MEMORANDUM TO THE PUBLIC ACCOUNTS COMMISSION
REFURBISHMENT OF THE NATIONAL AUDIT OFFICE HEADQUARTERS
PROGRESS TO OCTOBER 2008 INCLUDING A REQUEST FOR ADDITIONAL
Note by the Comptroller & Auditor General
1. This memorandum has been prepared to report on progress since the
Commission’s last review of the project in July 2008. In view of the issues
discussed in this memorandum we are seeking the Commission’s approval for
additional funding of £5.8 million to enable us to enter into contract for the main
works without further delay. This would increase the total amount of funding
approved for this project from £77.44 million to £83.24 million, an increase of just
under 7.5 percent.
Progress since July 2008
2. In July we reported to the Commission that the initial offer price for the main
works was significantly higher than budgeted. We agreed a two month period to
review the alignment of the contractor’s (Wates) design with the project
objectives, including the development of “value engineered” design options to
reduce construction cost without compromising the design objectives. To
maintain progress on the construction works, we also agreed a programme of
enabling works which the contractor could progress without the need for us to
commit to the totality of the main works. This package of works valued at just
over £8 million (plus VAT) centred around external repairs, procurement and
installation of new windows and internal demolition work.
3. The enabling works package was agreed in late July and has had two benefits in
keeping some degree of construction momentum whilst we sought to overcome
the budgetary issues, and in reducing the time pressure on the main works
programme once satisfactorily agreed. Work began in August and has
progressed well against plan with window installation well advanced and the
internal demolition largely complete.
4. The general strip out of the building above ground was completed in accordance
with the works timetable. Strip out works in the basement and sub-basement
have been delayed because of shortcomings in the clearance of asbestos, as
previously reported, but is on target to finish in November 2008 in line with the
revised works schedule. Strip out work throughout the building has continued to
uncover further areas of asbestos contamination far in excess of the levels
expected from earlier survey work.
5. The condition of the façade and internal steel structure supporting the Clock
Tower have been identified as risk areas throughout the project. The final
surveys have not revealed any deterioration beyond the level we had expected to
Revised Offer Price
6. In the last month activity on the project has centred around validating Wates’
completed design for the refurbishment including, where appropriate, revised
design specifications reflecting agreed value re-engineering options. In assessing
these options a balance has been struck between realising cost savings and
ensuring the continued delivery of the design intent and overall project objectives.
In particular, it was considered important that any approved value engineered
solutions did not result in less sustainable product substitutions or the removal of
sustainable design criteria on the grounds of cost. The revised design solution
retains the original project aspiration of achieving a BREEAM (Building Research
Establishment Assessment Method) Excellent rating. This would be a major
achievement for a refurbishment of a long established building in Central London.
7. Following completion of the design work and re-tendering of many of the works
packages Wates’ submitted their revised offer for the construction contract at the
end of September in line with the revised timetable. The revised offer at £47.995
million (plus VAT), which although lower than their original offer of £51.551 million
(plus VAT), was still significantly above the pre tender budget estimate at
£40.961 million (plus VAT). This revised offer price was based on a 55 week
programme of works commencing at the end of October 2008 with a target
completion date of 20 November 2009. Table 1 below summaries the
movements in the main elements of the estimate and contract offer prices
between the budget set in December 2007 and the revised offer price of
Table 1 £000s £000s £000s
Pre Tender Wates Original Wates Revised
Estimate Offer Price Offer Price
December 2007 May 2008 September 2008
Short Form Contract:
1,024 1,072 1,510
Strip-out works and asbestos removal
Professional Services Contract:
2,747 3,271 3,751
Design works and surveys
34,644 43,408 1 40,699
Main Construction Works
[31,212] [36,528] [32,854]
(of which works packages totalled)
Contingency and Inflation Reserve 2 2,546 0 0
Wates identified additional items 3 0 3,760 4 1,995 4
TOTAL COST 40,961 51,511 47,955
Wates initial offer price for the main works contract submitted on 19 May 2008 and reported to
the Public Accounts Commission in an earlier memorandum from the C&AG dated 24 June
The Pre-Tender Estimate included a construction contingency and an inflation reserve to allow
for price inflation between November 2007 and January 2009.
Wates assessment of additional costs arising from a combination of further asbestos
discovery, additional design costs and costs arising from the deferred start of the main works
and an extended programme of works.
Includes the additional costs of asbestos discovering and removal
8. The revised offer price (£47.955 million plus VAT) reflected savings in excess of
£5.2 million, achieved through value engineering and competitive re-pricing of
works packages. However, attempts to bring the price back within budget have
been affected by:
• continued cost growth attributable to a combination of the increased costs of
significant discovery of asbestos mainly in the rooftop plant rooms and service
risers and an associated elongation to the programme of works; and,
• the continued growth in raw and fabricated materials costs well above the
expectations of analysts and much faster than predicted when the project
budgets were set.
9. A further additional cost has emerged during the strip-out of the building. The
structure is in fact three separate buildings (constructed in the 1930’s, 1950’s and
1960’s) bolted together, so the original budget provided for a reasonably high risk
of discovery of defects and inconsistencies throughout the building. In the event
the building defects discovered during the strip-out have been over and above
the level that could have been reasonably predicted whilst the building was still in
occupation, and before strip out to shell and core. The main issues discovered
can be summarised as follows.
• Structural testing revealed severe and widespread dilapidation to the concrete
slab under the roof top plant on Block C due to salt corrosion. As a result
significant unplanned demolition and restoration work will be necessary to
ensure the roof has the required load bearing capacity.
• Part of the strip-out works involved the opening up of all the vertical
distribution risers prior to redefinition consistent with the new design of
mechanical and electrical services infrastructure. Most of these risers were
found to have been in filled with concrete necessitating significant additional
• Soon after the building became unoccupied severe cracking appeared
around where A and B Blocks join. Investigation revealed that the two blocks
had been attached without a movement joint. There was a movement joint at
the join of Blocks B and C, but it was found to be in need of repair.
• The work necessary to all floors throughout the building has been greater than
expected because of a combination of inconsistent floor screed depths and
the consistently poor condition of the floor slabs.
10. Acting on behalf of the NAO, the Turner & Townsend Project Management Team
have reviewed in detail all the individual works packages and cost elements
making up the offer price. The Wates design solutions have been pared back to
the original design intention or to the agreed re-engineered solution. Charge rates
have been checked where appropriate and we have taken steps to ensure that
Wates have sought through competition to match quality with cost considerations
in agreeing works package prices.
11. Based on this review Turner & Townsend have challenged the Wates offer price
as part of a process of negotiation seeking to reach a contract price that they felt
able to recommend for acceptance by the NAO. The main areas of challenge
related to the fees included to cover residual design risk and the amounts
charged for the removal of asbestos. This latter charge was a substantial
amount, in excess of £1.8 million against an original estimated cost of £200,000.
A significant reduction in the proportion of these costs falling to the NAO has
been negotiated to reflect the liability already accepted by Wates for the
additional works beyond routine clearance of the asbestos contamination in the
basement of the building.
12. Turner & Townsend have reported that in their professional opinion the value of
the works packages presented in the Wates offer (see table 1) is reasonable
taking account of the inflationary pressures on raw and fabricated materials and
the impact of the condition of the building on the amount of repair work required.
They have negotiated reductions on the other cost elements to reach a final offer
price of £46.25 million (plus VAT). Turner & Townsend have confirmed to the
NAO that in their professional opinion this is the best price Wates are prepared to
offer and represents value for money in taking the project forward. Furthermore
having incorporated value engineered changes in design in reaching this offer
price, Turner & Townsend advised that the current design continues to deliver all
the key project objectives as set out in the original business case.
13. They believe that they would be unlikely to be able to negotiate a contract price
less than £46.25 million, without further re-design and programme delay, the
combination of which would have a cost impact considerably greater than further
reductions that might be achieved.
14. One of the original design objectives for the refurbishment was to retain as much
flexibility as possible around how the NAO could use the space available in the
building to meet changing business requirements. Since we last reported
progress in July, we have commissioned a review of the extent to which we might
be able to also flex our total space requirements within the constraints of the
current design. This review has concluded that, based on surveys of our current
space usage, we could reduce the average desk to person ratio from 1:1 to 0.8:1
with minimum impact on our business operation. This would provide us with
potential to release two floors of refurbished office space for future sub-letting.
15. Any decision to sub-let space in the building would not produce savings against
the cost of the project but offers the potential for rental income in the future. The
review has demonstrated that the refurbished building will provide us with space
that is flexible enough to allow for shared occupancy. Further work would be
needed to confirm the desirability of the office accommodation we could offer
against other office space available on the market, and given the need for us to
share front of house space there would be some restrictions on the type of
organisation with whom we could share our building.
Request for Additional Funding
16. On the basis of the advice of our professional project management team that we
should accept the reduced Wates offer price of £46.25 million (plus VAT),and
having reviewed all other aspects of the project budget to secure savings
wherever possible, we still find ourselves some way over the budget previously
approved by the Commission. We have also taken advice on the level of
contingency funding we should retain to cover ongoing risks to construction cost
and the works programme timetable during the remainder of the project.
17. Taking all of these factors into account we are requesting that the Commission
approve additional funding totalling £5.8 million.
18. When we last reported progress in July 2008, we alerted the Commission that
the initial offer price from the contractor (Wates) was considerably greater than
the budget provision. We gave a commitment to seek to reduce the price on offer
via design alignment and value engineering. This process has been partially
successful in realising savings against the original offer price. Our ability to bring
costs down sufficiently to get back within budget has been frustrated through a
combination of further significant discovery of asbestos contamination and a
much greater level of defects and inconsistencies throughout the building than
previously anticipated which has resulted in increased design and construction
costs and a longer timetable for the programme of works.
19. We believe that the current offer price of £46.25 million (plus VAT) represents
best value given where we are with the project. In accepting this price and in
ensuring that we have sufficient contingency funding to cover future risks to the
project, we would require additional funding from the Commission of £5.8 million
to complete the project. The extra costs will fall in 2009-10. We see no need to
increase the level of resources approved for the project in the current financial
20. The Commission is invited to approve the National Audit Office’s request for
additional funding of £5.8 million to ensure the successful completion of their
headquarters refurbishment project.
Comptroller & Auditor General
22 October 2008