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Report on The Future Impact of Borrowing and Private Finance Commitments and Belfast Metropolitan College’s Titanic Quarter PPP Project

Session: 2014/2015

Date: 10 December 2014

Reference: NIA 202/11-16

ISBN: 978-0-339-60548-0

Mandate Number: 2011/16

10914.pdf (23.04 mb)

Introduction

1. The Executive increases its spending power and supplements its funding of capital investment from the block grant with private sector funding using Private Finance Initiative (PFI) contracts and accessing borrowing under the Reinvestment and Reform Initiative (RRI). Both give rise to long-term inescapable financial commitments. The current costs of meeting these commitments are substantial, at approximately £375 million each year until 2030. Servicing these is a first call on the Executive’s budget requiring it to make substantial annual payments that can extend for up to thirty years into the future. Clarity in terms of the quantum and impact of these commitments is an important part of the decision making process and is critical to the understanding and scrutiny of future public sector budgets.

2. It is important that the affordability of the long-term spending implications of Reinvestment and Reform Initiative borrowing is taken into account by the Executive and visible to the Assembly and its Committees. However, currently there is no published and transparent borrowing strategy underpinning the Executive’s budget process. The significant cost of borrowing will further increase depending on any decision to continue to access borrowings beyond planned levels to 2016.

3. The Committee has taken evidence on numerous occasions on projects where business case costs have been under-estimated and where, post the appointment of a preferred bidder, there have been significant changes to the scope and costs of projects. Previous Committee reports on PFI/PPP and other major capital projects have reflected this and highlighted that the public sector needs to act as a more intelligent customer in procuring and managing such projects.

4. The Belfast Metropolitan College project has achieved many satisfactory outcomes e.g. the campus has won awards for building design and high environmental standards and delivered a high level of staff, student and employer satisfaction.

5. However, the Committee has serious concerns over project management, governance, decision-making and the procurement process. It is clear to the Committee that the case for going down the PPP route, as opposed to a conventional procurement route, was marginal at best. But when the additional costs of consultancy, internal staff costs of the College and Department and, in particular, the significant shortfall in receipts from the sale of the surplus properties are taken into account, this was a costly project. In the Committee’s opinion the project does not represent good value for money.

6. On a more positive note the Committee was encouraged to hear about the significant turnaround in the College’s financial position and positive assurances given by the most recent internal audit review. It commends the Principal and her team for their drive and determination in turning the College around. The Committee also commends the College’s witnesses for the candour of their evidence.

7. The wider lessons emerging from this project are not new. However, they serve as a useful reminder and their application should help ensure that value for money is achieved in other public sector projects.

Overall Conclusions

On the Future Impact of Borrowing and Private Finance Commitments

8. The Committee considers that information on long term financial commitments could be better signposted and considers that there is scope for improving the information provided to the Assembly on borrowings and use of PFI.

9. Currently the main reporting route for Northern Ireland’s PFI commitments is through individual Departmental Resource Accounts and Annual Accounts of Arms Length Bodies. Data on PFI projects is also submitted to HM Treasury and published on its website. However, the Committee is concerned that data provided by Departments has been incomplete, resulting in incorrect information being provided in response to Assembly members’ questions.

10. The Committee welcomes the OFMDFM Accounting Officer’s undertaking to consider what additional measures could be taken to improve the transparency of information. The proposed inclusion of up-to-date PFI information in the annual report on the Investment Strategy will improve the visibility of the level of PFI investment. However, this must be at an adequate level of detail to give a full picture of committed/live projects and those in the pipeline.

11. In terms of RRI borrowing, the Committee welcomes the acknowledgement by the OFMDFM Accounting Officer of the benefits of the Executive having a strategy in place for borrowing.

12. Public bodies need to do more to seek efficiencies and savings from operational PFI projects. Business cases and the fact that PFI contracts are competitively tendered do not, on their own, provide assurance that value for money is being delivered. Active benchmarking and market testing offer much better evidence of whether projects are currently delivering value for money.

13. Given that NI departments have to make annual savings each year, the private sector should be expected to contribute to this. However, in Northern Ireland, there is no strategic programme to review PFI contracts and maximise the opportunities to realise value for money savings.

14. The voluntary code of conduct for operational PFI/PPP contracts could offer additional opportunities to commit to a collaborative approach between the public and private sectors to delivering efficiencies and savings. The Committee notes in evidence provided by the department that many companies involved in PFI contracts are already signed up to the voluntary code but the Committee wishes to see wider application by departments and their private sector partners

On Belfast Metropolitan College’s Titanic Quarter PPP project

15. A significant feature of the Belfast Metropolitan College’s Titanic Quarter PPP project deal was that the public sector injected £20 million into the project, including £5 million to purchase the sub-lease for the Titanic Quarter site. The sale of the College’s surplus properties at Brunswick Street and College Square East was intended to cover these capital contributions. However, proceeds from the sales of the properties in 2014 were £5.6 million leaving a shortfall in excess of £14 million.

16. Significant additional costs have been incurred on the project outside the PPP agreement that must be factored into any valid assessment of the value for money of this project.

17. Negotiations with ICL extended from a planned 12 months to 33 months and the value for money of the deal eroded significantly. There were significant unresolved issues with the bidder’s proposals. These included leasing arrangements; planning requirements; and the proposals for the provision of car parking at the Titanic Quarter site. The Committee is concerned that the extent of the unresolved issues and ICL’s privileged development position on the Titanic Quarter site meant that it dictated the outcome and pace of the negotiations.

18. The College failed to adequately manage the consultancy contract for this project which put the project completion in jeopardy. The advisors appointed by the College were allowed to exceed the original budget of £300,000, incurring costs in the region of £2.2 million. A settlement figure of £1.5 million was subsequently agreed. In the Committee’s view this is indicative of the inadequate governance; and poor financial and management controls operating at the College following the merger of BIFHE and Castlereagh colleges in 2007 and during the procurement phase of this project. The Committee also considers that this reflects on the inadequacies of the Department’s oversight of the College and this project in particular. In the Committee’s opinion the Department should have been more alive to the cost overrun and exercised a challenge function. The Committee is encouraged by the evidence presented by the College on progress made in improving the financial stability and the significant steps taken to improve the control environment at the College.

19. The College did not have a robust estate strategy in place and the audit trail supporting the identification of accommodation requirements for the new Campus was acknowledged by the Department and the College as being weak. The Committee welcomes the Department’s assurances that steps have been taken to improve estate strategies across the FE Sector and its plans to put in place space utilisation targets for the Colleges.

20. The College has yet to assess the benefits delivered or the final value for money of the overall project. The Committee welcomes the College’s assurances that the benefits realisation process will be concluded by the end of November 2014 to assess the benefits delivered by the new campus. That said, the Committee is concerned that benefits realisation was not adequately addressed through the strategic planning process and in the preparation of the business plans supporting this project.

21. With the sale of the properties at Brunswick Street and College Square East it is important that the College now assesses the final value for money of the overall project. All costs must be factored into any realistic assessment of value for money of the project.

Summary of Recommendations

On the Future Impact of Borrowing and Private Finance Commitments

Recommendation 1

The Committee recommends that the transparency of long term PFI commitments improves. The publication of PFI commitments information on the OFMDFM website and proposed inclusion of up-to-date PFI information in the annual report on the Executive’s Investment Strategy will provide greater clarity. However, it is important that the information provided is up-to-date and presents a full picture of committed projects and projects in the pipeline.

Recommendation 2

The Committee recommends that the Strategic Investment Board is tasked with developing a strategic programme to promote an initiative aimed at driving long term efficiencies from operational PFI projects and maximising value for money savings.

Recommendation 3

The Committee recommends that OFMDFM, in conjunction with SIB, examines the scope for extending the use of the voluntary code of conduct for operational PFI/PPP contracts. The Committee considers that all departments involved in PFI contracts should be signed up to the voluntary code and be actively encouraging their private sector partners to do likewise.

On Belfast Metropolitan College’s Titanic Quarter PPP project

Recommendation 4

The Committee recommends that, ahead of appointing a preferred bidder, public bodies must fully test the deliverability of bids and limit the extent of unresolved issues within the bid. This will help protect the public sector’s interests by ensuring that any subsequent negotiations are kept to a minimum.

Recommendation 5

The Committee recommends that, ahead of a procurement process for design and build projects, public bodies must develop a credible alternative solution or “exit strategy” which they must be willing to implement.

Recommendation 6

The Committee recommends that, in addition to the overall economic assessment of bids, detailed costings should be assessed for reasonableness and negotiated down where necessary.

Recommendation 7

The Committee is encouraged by the Department’s recent steps to improve its estate strategies. The Committee recommends that, as part of its asset management strategy, it should develop space utilisation benchmarks and targets for the further education sector in Northern Ireland to ensure that the most effective and efficient use is made of its estate.

Recommendation 8

The Committee recommends that, as part of the post project review process, public sector bodies must include all costs of delivering the project. This should include a consideration of any opportunity costs arising from investment decisions taken, such as the Department’s agreement to underwrite losses resulting from asset sales.

Recommendation 9

The Committee recommends that the Department and the College now finalise all post project reviews and evaluations on the Titantic Quarter project to ensure a timely dissemination of the lessons learned.

Part 1:

The Future Impact of Borrowing and Private Finance Commitments

Introduction

1. The Public Accounts Committee (the Committee) met on 11 June 2014 to consider the Comptroller and Auditor General’s report on ‘The Future Impact of Borrowing and Private Finance Commitments’. The witnesses were:

Mr Stephen Peover, Accounting Officer, Department of Finance and Personnel (DFP)

Dr Mark Browne, Accounting Officer, Office of the First Minister and deputy First Minister (OFMDFM)

Mr Mike Brennan, Budget Director, Department of Finance and Personnel

Mr Brett Hannam, Chief Executive, Strategic Investment Board

Mr Kieran Donnelly, Comptroller and Auditor General

Mr Jack Layberry, Treasury Officer of Accounts

2. The financial investment required to improve and maintain Northern Ireland’s public infrastructure is significant and requires a mix of funding solutions including borrowing and private finance. The Executive increases its spending power and supplements it’s funding of capital investment from the block grant through accessing borrowing under the Reinvestment and Reform Initiative (RRI) and with private sector funding using Private Finance Initiative  (PFI) contracts.

3. However, accessing RRI borrowing and using PFI contracts both give rise to long-term financial commitments requiring government to make substantial annual payments which can extend for up to thirty years into the future. The current costs of meeting these commitments are substantial.

4. By 2016 the Executive expects to have accessed borrowings of £2.7 billion from the National Loans Fund which is managed by HM Treasury (draft budget 2015-2016). In 2013-14 the cost of repaying these borrowings was £103 million; this will rise to over £140 million within the next three years. This does not take account of any additional borrowing the Executive may make up to 2016. Existing operational PFI contracts have committed the Executive to over £7 billion in future years; currently the combined annual cost of these contracts is £250 million.

5. Accordingly, understanding the nature of these existing liabilities is an important part of the decision making process and is critical to the scrutiny of future public sector budgets. However, there is currently no central collection or reporting of these costs and commitments directly to the Assembly or its Committees.

Reporting arrangements for long-term commitments are not transparent

6. The Committee welcomes the recognition by the Accounting Officers that information on long term commitments could be better signposted so that members can get information more quickly. The Committee also welcomes the OFMDFM Accounting Officer’s assurance that he will be looking at ways of doing this and his undertaking to put relevant information on the OFMDFM website.

7. Currently the main reporting route for Northern Ireland’s PFI commitments is through individual Departmental Resource Accounts and Annual Accounts of Arms Length Bodies. Data on Northern Ireland’s PFI projects is also submitted to HM Treasury and published on its website. The OFMDFM Accounting Officer confirmed to the Committee that the information on the site was correct and regularly checked by his staff. However, the Committee is concerned about significant discrepancies in the data which was found to be incomplete and resulted in incorrect information being provided in response to Assembly members questions.

8. The Committee welcomes the Accounting Officer’s undertaking to consider what additional measures could be taken to improve the accuracy and transparency of local information. The proposed inclusion of up-to-date information on PFI projects in the annual report on the Executive’s Investment Strategy will improve the information available to the Assembly and public. However, this must be at an adequate level of detail to give a full picture, at both aggregate and departmental level, of committed projects and projects in the pipeline.

9. In terms of RRI borrowing, the Committee welcomes the acknowledgement by the DFP Accounting Officer of the benefits of the Executive having a strategy in place.

The Committee also welcomes the inclusion of detailed information on RRI borrowings within the draft Budget 2015-2016. The Committee notes that the Executive are in the process of considering mechanisms for capping RRI borrowing to ensure that the overall level of borrowing remains within manageable limits.

10. In this respect the preparation of an RRI borrowing strategy by DFP is an encouraging development and the Committee looks forward to this being approved by the Executive and published as soon as possible.

Recommendation 1

The Committee recommends that the transparency of long term PFI commitments improves. The publication of PFI commitments information on the OFMDFM website and proposed inclusion of up-to-date PFI information in the annual report on the Executive’s Investment Strategy will provide greater clarity. However, it is important that the information provided is up-to-date and presents a full picture of committed projects and projects in the pipeline.

Public bodies need to do more to seek efficiencies and savings from operational PFI projects

11. In the Committee’s view the completion and approval of business cases and the fact that PFI contracts are competitively tendered do not, on their own, provide assurance that value for money is being delivered. The Committee is therefore unconvinced by the general assurances given in evidence that all public bodies continue to obtain value for money from current operational PFI contracts. The Committee considers that active benchmarking and market testing, at regular intervals throughout the life of a contract, offer much better evidence of whether projects are currently delivering value for money.

12. Long-term PFI contracts make provision for a value for money review of services every five years. In evidence to the Committee the Accounting Officer reported that such a review in NI Water had resulted in £11 million of savings being delivered. This clearly demonstrates the potential benefits from such reviews. However, it is not clear to the Committee, or from the responses received by NIAO to its survey, that other five year reviews are being conducted to the same rigorous standard or that they are being effective in generating savings.

13. The Committee recognises that individual Accounting Officers are responsible for their own areas of spend but given that there are currently 32 operational PFI projects, considers that expertise is thinly spread across the system. Currently advice on managing contracts is provided to departments by DFP (through the Central Procurement Directorate) and SIB. However, the Committee was concerned to find that there is no strategic programme to review PFI contracts and maximise the opportunities to realise value for money savings.

14. In the Committee’s opinion, given that departments are expected to make annual savings, the private sector should be expected to contribute to this. The Committee considers that this can be better done if driven from the centre using the specialist advice and expertise available in SIB. The Committee recognises the Accounting Officers’ acknowledgement that it could be better coordinated and welcomes the steps that have been taken since the publication of the Audit Office report.

15. The SIB’s engagement with other UK Departments and public bodies to learn from their experience of carrying out efficiency reviews is an encouraging development. The key lessons emerging from this interaction must be communicated to all public bodies.

Recommendation 2

The Committee recommends that the Strategic Investment Board is tasked with developing a strategic programme to promote an initiative aimed at driving long term efficiencies from operational PFI projects and maximising value for money savings.

Recommendation 3

The Committee recommends that OFMDFM, in conjunction with SIB, examines the scope for extending the use of the voluntary code of conduct for operational PFI/PPP contracts. The Committee considers that all departments involved in PFI contracts should be signed up to the voluntary code and be actively encouraging their private sector partners to do likewise.

Part 2:

Belfast Metropolitan College’s Titanic Quarter PPP project

16. The Public Accounts Committee (the Committee) met on 18th June 2014 and 17th September 2014 to consider the Comptroller and Auditor General’s report on ‘Belfast Metropolitan College’s Titanic Quarter PPP project’. The witnesses were:

Mr Derek Baker, Accounting Officer, Department for Employment and Learning (DEL)

Ms Marie-Thérese McGivern, Principal and Chief Executive, Belfast Metropolitan College

Ms Elaine Hartin, Chief Operating Officer, Belfast Metropolitan College

Mr Tom Redmond, Head of Further Estates Branch, Department for Employment and Learning

Mr Pat O’Neill, Strategic Investment Board (SIB)

Mr Kieran Donnelly, Comptroller and Auditor General

Mr Jack Layberry, Treasury Officer of Accounts

Mr Mike Brennan, Acting Treasury Officer of Accounts

The deal required upfront payments of £20 million by the public sector

17. Belfast Metropolitan College’s Titanic Quarter campus was completed in August 2011 as a replacement for the College Square East and Brunswick Street campuses. It is the largest and most expensive Further Education PPP project to date with a capital cost of £44 million.

18. This should have been a low risk project but due to the manner in which the project was managed ended up being more complex and high risk than necessary. However, a significant and unusual feature of the deal was that the Department for Employment and Learning injected £20 million into the project, including £5 million to purchase the sub-lease for the TQ site. The sale of the College’s surplus properties at Brunswick Street and College Square East was intended to cover these capital contributions. However, the Committee was informed by the Department that proceeds from the sales of the properties in 2014 were only £5.6 million. This left a shortfall in excess of £14 million which the Department has underwritten.

19. The initial proposal, on which Ivywood Colleges Limited (ICL) was appointed preferred bidder, envisaged the transfer of College Square East and Brunswick Street to ICL following completion of the Titanic Quarter campus. However in November 2006, shortly after appointing ICL as preferred bidder, the College sought to remove the properties from the deal and sell them on the open market. In lieu the College committed to a capital contribution of £10 million. This decision was made at a time when the value of property was rising dramatically and it was felt that removing them from the deal was the best way of achieving open market value.

20. The Committee does not accept the assertion of the SIB witness that this decision was in line with emerging guidance at that time. A key recommendation of the PAC report on “Transfer of Surplus Land” , published on 13 December 2007 and an earlier NIAO report, was that public sector bodies must assess the relative returns and priority between inclusion and conventional disposal, and properly assess the contribution those assets make to the achievement of other strategic objectives. Neither report recommended that surplus properties should be removed from PPP deals but that regardless of the chosen method of disposal public bodies must be able to demonstrate that they have obtained best value for money.

21. The effect of the College’s decision was that the public sector became responsible for managing the risk of movements in the value of the property market. In the Committee’s view this was a major mistake and was contrary to one of the key principles of PPP that risk is allocated to the party best able to manage it.

22. In addition, it allowed ICL to seek to increase the value of the TQ site in its bid from £3 million to £7.7 million. As a compromise the Department purchased the sublease of the site outside of the PPP deal; this was funded through an up-front £5 million payment, split equally between Belfast Harbour Commissioners and Titanic Quarter Ltd. It was intended that this would be recouped through the sale of the surplus buildings in College Square East and Brunswick Street.

23. The Department contend that, as the surplus properties were removed from the deal, they should not form part of the value for money assessment of the Titanic Quarter project. The Committee is clear; the opportunity cost of making up the £14 million shortfall must be factored into any realistic value for money assessment of the project.

ICL’s appointment as preferred bidder was premature and was the fundamental cause of the catalogue of problems that ensued, including the erosion of value for money.

24. ICL was appointed preferred bidder despite there being significant unresolved issues with their proposals. These included leasing arrangements; planning requirements; and the proposals for the provision of car parking at the Titanic Quarter site. Over the period of the ensuing negotiations that extended from a planned 12 months to 33 months, the value for money of the deal eroded significantly.

25. The leasing arrangements for the Titanic Quarter site were complex due to the number and relationship of the parties involved, i.e. the College, ICL, the Belfast Harbour Commissioners (BHC) and Titanic Quarter Limited (TQL). However, the Committee finds it astonishing that the Department, who were represented on the project board, claims that it only became aware in November 2007 that there were problems with the lease. These were eventually resolved and lease approved by the College in November 2008.

26. It is important to note that ICL’s parent company, Titanic Quarter Ltd[6], had exclusive development rights in Titanic Quarter. In this context the appointment of ICL, before critical issues were resolved placed the College in a weak negotiating position. In the Committee’s view ICL could, and did, dictate the pace of the negotiations in this project.

27. This is further evidenced by the fact that, in February 2007, just four months after their appointment as preferred bidder, ICL submitted a planning application for a sub-basement car park, removing the adjacent car parking that had been included in its original bid.

28. The car parking issue was not resolved until June 2008 when the College entered into an agreement with a company connected to ICL - Ivywood Car Parks Limited – which would see this company construct, at its own cost (£5.3 million), a sub-basement car park which it is entitled to operate for 40 years after which it reverts to the College at no cost. However, in September 2008, ICL’s funding bank advised that its appetite to provide all of the funding for the project was reduced due primarily to the uncertainty in financial markets. It also had concerns about the additional interface risks of the underground car park which sat outside of the project. This meant that the project risks could not be controlled as tightly as would normally be the case.To resolve the situation the Department, College and ICL negotiated an increase in the public sector capital contribution (an accelerated debt repayment) to the College project from £10 million to £15 million; the Department pointed out that this resulted in a reduction in the unitary charge of just over £360,000 per annum over the 25 years of the project.

29. In the Committee’s view both the leasing and car parking issues provided the College with opportunities to re-assess the project at an early stage and/or pursue alternative solutions, e.g. pursuing the reserve bid or going back to the market, without the risk of financial penalty In addition to questions put to the witnesses during both evidence sessions and having assessed additional documentation provided to the Committee, including relevant extracts from all Governing Body minutes relating to the Titanic Quarter PPP, the Committee is not convinced that either option was given serious consideration.

30. The Accounting Officer referred to a number of “tipping points” or critical points during the course of the project where the Department had to take decisions on proceeding with the project. In taking these decisions the Accounting Officer told the Committee that the Department’s thinking was influenced by the Committee’s previous criticisms of the Department walking away from the Springvale project. The Committee does not accept this. Springvale was a very different project undertaken at a different time and in very different circumstances to the College’s TQ project.

31. While it is clear to the Committee that ICL’s negotiating strategy included an option to walk away, no such option was apparent in the public sector’s negotiating strategy. When pressed during negotiations e.g. value of the site, removal of properties and funding of the car park, the public sector’s response was to agree to make capital contributions to the project; whilst this resulted in a reduction in the annual unitary payment, in doing so it also significantly increased the public sector’s exposure to risk.

Recommendation 4

The Committee recommends that, ahead of appointing a preferred bidder, public bodies must fully test the deliverability of bids and limit the extent of unresolved issues within the bid. This will help protect the public sector’s interests by ensuring that any subsequent negotiations are kept to a minimum.

Recommendation 5

The Committee recommends that, ahead of a procurement process for design and build projects, public bodies must develop a credible alternative solution or “exit strategy” which they must be willing to implement.

The College required minimal car parking provision but ended up agreeing a 40 year deal for a commercial underground car park

32. During both evidence sessions, the Department strongly rejected any link between the additional £5 million funding and the costs of constructing the underground commercial car park. To gain a further insight into this issue and on the reasonable supposition that additional construction costs would be incurred in erecting a main college building, with a stronger sub-structure to support the late inclusion of an underground car park. The Committee asked the Department for a detailed breakdown of bid costs and final account costs. The Department was unable to provide this information as they said that costs broken down in this way are not available in a PPP tender and only global construction costs are presented. In addition, the final outturn costs incurred by the bidder are not actually known by the College. The Committee finds this incredulous. This is basic information and is the building block for determining the construction costs of any project whether procured through conventional means or PPP.

33. The Committee is not convinced by the evidence presented by the College and the Department. It was felt that they did not adequately manage risks and protect the public sector’s interest by not factoring in the likely additional costs that would have been incurred for the construction of the car park into the overall construction costs.

34. It was evident from the Titanic Quarter Development Framework (February 2005) that car park provision was a planning requirement for the development of the complete TQ site and individual projects within it. The Committee considers that the Department and College were remiss and should have more rigorously tested and validated ICL’s proposals and been prepared to negotiate on the construction costs, just as ICL negotiated on the value of the TQ site.

Recommendation 6

The Committee recommends that, in addition to the overall economic assessment of bids, detailed costings should be assessed for reasonableness and negotiated down where necessary.

During the procurement the College faced significant financial challenges and governance arrangements at the College and Department were extremely weak

35. The Committee is encouraged by the significant improvement in the College’s financial management and improvement in control environment that have been brought about by the current Principal/Chief Executive and her team. It is evident that, prior to their appointment, the College was struggling. In relation to this project the College had failed to adequately manage its consultancy contract which put the project in jeopardy. The original budget for the advisors was £300,000. However, the contract was extended without any formal process in place for this. Although the final cost was likely to be in the region of £2.2 million it was settled for £1.5 million. The Committee considers that this is indicative of the inadequate governance; and poor financial and management controls operating at the College following the merger of BIFHE and Castlereagh colleges in 2007 and during the procurement phase of this project. The Committee also considers that it reflects the inadequacies of the Department’s oversight of the College and this project in particular. This is further evidenced by the fact that the Department had failed to notice, until pointed out by NIAO, that the £5 million IT spend for this project required DFP approval. This was sought and given retrospectively.

36. The Committee welcomes the Department’s assurances that steps have been taken to improve estate strategies in FE and its plans to put in place space utilisation targets for the sector. The College did not have a robust estate strategy in place and the audit trail supporting the identification of accommodation requirements for the new Campus was acknowledged by the Department and the College as being weak.

Recommendation 7

The Committee is encouraged by the Department’s recent steps to improve its estate strategies. The Committee recommends that, as part of its asset management strategy, it should develop space utilisation benchmarks and targets for the further education sector in Northern Ireland to ensure that the most effective and efficient use is made of its estate.

Significant additional costs have been incurred on the project outside the PPP agreement that must be factored into a valid assessment of the value for money of this project

37. Other significant costs have also been incurred outside of the PPP contract in order to deliver an operational campus. These include £5 million for IT, multimedia and telephony; £1.8 million for consultancy and advisory costs and £1.1 million preparing for the sale and maintenance of College Square East and Brunswick Street buildings. These costs must also be factored into any realistic assessment of value for money of the project.

38. The Committee welcomes the College’s assurances that the Gateway Review on Operations and Benefits Realisation (Gate 5) process will be conducted at the end of 2014. That said, the Committee is concerned that benefits realisation was not adequately addressed through the strategic planning process and in the preparation of the business plans supporting the project.

39. The College has also experienced difficulties agreeing unitary payments and deductions for below standard performance. In addition, the contractor had, at the time of the Committee’s inquiry, still to re-run the financial model to take account of any post-signing contract variations which may result in changes to the unitary payment. Although the Committee was assured by the College’s witnesses that the changes to the unitary charge would be minor, it is important that the private sector fulfils this contractual obligation.

Recommendation 8

The Committee recommends that, as part of the post project review process, public sector bodies must include all costs of delivering the project. This should include a consideration of any opportunity costs arising from investment decisions taken, such as the Department’s agreement to underwrite losses resulting from asset sales.

Recommendation 9

The Committee recommends that the Department and the College now finalise all post project reviews and evaluations on the Titantic Quarter project to ensure a timely dissemination of the lessons learned.

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