Examination of Witnesses (Questions 20
- 39)
WEDNESDAY 21 JANUARY 1998
Mr J Mortimer, Treasury Officer of Accounts, further
examined.
20. You did not ask them if there were any
potential discounts from economies of scale?
(Mr Tilt) --in the subsequent competition
for Agecroft and Pucklechurch Securicor offered a two per cent
discount on an uncompetitive bid[1].
In fact the best discount --
21. Can I tell you where my figures come
from.
(Mr Tilt) Can I just finish the
point I was making.
22. Quickly please, if you would.
(Mr Tilt) The best discount that
we were offered on a competitive bid was rather below one per
cent.
23. If you turn to page 46 of the Report,
figure 10, the Chairman has already referred to it, savings at
Bridgend of 17 per cent, virtually no savings at Fazakerley. If
you achieved similar savings at Fazakerley, that would have been
£41 million of additional savings plus up to five per cent
discount on economies of scale that Securicor and Costain said
to the National Audit Office they could have offered, although
you dispute that. We did not ask them but you dispute that. That
would have been a further £24 million making £65 million
in all.
(Mr Tilt) I think it is £25
million not £24 million. I do not dispute that part of it
but I do not understand your £41 million. The figure identified
in the report is £31 million.
24. What is not in dispute though, and you
accept you said to the National Audit Office, you thought you
may have foregone savings of £19 million?
(Mr Tilt) Yes.
25. So you accept that?
(Mr Tilt) Yes, I do.
26. Now I would like to examine your reasons
for allowing such losses to go ahead. You have said you want to
develop this market in custodial services and on page 28 of the
report you make what I find quite an extraordinary statement and
that is you say that this strategic decision not to award the
two contracts to the same contractor would not have been affected
by higher cost savings. Now you accept that cost savings could
have been £19 million, you have also mentioned a figure of
up to £44 million, I say there is a figure of perhaps up
to £65 million. You are an accounting officer, at what point,
how many millions of pounds would it have taken before you thought
perhaps that ought to affect your strategic decision?
(Mr Tilt) I repeat that as far as
I am concerned the figure in the report reflects up to £44
million and I do not recognise the other figure. I did in answer
to the Chairman at the beginning make two points, not just the
future strategic market point but I made first, and in a way probably
I think of greater priority, the question of risk attaching to
awarding both contracts to one supplier. We took that very seriously
indeed and would have been extraordinarily nervous about doing
that.
27. I am glad you have raised the question
of your reasoning because the National Audit Office Report states
quite clearly that it was well thought through and indeed it is
set out on page 26, paragraph 2.13, there are four concerns. You
mentioned two of them but let us just go through them. One is
risks placed "... too great a demand on Securicor..."
because they were inexperienced, you have mentioned that one.
The second one was in relation to the design that they were suggesting.
I always thought that PFI was about telling the contractors what
services you wanted and leaving the design and their way of delivering
to them. I do not see why that would have been such a major concern
to you.
(Mr Tilt) If I can comment on that?
28. We will come back on that. I want to
refer to all of them. The third one was that you thought one of
the contractors concerned may be experiencing financial difficulties.
(Mr Tilt) Yes.
29. And therefore you were nervous about
giving them two contracts. Would that not be enough to make you
nervous about giving them any contracts? It seems to me that out
of the four reasons we have had-the fourth one is you wanted to
develop a market in custodial services-the only one that is really
convincing is the fourth and I wonder whether that is a proper
reason for you to have raised given that there has been a significant
loss to the public purse as a result?
(Mr Tilt) I do not accept that there
has been a significant loss to the public purse.
30. £19 million is not a significant
loss?
(Mr Tilt) I am not saying that because
I do not think one can regard that as a loss to the public purse
necessarily.
31. Savings foregone.
(Mr Tilt) It is a net present value
over 25 years. It is of course based on an assessment that everything
would have been delivered precisely on time if they had both been
delivered to one contractor. If that had not been the case and
we had very substantial worries, we talked about the Costain problem,
we had very substantial worries about that.
32. That could have been dealt with by financial
penalties in the contract.
(Mr Tilt) I assume you want to hear
the answer which is that if we had suffered a 12 month delay the
police cells cost to us of that would have been £65 million[2].
33. I can understand that.
(Mr Tilt) I have to balance the
risk of a single supplier not delivering both on time against
those sorts of penalty costs that I would have to pay for police
cells.
34. It appears from the report you took
the view at a very early stage of prison service, it was not you
personally, that these contracts would not be let to two different
bidders.
(Mr Tilt) No, we took the view that
they should be let.
35. Not to the same bidder?
(Mr Tilt) Yes.
36. That was in March 1994, you intimated
to the bidders. That condition was not in the tendering document,
was it?
(Mr Tilt) It was not in the second
round of tendering documents and that was an omission which we
fully acknowledge[3].
37. The National Audit Office asked the
bidders and they were of the opinion that they could have been
awarded both from the tendering documentation. This was a covert
view.
(Mr Tilt) No, it was not covert.
If it had been covert presumably we would not have told them in
the first place but we did omit telling them in the context of
the second.
38. Certainly Securicor and Costain bid
for both, did they not?
(Mr Tilt) Yes, they did.
39. Would they have done that if they had
been aware of the fact they could not have been awarded both?
(Mr Tilt) No I think you are quite
right to say that the bidders believed that there was a possibility
of them being awarded both but, as I say, our position was that
that would have been a very, very high risk strategy for us and
one we were not prepared to take. I note in the report, in fact,
that Securicor acknowledge themselves that they understand perfectly
well why we did not award both contracts to one bidder.
1 Note by witness: In this context an uncompetitive
bid was one more than 4% greater than the lowest bid. Back
2
Note by witness: £65 million would be the cost of holding
600 prisoners in police cells for a year at a cost of £300
per day. These costs are principally comprised of police overtime,
and equipment and supplies. Back
3
Note by witness: The Prison Service wrote to bidders in March
1994 to explain that the two contracts would be awarded to two
different bidders. Erroneously, this was not included in either
of the invitations to tender. Back
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