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Introduction1.This is not a review of the Department of Defence which within its remit, this Committee is obliged to undertake. But it looks at one important decision relating to the Department’s accommodation and offers the Committee’s findings as to how better value might now be got while meeting the objective of providing proper offices for the Department and the Army. The Minister for Defence, in September, 1985 announced the Government’s approval for a new combined Army and Department of Defence Headquarters as his intention to proceed with a £20m capital project on the site at Infirmary Road and close to the existing Headquarters building. 2.The Dáil Committee on Public Expenditure in setting its work programme for 1986 considered this and other planned capital projects and decided to undertake a review within its remit of the process by which this decision to spend £20m on behalf of taxpayers was arrived at and to form its own views as to whether it should proceed or how it might be amended in the interests of cost-effectiveness. 3.The Committee’s remit requires that it reviews the justification for and effectiveness of the expenditure of Government Departments In this case it was the justification for the approval for expenditure which was under consideration. 4.The Committee opened its enquiry with a public taking of evidence of senior Department officials, Military officers and the officials of the Office of Public Works. The Secretary of the Department of Defence made a written submission to the Committee summarising the history of the project proposal and the needs of the Department and Army Headquarters (Appendix I). 5.The Committee then submitted a short memorandum summarising its response to the evidence and submissions for the consideration of the Office of Public Works and the Department of Defence (Appendix II) The Office of Public Works then responded to this and other questions raised by the Committee (Appendix III). Further informal discussions continued with officials of the client Department and the Office of Public Works which was charged with the task of pursuing the project to invitation of tender stage on foot of the Government decision and the Department of Finance as the supervising Department on this and all financial decisions. 6.The Committee also pursued inquiries through property market channels with a view to forming a view as to whether the changes in market circumstances for office accommodation provided a basis for changing what might, in other circumstances, have been a very sensible and rational decision. Since the question of private funding of the project was raised both by the Minister in his original announcement and by the Secretary in his submission, the Committee also pursued inquiries with financial institutions to establish the relative cost-effectiveness of this proposal. 7.These various topics were then raised in a further public hearing by the Committee with the officials of the Department of Defence and the Office of Public Works. 8.Following careful consideration of all the information arising from these various inquiries the Committee then drew up its report. 9.The Dáil Committee on Public Expenditure would be concerned if its reservations about the value for money arising from the particular project under consideration were to delay the necessary provision of an adequate and suitable Department of Defence and Army Headquarters and adequate office and work accommodation for the 860 staff involved. 10.The Committee considers that there are more cost-effective means of meeting these very necessary requirements arising largely as a result of the state of the Dublin property market in general and the office accommodation market in particular and that there are more options available if the centralisation of the Department is taken as a separate issue to be considered on its merits. Furthermore, the alternatives are likely to have a shorter lead time than the present official project proposal and are therefore more likely to lead to an earlier alleviation of the problem arising from the present accommodation problems. 11.Since the entry of the Government into the property market will inevitably create its own upward pressure on prices the Committee acknowledges the delicacy of the matter and the need to maintain not only the options of one or more buildings but also the option of building if the taxpayer is to get the best value now available. Chapter 1The Committee’s Review12.The review of the Committee commenced with a meeting on 25th March, 1986 with Dr. Michael Somers, Secretary of the Department of Defence, Lieut-General Tadhg O’Neill, Chief-of-Staff of the Defence Forces, Mr. Cyril Griffith, Assistant Secretary, Office of Public Works and other officials of these agencies. Dr. Somers gave a brief account of the origins and the need for a new Defence and Army Headquarters to accommodate up to 900 people, 60% of whom would be civilian. 13.The project would replace the present accommodation at Parkgate, Coláiste Caoimhín and Park House, together with the centralisation of certain military headquarter facilities which operate from barracks around the city and at St. Bricin’s Hospital. The Committee heard a brief account of the three buildings thus becoming redundant. Both Parkgate and Coláiste Caoimhín were said in 1976 to have a ten-year effective life. Parkgate was built on a 7-acre site about 200 years ago as a hospital. It was taken over in 1913 as the temporary headquarters of the British Army in Ireland and in 1923 as a headquarters for the Irish Army. Coláiste Caoimhín was constructed at the turn of the century as a residential teacher training college on a four-acre site and was taken over by the Department of Defence during the Emergency. A 35-year lease on part of Park House was undertaken in 1978. 14.After detailed consideration by the Office of Public Works, which included the retention of outside consultants, the Department of Finance in 1979 sanctioned the appropriate tender documents for the project. The Government’s approval was given in 1985, having considered draft plans and the alternatives, which had been examined, to proceed to tender stage. The building was designed by Scott Walker & Tallon and is planned for a two-acre site which is part of the complex at Parkgate. It consists of five floors at one end including the base, podium and ground floor and three floors at the other consisting of a total of 210,000 sq. ft. of which 140,000 is the net office accommodation, of which, in turn, 88,000 sq. ft. were allocated to staff on the basis of O.P.W. norms. The complex also includes living accommodation for military personnel on 24-hour duties, an operations room, canteen, library, toilet facilities, stores, computer facilities and 39,420 sq. ft. of basement car-parking. 15.In the course of the inquiry the budgeted cost of the building was adjusted for the original £20m. to £22m. which includes inflation, fees, and the provision of £2.5m. for fitting out and about £1.6m for fees,half of which has been spent to date in bringing the project to tender stage. 16.In their submission the Department of Defence pointed out that the financial arrangements involved a financial house paying the builder during the course of construction and entering into a long-term loan agreement on the basis of a margin over bank rates at the end of the scheduled four-year building period. The Department pointed out that these financial arrangements were a matter primarily for the Department of Finance and would not be finalised until tenders were received. 17.The Office of Public Works, in response to questions from Members of the Committee, explained the monitoring procedure which the Department of Finance obliges to operate on projects exceeding £10m. This involved a monitoring committee, consisting of officials of the Department of Finance, the client Department, and the Office of Public Works, which would be responsible for the management of the project. It was also pointed out that the Office of Public Works had already instituted an arrangement to reflect the recommendations of the Committee in their report on the Management of Capital Projects. 18.In the course of its inquiries the Committee established that an analysis of the project was undertaken by the Department of Finance in 1978 which included, inter alia, consideration of savings arising through centralisation and the relative merits of the alternatives of building compared with leasing. 19.As the study put a value of £69,000 on the annual savings to accrue from centralisation, the Committee saw little reason why centralisation should be treated as part of the brief in considering the urgent office accommodation requirements of certain parts of the Department of Defence in light of the £22m. cost attaching to it. It does appear, however, to be the generally held view of the Office of Public Works and Government Departments that it is more efficient to have staff centralised and this is usually the preferred option. Since the accommodation requirement is, as a result, put at 210,000 sq.ft., the Office of Public Works can correctly say that there is no alternative available at the moment in the market to building a new complex. 20.However, if the remit were to be interpreted as simply providing a replacement headquarters for that now housed in inadequate buildings at Parkgate or to provide for replacement for Parkgate and Coláiste Caoimhín, many options are available in to-day’s market. Park House accommodates 150 of the 500 civilian staff in the Department. The main complaint made against this accommodation, apart from the fact that it was one mile distant from Parkgate and two miles from Coláiste Caoimhín was that its heating and air-conditioning were originally designed for a hotel rather than an office complex. 21.The Department of Finance exercise on buildings versus leasing was done on the basis of a total cost at January, 1978 prices of £5.35m.. On the basis of 12% interest rates, 7% inflation rates and 5-year reviews of rent in line with inflation and starting with £3.50 per sq. ft., the advantage was shown, not unnaturally, to be strongly in favour of building which was still positive even after discounting at 5%. The conclusion, therefore, which seems to bear out the generally held view within the Department of Finance was that building was by far a more attractive proposition than renting, even allowing for some element of rent discount for the out-of-centre location. 22.The Committee considered, however, that with the dramatically changed property market, both the purchase and lease and the changes in interest and inflation patterns, the position is changed fundamentally. So too, indeed, has the capital cost of the project and the level of Government borrowing and taxation since the exercise was undertaken in 1978. Taking these various factors into account the conclusions from the 1978 exercise can have no more than an academic relevance to consideration of this £22m proposed expenditure in 1986. 23.The Committee also pursued certain questions of the building specification and design and its efficiency as an office complex with the Office of Public Works. It considered the accommodation norms applied by the Office of Public Works to civil servants of different grades and the international patterns both in public and private sectors. 24.The Committee also considered the breakdown of the budgeted cost of the building of over £100 per square foot. While these figures may be reasonable in terms of today’s costs, the Committee expressed concern on the basis of its own experience in reviewing other Government capital programmes that budgets are rarely realised. In any event these costs are very high relative to the alternative of purchase in to-day’s market if such an alternative were available. 25.There was no discussion on what the open market value of the building might be when completed but the Committee was of the view that it would be a fraction of the final cost. 26.Because of the use by the Office of Public Works of the gross area of the building, including car-parking in quoting price per square foot, the Committee had some difficulty in rendering costs comparable. This was further compounded by the fact that the net area of the 210,000 sq. ft. building was quoted as being 140,000 sq. ft. while the net amount assigned on the basis of the O.P.W. civil service norms, was 88,000 sq. ft.. Within this a very high proportion of the total area was allocated to private offices. By to-day’s standards, the Committee established that the amount of accommodation provided for in private offices, though complying with O.P.W. norms, was very high by international standards and by comparison with private sector office accommodation norms in Ireland. 27.The Committee’s attention was drawn to a British report of June, 1985 reviewing office accommodation management. This report indicated that, taking 1979 as the base, there was a dramatic divergence between civil service and other office accommodation allocation per staff with a rise in the average area allocated to civil servants and a substantial decline in the space allocation per head in the total U.K. office accommodation market. Similarly, in the context of improving the management of work space, the United States Government has set a target of 12.6 square metres per person. 28.It is the view of the Committee that these trends in private office accommodation and public sector accommodation in other countries have not been reflected in the O.P.W. norms and, in particular, in the planning of the Department of Defence proposed Headquarters. But if this were addressed it would only reduce or redistribute the 88,000 sq. ft. allocated to officials. It would not reduce the amount of avoidable space being built to this 210,000 sq. foot complex to yield 88,000 sq. ft. of allocated office space. Chapter 2Concerns arising from the Review29.The main issues arising in the course of the review giving rise to Committee concern can be considered under the following headings. 30.1. The value of and need for centralisation of the Department of Defence and Army Headquarters. 31.While the Department of Finance study of 1978 quoted a saving it was by no means convincing and in any event was insufficient even to justify the fee budgeted for the replacement project. 32.Though the conventional wisdom of O.P.W. and Government Departments generally support the proposition of centralisation, the Committee is concerned that this may not take into account the value of modern telecommunication technology in rendering physical location secondary and the other amenity, flexibility and autonomy values of decentralisation or the substantial additional capital costs involved. The Committee was satisfied to note that Department of Finance officials in their evidence were fully conscious of the very considerable additional cost of centralisation in to-day’s property market and would bear this in mind in its review of the project after tender stage. 33.2. The Knock-on-Costs While the figure of £22m. is the budgeted cost of the new premises this figure makes no provision for possible additional costs arising from relocating, re-equipping, standardising equipment, the loss on the sale of the unexpired portion of lease or other penalties arising, the additional security costs of a more open building with three sides fronting the street or the very considerable costs of making good the existing Parkgate building for some other use. The added cost has been estimated by O.P.W. at between £1.25m. and £1.8m. The Committee was told that Cóláiste Caoimhín had a realisable value of £0.5m or perhaps one tenth the value of the proposed building square foot for square foot. The unexpired portion of the Park House lease is more likely to be seen by the market as a liability than an asset. Hence these disposals will contribute little if anything to the funding of their replacement. 3.The size and cost of the building 34.Of the four main sites it now occupies, it is ironic that the Department’s plans for centralising their operations is on the smallest site and will require that it fronts onto three streets. This and the very low density being achieved in the building also concerns the Committee. The low density arises because of the large allocation of space for underground parking, general service areas and the high proportion of space allocated to senior staff in private offices. 35.The design of the building which was undertaken in 1978 has not responded to the changing pattern of office use resulting in higher utilisation ratios and this will undoubtedly add unnecessarily to its cost if it proceeds, without considerable adaptation. 4.The Choice of Building/Purchase over Leasing 36.The Committee had some concerns about the validity of the system used by the Department of Finance to determine the relative cost and benefit arising from building and leasing. It certainly does not take into account the risk - and on the basis of the record the virtual certainty - of a budget overrun on building projects under the management of the Office of Public Works. Nor does it take into account the present office market conditions or the limitations on the Government’s borrowing capacity. 37.The Committee has been informed that no purchase alternative is available. While this may be true if the requirement is taken as being a gross area of 210,000 square feet, the Committee is concerned that the manner in which the project was pursued excluded consideration of lower cost alternatives, which do not necessarily exclude centralisation. Furthermore, many more purchase options would be open if centralisation were not written into the brief given to the Office of Public Works by the Department of Defence. 38.The Committee is not satisfied that the purchase or leasing options are ruled out by security considerations as they have been informed though, of course, the cost of meeting the security requirements would have to be taken into account in any lease or purchase proposition. The original Department of Finance estimate was that 5.6% of the project cost related to security. On the basis of information subsequently supplied to the Committee this still seems to be the case. It is a simple matter to adjust a purchase or lease proposition for the security consideration. 39.The Planning Procedure The Committee is not satisfied that the system of selecting an architect from an approved panel on the basis of a rota is a reasonable method of assigning responsibility for such a major project and would see public competition as being more appropriate. 40.Nor is the Committee satisfied that normal planning requirements should be waived in the case of public buildings. The system, after all, is part of a safeguard for citizens. 41.The Committee was concerned that the system which offered a project for tender in 1986 with a four-year scheduled building time on the basis of a design completed in 1978 and a requirement brief established as early as 1974, could adequately respond to emerging trends in materials, economies of allocating, maintaining and servicing space and technology and work patterns. 42.The Committee considers that the needs of the Department of Defence have and should have changed dramatically over the 16-year period from final brief to the scheduled date for takeover of the building and that the “state of the art” in building efficiency materials and communications and other technology should have changed equally dramatically. A 16-year lead time is, in the view of the Committee, incompatible with the prevailing pace of change and the system from which it arises warrants closer consideration. 43.5.The proposed building On the basis of the information and other expert opinion available to the Committee, the plans and pertinent figures relating to the cost and utilisation of the building the Committee had a number of concerns which it considered warranted a review of the design if it were to be proceeded with following consideration after the tender stage. 44.Among the primary concerns are:- -that a substantial investment in underground parking should be incorporated in a building so far from the high density parking and office area beside a 7-acre contiguous site now housing the Department of Defence Headquarters and beside the Phoenix Park. Apart from the cost of this element of the building, the Committee considered that it would inevitably impinge on the security of the building. -that 26% of the office space is allocated to private offices and little more than one third of the total space being built is allocatable as office space. -That the window panels are recessed so deeply in the building as to reduce seriously the utilisable space and that the glass frontage of the building is so extensive as to impinge on the energy efficiency of the building. -that the design of the building obliges the installation of multiple lifts and stairwells and enclosed courtyards, all of which add substantially to cost and, -that the building is open to the road on three sides which must add to the security problem. Funding45.Though the question of funding is not to be finalised until after tenders have been received, the Committee has been advised and the Minister has announced that the proposal is to fund the project privately. The Committee is concerned lest this proposal might in some way be seen as reducing the onus on the Exchequer and, therefore, on the Department of Finance. Furthermore, the Committee is of the opinion that private funding is likely to prove more expensive and less flexible than the conventional method of direct Exchequer funding. 46.Consideration of these various matters and further informal consultations with all the parties involved led to the Committee formulating its conclusions and recommendations on the proposed new Department of Defence and Army Headquarters. 47.On the basis of the breakdown provided the Committee is concerned that:- -the provision of £3m. might be found to be seriously inadequate to fit out and furnish such a large building. -the £22m. does not include any provision for the financial costs of the project itself. This is particularly odd in light of the funding proposal which would include a roll up of interest costs. -a figure as high as £200,000 is to be spent on short term temporary accommodation for the staff and functions being cleared out of the proposed site. This expenditure is mainly on temporary accommodation which will further clutter and demean the headquarters site and seems an inordinate expense in light of available lease rates. Conclusions and Recommendations48.Having considered all the evidence available and all material factors, the Committee came to the following conclusions:- -That there is a definite and acute need to improve the office facilities of the Department of Defence and Army Headquarters. -That the present headquarters building, which is listed and must therefore be retained, is substantial and though it needs some additional expenditure on repairs to bring it up to acceptable standards should not be lightly dismissed or down-graded to storage or other less valuable accommodation. -That the H.Q. building should be augmented rather than replaced either by adding additional office accommodation on the same 7-acre site or the 2-acre site opposite or by purchase of other suitable buildings. -That in today’s market conditions the last option which the Office of Public Works should consider is that of a new building. -That suitable alternatives are available, particularly if the question of centralisation of the Department and Army Headquarters onto one site were not to be regarded as immediately essential. -That the planning process has already taken too long and has, as a result, incurred avoidable cost and inconvenience. -That the proposed building is ineffective in terms of the gross cost, the area allocated to private offices, the relatively low yield of net utilisable space, and from the point of view of its operating efficiency. -That the method by which architects were selected and retained by the Office of Public Works in this case was unsatisfactory. -That the present buildings and, in particular, Coláiste Caoimhín have been inadequately maintained in a manner which impairs the work environment and increases the long term cost of maintenance. -That the funding arrangements proposed by the Department of Defence as announced by the Minister would prove expensive and unsatisfactory if, indeed, they are available. -That the entire project should now be revised with the objective of concentrating the Department of Defence and Army Headquarters into two adjacent buildings with continuing use of at least one of the existing buildings. -That an unsatisfactory electrical system incapable of sustaining micro-computer facilities is not a basis for writing off Coláiste Caoimhín as suitable office accommodation as has been stated, and that its £0.5m realisable value would indicate that it should continue to be used for Government offices. -That the case for replacing Park House has not been adequately made. Those aspects of its heating and airconditioning referred to provide no basis for instituting a £22m capital expenditure. -That the 1978 evaluation by the Department of Finance of the savings arising from centralisation which they identified as £69,000 (£170,000 in 1986 terms) is not an adequate basis for proposing supporting or condoning a £22m investment. 49.Though it is recognised that high inflation and low real interest rates stack the odds against leasing and in favour of purchase, the comparison of lease and purchase values undertaken by the Department of Finance does not sufficiently reflect building cost experience and market conditions to give a valid basis for choosing. Nor do the figures in the workings furnished to the Committee allow for the fact that the building costs relate to gross area and the rent to net area. 50.In short the Committee considers that both the brief and the plan responding to it should now be substantially altered before any further expenditure is incurred. This is likely to lead to more satisfactory office accommodation at less cost with a lower operating cost than the present proposal and, given goodwill all round, could be completed before the deadline now scheduled for taking over new office accommodation. Recommendations51.The Committee’s recommendations relate both to the project under consideration and the process from which it emerged. These recommendations relate to the planning and decision-making process which ultimately led to a Government decision in September, 1985 to approve to tender stage a £22m project for a new Defence and Army Headquarters. 52.The full cost of capital projects including the cost of O.P.W. management of the project should be charged to the benefiting Government Department and that its servicing costs should be provided for in subsequent estimates of that Department. This figure should be reflected in the Department of Finance publication “Comprehensive Public Expenditure Programmes.” 53.The final market value of the resulting property should be a consideration in any Government decision to approve a major capital project. 54.Where architects are to be retained on major public capital projects, their selection should be by open competition. 55.Goverment offices and other building projects should have the same obligations under planning legislation as any other project requiring planning permission. The planning authority is, after all, the local authority and the system is designed to give certain safeguards to the public against inadequate planning standard and on them and the environment. 56.That comprehensive, objective and professionally competent manpower planning exercises should guide consideration of any proposal for new office accommodation for any Government Department and should form the basis of the brief given to the Office of Public Works. 57.The entire system of management and maintenance of public sector office accommodation should be the subject of a major review under the remit of a working party appointed by the Minister for Finance involving civil servants and people involved in commercial property development and management. The terms of reference of the working party should include an examination of the methods used in choosing between leasing, purchase and building and methods of financing. 58.Meanwhile, pending the findings of such a group - which should be obliged to report within one year - this Committee recommend that the client Departments be given authority to undertake minor expenditure for the repair and maintenance of their premises up to a limit of say £20 per square metre per annum. 59.The specific approval of the Department of Finance to commence the planning or examination of a new capital project should be a prerequisite to undertaking the planning process and this should not carry from one year to another. 60.The approval of the Dail should be required for projects involving expenditure of £10m or more and that the onus be put on the promoting Minister to explain the basis on which the expenditure is justified. 61.The wording of the Department of Finance Circular 1/83 setting out guidelines on the procedures relating to new capital projects be revised and its requirements strictly adhered to. 62.That the Department of Defence brief to the Ofice of Public Works should be revised in the light of the 1985 White Paper on the Public Service and staff changes in the Department, public sector, in space utilisation and energy effeciency since the brief was first submitted over a decade ago. 63.That the highest priority should now be given to the option of buying a suitable alternative to one or other of the existing three buildings which could be combined with one of the existing buildings thus reorganising the Department and the Army Headquarters in two separate buildings. 64.The Office of Public works should be asked, as an option on the basis of a revised space need and reduced norms for private office accomodation, to seek design proposals sympathetic with the existing Headquarters either on the same or the adjoining site, to meet the revised needs by augmenting the present headquarters. 65.That in the event of Colaiste Caoimhin being vacated in the process that this be held in public ownership with a view to revamping it and undertaking further development on site in the event of other Department in leased premises requiring to be centralised on a new site. Acknowledgments66.In the context of a £10,000m public expenditure programme, the expenditure of £22m on a new Headquarters might seem a small enough item but in the context of a £20,000m public sector indebtedness it is not insignificant. The announcement in September, 1985 by the Minister for Defence that the project was to go ahead caused the Committee to consider the project and the process which brought it to the stage of getting Government approval to advance it to tender stage. 67.The Committee had the full and active cooperation of the officials involved which allowed their inquiry to be concluded through informal exchanges and correspondence and two public hearings of the Department of Defence, Army and Office of Public Works, and Department of Finance personnel. 68.In its conclusions the Committtee had to confront the difficult task of reconciling value for public expenditure with meeting the legitimate needs of officials. 69.The Committee would like to see the whole planning process short circuited and a resolution to the needs of the Department and its staff met much more quickly and at much less cost than their own plans will allow. This is not an option that is always open to Government Departments but market circumstances at the moment present the opportunity. 70.The Committee believes that, as a result, its requirements for value for money and the requirements of officials for a speedy resolution of the deficiencies in their office accomodation coincide. 71.In pointing to this conclusion we would like to acknowledge with thanks the assistance of the officials of the Departments of Finance, Defence and Office of Public Works and the senior officers of the Army who appeared before the Committee. We would also like to thank those in financial institutions and the property market who gave us the benefit of their advice in coming to terms with some of the rather specialised issues involved in this inquiry.
Michael Keating T.D. Chairman. 26th September, 1986. |
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