.

Department’s response:

4 The Department accepts the finding of the Committee that valuable lessons can be learned from the Clare House pathfinder. In relation to the IT aspects of the move we agree that more time should have been taken to ensure that a more robust system was available. A dedicated resource has been identified to work specifically on the IT aspects of Workplace 2010 and progress is being reported fortnightly to the project manager. Plans are also in place for a full post-occupancy evaluation in the early autumn, the results of which will be made available to the Committee. Members are invited to visit Clare House at their convenience. On the issue of accommodation standards the programme has developed a brief on the required accommodation standards for the NICS and this will apply equally to all refurbished and new buildings.

Committee conclusion/recommendation (Report paragraph 26):

5 The Committee, therefore, calls upon the Department, in finalising the business case, to give due regard to the concerns around the use of public sector comparators and to reassess the procurement options in broad and strategic terms, ensuring that the final value-for-money appraisal takes account of the indirect and long-term, as well as the direct and short-term, benefits, risks, uncertainties and costs.

Department’s response:

6 The Department notes the findings. The outline business case completed in 2005 considered some thirteen procurement options - including traditional procurement, PFI, mixed procurement e.g. a Belfast PFI and regional estate by traditional procurement or vice versa. It also looked at procurements including and excluding the Stormont Estate. So the spread of options was very wide ranging. The business case concluded that a total property PFI would provide best value for money. Since then the business case has been updated to take account of the prices submitted by bidders at the Invitation to Negotiate stage of the procurement. The PFI route still appears to provide strong value for money. In moving forward, however, the Department will ensure a refresh of the procurement options when finalising the business case and will ensure that any assessment of benefits, risks, uncertainties and costs are fully appraised. However, the Committee do need to appreciate that, at this stage, it is not possible to make significant changes to the scope of the contract within the current competition.

Committee conclusion/recommendation (Report paragraph 27):

7 The Committee therefore recommends that the final assessment of the procurement options for WP2010 should include careful consideration of the full range of qualitative, as well as quantitative, factors. This will account for potential changes and uncertainties, including, for example, the Executive’s control and flexibility over future decisions on government accommodation and wider public expenditure and administration matters.

Department’s response:

8 Accepted. The Department will ensure that both qualitative and quantitative factors (including control and flexibility) are fully articulated and appraised in the final business case.

Committee conclusion/recommendation (Report paragraph 32):

9 The Committee considers that, in terms of WP2010, there is a very high risk associated with accepting an up-front capital receipt which is substantially lower than the full market value of the properties. There is therefore a need to ensure that, should the Department pursue such an approach, it fully addresses this risk in the termination clauses of the contract.

Department’s response:

10 The Department fully recognises and understands the concerns of the Committee in this instance and can give an assurance that a significant amount of time and effort is being attributed to the commercial aspects of this contract. The Department is also looking very closely at the experience of other PFI contracts and the advice of the Public Accounts Committee and HMT guidance to ensure that Workplace 2010 can secure the very best deal for government and the taxpayer in NI. The issue of the termination clause will be addressed positively in light of the Committee’s concerns.

Committee conclusion/recommendation (Report paragraph 33):

11 Given the volatility of the property market and taking into account the views expressed by the NI Audit Office, the Committee considers it to be a minimum requirement for the WP2010 project team to obtain accurate and up-to-date valuations for the transferred assets. The Committee recommends that the properties to be included in WP2010 should be valued by an independent commercial valuer in addition to the public sector valuer, and that these valuations should be updated before the conclusion of negotiations. Furthermore, the WP2010 project team should be able to demonstrate that both the upfront capital payment and the remaining net value of the transferred assets are clearly reflected in the up-to-date valuation in the financial model.

Department’s response:

12 The Department accepts the Committee’s recommendation and is making arrangements for an independent valuer to be identified to assess a representative number of properties providing a benchmark report against which BAFO bids can be assessed. The BAFO financial models will also be updated to ensure clarity on outstanding asset values.

Committee conclusion/recommendation (Report paragraph 34):

13 Going forward, the Committee calls for transparency in the establishment of the affordability model and the efficacy of financing arrangements of the Total Property PFI option. In addition, the Committee believes that there should be greater transparency in relation to the long-term commitments arising from PFI deals in NI and to their impact on future budgetary flexibility and affordability. In this respect, the Committee believes that the affordability of the Total Property PFI option proposed for WP2010 should not be considered in isolation, but must also be considered in terms of its impact on the collective commitments arising from PFI deals and indeed commitments arising from other long-term borrowings.

Department’s response:

14 This recommendation relates to a part of the report which suggests that Workplace 2010 will add some £1.5bn to the current PFI debt. The Department does not accept this point as the ongoing charges for the contract will be met largely from within the current funding envelope for the buildings in question. If we were to regard this figure as public debt, then we would have to regard (for example) all our current and future rent, rates and utility charges as public debt as well - which is clearly not the case. As it is planned that the contract will be funded largely from within the current expenditure envelope, it is clear that it will not add the public debt. Indeed the Department would contend that rather than adding to the debt this contract will actually put about £200 million capital spending power into the system to support the Investment Strategy for NI and reduce the amount of borrowing that might otherwise be created by other major projects. However the Department notes the findings and can provide assurance that, on the point about transparency, a full audit trail in relation to this project will be made available on budgetary transfers from departments and financing arrangements within NICS.

15 As with any form of contractual commitment, it is a departmental responsibility to assess the future flexibility and affordability of their baseline before entering into a contact. Departmental Resource Accounts provide a public source of information on the ongoing and future level of PFI commitment.

Committee conclusion/recommendation (Report paragraph 53):

16 The Committee recommends that if the WP2010 project is to proceed on a PFI basis then the Department should ensure that the full range of applicable best-practice approaches and lessons identified from existing PFI experience, including those outlined in this report, are applied in respect of the Final Business Case, the final contract and contract management arrangements.

Department’s response:

17 The Department accepts this recommendation and can assure the Committee that the programme has already examined the recommendations of the Public Accounts Committee and related Treasury guidance on lessons learned. It has also sought to identify best practice from a range of projects with a view to ensuring that the contract and the subsequent management arrangements reflect a best in class approach. The Department will continue to develop this and ensure that the final business case clearly reflects the application of best practice from previous PFI/PPP contracts and the recommendations of the Committee for Finance & Personnel.

Committee conclusion/recommendation (Report paragraph 59):

18 Given the scale, complexity and importance of WP2010 and the range of safeguards required, the Committee seeks firm assurances from the Department on the following:

• That the Final Business Case will be independently and objectively assessed, not only in terms of the process and methodology followed in its preparation but, more particularly, in terms of the underlying assumptions, calculations, analyses, conclusions and recommendations contained therein.
• That this assessment will cover, amongst other things, the robustness of the Public Sector Comparator, the qualitative and quantitative evaluation criteria and the application of these against the different procurement options, as well as the comparisons of the costs, benefits, risks, uncertainties, optimism bias and the sensitivity and the affordability analyses associated with the different procurement options.
• That, in the event of PFI being confirmed as the best value for money and most affordable solution, the final contract will provide for all necessary safeguards, including those identified in this report.

The Committee regards these measures as being necessary and valuable in providing the optimal level of independent and objective assurance to the Minister, and ultimately to the Executive and the wider Assembly.

Department’s response:

19 The Department notes the recommendation and can confirm that in reaching this stage of the procurement the programme has already been subject to the full Office of Government Commerce Gateway Review process with a very experienced and totally independent team providing assurance to the Senior Responsible Officer and Accounting Officer. Gateway 1 confirmed the robustness of the business case and that appropriate options had been explored as well as the likelihood that value for money could be achieved. Gateway 2 looked again at the business case and the robustness of the procurement strategy. A subsequent health check confirmed the state of readiness to proceed to Invitation to Negotiate. At Final Business Case a Gateway 3 Review would be appropriate and the Committee can be assured that this will take place.

20 In accordance with Government Accounting (NI), all NICS projects above delegated limits require DFP Supply approval to incur spend. In fulfilling this requirement, DFP Supply provides an independent challenge to all NICS departments, including DFP.

Committee conclusion/recommendation (Report paragraph 60):

21 The Committee recommends that any additional assessment or work necessary to provide the required assurances should be undertaken promptly and immediately once the Final Business Case and final contract are available.

Department’s response:

22 The Department accepts this recommendation.

Location of Public Sector Jobs

Committee conclusion/recommendation (Report paragraph 63):

23 The Committee recommends that the Department and the wider Executive implement the recommendation by the Committee on the Programme for Government, to develop an affirmative policy for the dispersal of public sector jobs, which ensures the capacity of the public sector to deliver a range of services efficiently and effectively, through a sustainable approach, and implemented ‘for the benefit of the whole of NI, as a matter of priority’.

Committee conclusion/recommendation (Report paragraph 64):

24 In echoing the call for an affirmative policy on dispersal, the Committee contends that this policy should not be framed simply in terms of the demographics of public sector jobs location or the need to transfer jobs outside the Belfast area. Rather, a strategic approach is required – in terms of the locations selected, the number, types and grades of jobs, and the functions or business units to be relocated – to maximise the benefits throughout NI. The Committee further believes that the Department, in categorising the location of offices within the public sector, should accurately reflect geographic reality.

Committee conclusion/recommendation (Report paragraph 80):

25 Whilst acknowledging that the conditions in NI, in terms of the location of public sector jobs, will differ from elsewhere, the Committee, nonetheless, calls on the Department to learn the lessons from the international experience of public sector jobs dispersal and apply these, as appropriate, in the NI context.

Committee conclusion/recommendation (Report paragraph 85):

26 The Committee considers that, whilst the costs of dispersal are important, including the immediate investment requirements and shorter-term value-for-money considerations, the Department should give appropriate weighting to the longer-term strategic gains, including the potential of dispersal as a tool for supporting the development of the regional economic hubs and, thereby, closing the significant regional economic and prosperity gaps within NI.

Committee conclusion/recommendation (Report paragraph 88):

27 The Committee further recommends that, for the purposes of informing the strategy on jobs location, the Department commissions an independent study on how best to maximise the longer-term economic, social and environmental benefits from an affirmative dispersal policy.

Department’s response:

28 The Department notes the Committee’s recommendation to develop an affirmative policy for the dispersal of public sector jobs and is open to the merits of the case while recognising the need to ensure value for money for the public. Executive consideration and agreement would be required to adopt such a policy.

29 There is no extant proactive dispersal policy in Northern Ireland – it relies on taking advantage of opportunities when they arise and where value for money can be demonstrated. In light of the responses to the consultation on ‘Guiding Principles for the Location of Public Sector Jobs in Northern Ireland’ the Department believes that there would be merit in the Executive now seeking to clarify the policy on the future location of public sector jobs.

30 The Department agrees with the Committee’s recognition of the range and complexity of the issues to be addressed in progressing a dispersal policy (paragraph 75) and the need for careful consideration to be given to the optimal approach to dispersal (paragraph 71). The Department agrees that the issue should receive proper consideration and therefore proposes that the Executive initiate a detailed time-bound review to develop policy options on the location of public sector jobs to enable the Executive to come to an agreed approach on location policy in Northern Ireland. The Minister of Finance and Personnel has held an initial discussion with the Executive on this matter and intends to seek their agreement to initiate a review at the earliest opportunity.

31 The Department agrees with the Committee that it is important that a strategic approach would be adopted. Ensuring such a strategic approach would, amongst other things, require detailed consideration of the existing location and nature of public sector jobs and the expected costs, impacts and benefits of movement of public sector jobs. The Department believes that undertaking a detailed review would provide the necessary examination of the issues to ensure development of a robust policy on location that would deliver maximum benefit to Northern Ireland.

32 Learning the lessons from elsewhere would help to inform the development of a workable strategic approach. The Department therefore agrees with the Committee that, while recognising that the conditions of Northern Ireland provide a specific set of challenges, there are lessons to be learned from the experience of decentralisation of public sector jobs in other jurisdictions. In developing the consultation document on ‘Guiding Principles for the Location of Public Sector Jobs in Northern Ireland’ officials undertook some research into the experience of decentralisation of public sector jobs in England, Scotland, Wales and the Republic of Ireland. However, the Department believes that a more detailed study of the development and implementation of decentralisation policies in other jurisdictions would be helpful to inform the development of a location policy for Northern Ireland. The proposed review would provide the opportunity to undertake such a study of experience elsewhere and learn the lessons for Northern Ireland.

33 The principles proposed within the consultation document on ‘Guiding Principles for the Location of Public Sector Jobs in Northern Ireland’ included a guiding principle of ‘Achieving Value for Money’ as well as a principle focused on ‘Maximising Social and Economic Benefits’. The latter included a number of sub-principles, including:

• Supporting development in areas of social and economic deprivation (in line with the Anti Poverty Strategy);
• Contributing to local economic growth and sustainability; and
• Building on the regional hubs as identified in the Regional Development Strategy.

34 The Department assures the Committee that these two principles will remain as key features in the final version of the framework to underpin decisions on the location of the RPA-related bodies.

35 Alongside the guiding principles it is proposed that there will be a detailed methodology on how the principles should be applied to help ensure openness and robustness throughout the decision-making process. The methodology is currently being developed by the Estates Working Group with DFP economists. It is proposed that it will adopt an impact statement approach (as outlined in the Northern Ireland Practical Guide to the Green Book) in particular to broaden the initial long list of locations. Thereafter the detailed appraisal would be undertaken as set out in the Northern Ireland Practical Guide to the Green Book. In this way the methodology will help to ensure that decisions are not taken on a purely financial value for money calculation without regard to the other policy considerations set out in the principles.

36 While the framework will provide a robust and transparent methodology for decisions on location of the RPA-related bodies, the Department recognises the need also to think about the longer term. The Department believes that any future strategy on the location of public sector jobs should be well-informed, underpinned by detailed analysis of the range of complex issues in relation to dispersal. Undertaking a review would provide the opportunity to conduct a thorough analysis of the short and long term costs and benefits of dispersal as well as how best to maximise the longer-term economic, social and environmental benefits from an affirmative dispersal policy (if this was the policy approach ultimately adopted by the Executive).

37 If the proposal to undertake a review was agreed by the Executive it would be the Minister of Finance and Personnel’s intention to quickly bring forward further detailed proposals on the review.

Committee conclusion/recommendation (Report paragraph 69):

38 The Committee seeks further assurances that the final WP2010 contract and projected costs do not militate against future strategic decisions on the location of public sector jobs.

Department’s response:

39 The Department has consistently sought to assure Ministers and the Committee of its clear objective to respond to changes in policy and political commitments on the location of public sector jobs as well as a range of other uncertainties – this is demonstrated in a specific political objective set out in the business case. Work is ongoing to develop a flexibility model for the Best and Final Offer stage of the procurement that will secure not only a competitive price but demonstrate best value for money and the appropriate level of flexibility to accommodate future movement of business. This will be reflected in the final business case.

Committee conclusion/recommendation (Report paragraph 87):

40 The Committee recommends that, as a complement to a high-level affirmative policy on dispersal, the Department takes the lead in developing a cross-cutting strategy on jobs location, covering NICS, local government and the wider public sector. This strategy should apply best practice, based on experience elsewhere, in providing a methodology for applying the guiding principles and for initiating and implementing individual dispersal projects.

Department’s response:

41 If the Executive were to agree to an affirmative policy on dispersal, the Department agrees that a cross-cutting strategy and underpinning methodology on public sector jobs location drawing on best practice and experience elsewhere would be required to implement the policy. The Department therefore proposes that such a strategy and methodology would be a key output of the review discussed above.

42 However, it should be noted that, as with the guiding principles framework currently under development, neither DFP nor the Executive can mandate compliance by other sectors such as local authorities without the appropriate legislative provision. Any cross-cutting strategy would therefore have to be developed in a collaborative manner, involving all relevant sectors, and encouraging those sectors outside central Government mandate to adopt the agreed approach.