Question

To ask the hon. Member for Blaenau Gwent and Rhymney, representing the Restoration and Renewal Client Board, with reference to the stated annual cost of delay of £70 million and the estimated additional £250–350 million annual inflationary impact, what methodology was used to calculate those figures; what assumptions were made regarding construction market conditions; whether independent validation of those delay cost estimates was commissioned; what sensitivity analysis was undertaken to model lower inflation scenarios; and whether those delay figures include all ongoing maintenance expenditure irrespective of the R&R Programme.

It is estimated that the cost of delaying starting the delivery phase of the Restoration and Renewal (R&R) Programme is around £70m per year at current prices. It is estimated that there would be a further £250m to £350m in the inflationary impact on construction costs across the whole of the Programme for each year of delay, based on current information.

The methodology underpinning the cost of delay is set out on page 124 in Annex 2 of the R&R Client Board’s recent report, Delivering restoration and renewal of the Palace of Westminster: the costed proposals (HC Paper 1576). This consists of: the compound impact of inflation over the Programme’s life (the £250m-£350m figure above); nugatory options development costs from this point; and additional reactive maintenance costs (above the current baseline).

The cost of delay was considered as part of the Independent Advice and Assurance Panel’s (IAAP) review, which was published alongside the report. The IAAP has advised that the calculation of the costs of delay is likely to be an underestimate because it is based on accepted figures where robust estimates are available – most notably for the inflationary increase in construction costs that arise from delayed implementation, which the IAAP considered to be reasonable, and realistic. While those specific figures were reasonable the IAAP advised that, in major asset management, it is well established that remediation costs often grow in real terms relative to avoided maintenance costs (when essential investments are postponed): they also advised that the likelihood of extreme events rises when complicated, interconnected systems are operated beyond their intended design life or usage parameters.

Separately to the cost of delay calculations, sensitivity analysis looking at the impact of construction inflation outstripping Bank of England forecasts was considered.

The cost of delay figures were estimated with regard specifically to the R&R Programme and do not include all ongoing maintenance within the Palace of Westminster, only the growth in reactive maintenance costs above the current annual baseline.