GCHQ underestimates cost of relocating by £430m

In one of the worst cases of cost-underestimation in the history of the IT industry, officials at the spycentre GCHQ put the...

In one of the worst cases of cost-underestimation in the history of the IT industry, officials at the spycentre GCHQ put the price of relocating computers at £20m when the true estimate should have been £450m - a 22-fold increase.

By the time the mistake was spotted, the estimate for moving systems to a new headquarters was comparable to the costs of the new building itself, according to a report published today from the House of Commons Public Accounts Committee.

It has also emerged that the board of the government communications centre accepted the official original estimate of the IT transition at £20m, although it knew the figure was actually £41m. Nobody pointed out the mistake at the time.

One of the main reasons for underestimating the cost was that engineers at GCHQ had calculated on the basis of moving the hardware - shifting boxes one by one - ignoring the costs of relocating the technical and communications infrastructure.

This was partly because GCHQ had mostly stand-alone systems and nobody spotted the complexities of the newly-emerging networking connections until about two years after the estimate, according to GCHQ’s evidence to the Public Accounts Committee.

When the Treasury refused to accept the £450m estimate for the cost of the technical transition to the replacement building, a lower figure was agreed, at £308m. To help keep costs to the revised budget, GCHQ will manage its technical transition in stages, keeping part of the existing site open at Oakley in Cheltenham until 2012, incurring extra running costs of £43m.

Edward Leigh, chairman of the PAC said, "It is astonishing that GCHQ did not realise the extent of what would be involved much sooner, given how critical these systems are to its core business."

In September 2003, GCHQ moved to new headquarters which replaced more than 50 buildings at two sites in Cheltenham, Oakley and Benhall. GCHQ retained responsibility for moving its systems, largely for security reasons. The main objective during the transition to the new building was to have no break in IT service.

The £20m - or £41m - figure was so small and could easily be absorbed within existing budgets, that the GCHQ board "took its eye off technical transition at that time and focused only on assessing the commercial viability of a PFI deal for the building", said the PAC report.

"GCHQ was unable to explain why the wrong figure of £20m had been reported to the board. However, we were told that its directors knew it should have been £41m because they had been working on it," said the PAC.

The full costs of the technical transition were realised in 1998 when GCHQ was in the midst of 150-man years of work to manage the millennium bug. Only then did it understand the complexity of the inter-relationships between its networks and equipment.

By 1999 GCHQ’s new programme director estimated that technical transition would cost as much as £450m over two years.

"GCHQ acknowledged the failure of its engineers to spot that a growing degree of networking of systems was going to complicate the process of doing the technical transition," said the report.

The cost of actually moving the equipment was broadly equivalent to the original estimates of the box move. What had not been forecast was the cost of providing new information technology architecture, which was a very big undertaking, said the PAC.

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