Management of the Holyrood building project (PDF ... - Audit Scotland

Exhibit 13
Audit findings on the Flour City contract
2.54 My audit of the Corporate
Body’s accounts for 2001/02
examined questions arising from the
use of letters of intent and interim
contracts to allow works to start at
the earliest possible date. I examined
these matters because of the
termination of one contract (Flour
City) in October 2001 (Exhibit 13).
Otherwise I consider the
effectiveness and propriety of the
various mitigation measures noted
above in Part 5 of this report.
2.55 The construction manager
advocated other strategies to
promote delivery of the project on
time and cost. In particular the
construction manager requested a
design freeze at critical points, the
earliest in July 2000 (for the critical
east frame package only), to avoid
disruption and slippage from
revisiting of designs once approved
by the client.
2.56 These various mitigation
approaches were introduced to
support completion of the
programme by December 2002, in
accordance with the construction
manager’s revised and compressed
programme 4 issued in January 2001.
Part 2. Project overview
• Because of the termination of the Corporate Body's contract with Flour City Architectural Metals (UK) Ltd (Flour
City) in October 2001, Audit Scotland examined the contract as part of my audit of the Corporate Body's
accounts for 2001/02.
• In the Flour City contract I was concerned about the Corporate Body’s reliance on interim contracts and the
absence of a thorough financial assessment of Flour City at key stages. The audit questioned the effectiveness
of the selection procedures in that case and highlighted that the full trade contract with Flour City was not
secured until August 2001, almost eight months after post tender negotiations started and only two months
before the Corporate Body terminated its contract in October 2001.
• My audit showed that at that time similar risks – the use of interim contracts and delays in securing
performance bonds and parent company guarantees – affected many other packages.
• In September 2002 I informed the Accountable Officer of what I considered then were the key concerns
emerging from this work. He accepted that some interim contracts were allowed to continue long after trade
contracts should have been finalised and that were significant delays in obtaining some performance bonds and
parent company guarantees. Fortunately, except in the Flour City case, none of the risks implicit in this situation
appeared to have crystallised. Following my audit the Accountable Officer took action to ensure that where
necessary full contracts, bonds and guarantees were put in place and to prevent similar risks arising again.
Source: The 2001/02 Audit Of The Scottish Parliamentary Corporate Body, Auditor General for Scotland, December 2002
the successful tenderer from the
first stage was invited to provide
a single tender for the remaining
second stage work, once the
necessary design information had
become available. This allowed an
earlier start on the initial works
than otherwise would be possible.
• Re-scoping selected packages,
meaning that work planned to be
tendered was awarded by
negotiation with contractors
already appointed and working on
site, thereby saving time
otherwise required to complete
the competition, appointment and
contractor mobilisation processes.
• Revising the order of
procurement of packages, to
allow a small number of large
critical packages to be progressed
at the earliest possible dates. Resequencing
and reducing the time
allowed for some critical activities.
• Increasing use of letters of intent
and interim contracts to allow
works to start at the earliest
possible date, before a full
contract and commercial terms
have been agreed.
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2.57 In May and June 2001
respectively the Progress Group
reported to the Corporate Body and
the Corporate Body reported to the
Parliament on the overall progress of
the project. Neither offered any
commentary on the prospects for
completion of the project against the
target of December 2002 other than
it was on the advice of the
construction manager. However in
August and September 2001 the
construction manager reported to
project management that the
programme 4 target of completion by
December 2002 could not be
achieved.
As construction intensified in 2001
programme monitoring and
coordination became more
important
2.58 By December 2001, although
delays had affected almost every
package, project management had
on the advice of the cost consultant
and the construction manager
approved tenders for 33 works
package contracts (out of the total of
some 60 construction works
contracts for the project). This
included tender recommendations