Inland Revenue deal slated

The HM Revenue and Customs 20-year property management PFI is costing far more than expected and is poor value for money, the government's auditors have found.

A National Audit Office (NAO) report roundly condemns the Steps PFI deal, signed with Mapeley – a company registered in Bermuda – in 2001.

It says Revenue and Customs has failed to put enough effort and commercial skill into managing the contract, in which it transferred ownership of its buildings to the company.

It did not have a detailed plan for vacating buildings, nor did it know how much money it would save by doing so.

And the deal is so badly structured, the report says, that Revenue and Customs does not even understand the financial position of – or the profits made by – the company.

As a result, the expected £1.2bn savings from the scheme has already been cut to £900m. Revenue and Customs may end up paying £570m more than expected over the life of the contract.

Further problems lie ahead, the auditors warn, as the department plans to move out of a large number of buildings by 2011. This may place further strain on Mapeley as it tries to sell off buildings while property prices remain low.

Edward Leigh, the chairman of the Committee of Public Accounts, described the deal as "extraordinary".

He added: "The department has not achieved value for money over the last eight years.

"Value for money for the remainder of the contract will remain just as elusive unless [Revenue and Customs] takes a lot more commercial approach to its contract, gets a clearer understanding of the contractor’s financial position and agrees with the latter a way forward."

A spokesperson for HMRC said: “We recognise that there is much more work to be done to ensure that the contract delivers all it can to our staff and taxpayers. The measures needed to achieve that are being put in place.”