IGNORANCE ABOUT the condition of the Ministry of Defence's (MoD) London headquarters caused a £37M increase in the privately financed project to refurbish it, the government's spending watchdog said today (Thursday).
This and interest rate rises increased the project cost by £99M before contracts were signed, but after preferred bidder Modus was chosen, said the National Audit Office report.
Modus is a consortium comprising investment company Innisfree, Laing Investments and Amey Ventures. It signed the £746M deal to finance and refurbish the MoD Main Building in Whitehall in May 2000.
The report blamed a £37M increase in project cost on the MoD's failure to carry out a detailed survey of the building before starting contract negotiations.
'Departments should recognise the importance of survey work on the physical state of their buildings for redevelopment projects.
'Departments should consider the merits of making a detailed survey available to all bidders to enable redevelopment building risks to be priced competitively by all bidders.'
The report acknowledged that the MoD had carried out external condition surveys and dimension surveys and made the results available to the bidders.
But the MoD decided against carrying out more detailed survey work, believing that this would have been unsafe while the building was still occupied.
'Acceptable additional extensive survey work was scoped and carried out by Modus after it became preferred bidder'.
According to the report, Modus's original bid was £42M cheaper than that of second placed Modem consortium, led by Taylor Woodrow. It concluded that the privately financed deal offered similar value for money as one funded by the public sector.
The report revealed that Modus faces penalties of £1M a month if its contractor Skanska fails to finish refurbishment work by December 2004.
But it said that the MoD could have secured a better deal if negotiations had moved quicker.
'Departments should be aware that they may be exposed to fluctuating financing costs if there are extended negotiations with the preferred bidder, ' says the report.