Examination of Witnesses (Questions 100
- 119)
WEDNESDAY 21 JANUARY 1998
Mr J Mortimer, Treasury Officer of Accounts, further
examined.
100. Hearing what you said about the importance
of delivering on time and the doubts you had about one company
delivering two prisons on time, did you consider splitting and
allowing different builders to build the prisons but actually
the same company to run them?
(Mr Tilt) Tim might want to come
in on this. The bids were invited from consortia. It was for the
bidders to decide what the configuration was and most of them
had a custodial services organisation tied in with a builder and
then tied in with banks or financing in some way. It was not for
us in dealing with the competition to say "Why do you not
swap your builder for another builder over there".
101. Does that go back to the problem of
the initial tender when the consortia were told they could not
bid for more?
(Mr Wilson) No. The procurement
was to procure a complete service in terms of the delivery of
a prison and the operation of the prison 25 years after that from
a consortium which put in a bid. So there would be no possibility
within the tendering process to re-configure the consortium in
some way not to their liking. Also, in terms of changing to one
operator with two builders, the essence of the DCMF prison, particularly
when embarking on a more innovative design and operation which
relies on new IT systems as at Bridgend, is that there has to
be a good fit in terms of the synergy between the operator and
the builder. That gives the consortium the confidence to change
from the more traditional prison construction techniques and operational
proposals.
102. Just a couple of quick final points.
Paragraph 2.47, if you have to terminate the contract at Fazakerley
it will cost £84 million, will it not?
(Mr Tilt) If we terminated it now.
103. Yes, now, and it will decrease over
time, will it not?
(Mr Tilt) Yes.
104. How are you going to pay for it if
you have to terminate it?
(Mr Tilt) With great difficulty
at the moment, given the amount of money we have, and clearly
we would need to discuss that with the Treasury. You would need
to look at the circumstances in which termination became necessary
and you would need to look at a business case for getting into
that situation, and we would have to have additional capital to
do it.
105. So you would have to go to the Treasury
to in effect bail you out?
(Mr Tilt) Yes.
106. But no one can foresee the circumstances
when that may happen?
(Mr Tilt) Obviously we intend to
run these on the basis they are successful. Our experience with
the private sector on the management side is that existing establishments
are successful and there is no reason to believe that will not
continue to be the case. But in extremis there is provision to
bail out and in effect to buy back the prison, when one is getting
back at least a brand new, well-maintained prison for the money
one has spent but it does require conventional capital to pay
it off.
107. In the event, and obviously we hope
it will never happen, you have to terminate the contract and where,
nevertheless, you do become liable for extra resources-let me
give you an example, if the volume of prisoners in Fazakerley
Prison varies greatly-then the public purse faces some future
risks, does it not? If there are insufficient prisoners then it
will cost extra money. If there are too many prisoners, likewise,
it would cost extra money as well, would it not?
(Mr Tilt) Insufficient prisoners
is not something I worry about too much, that is not a feature
of my life, but, yes, theoretically of course one would have to
look at it. Do not forget, the private sector part of our operation
even now forms only 6 or 7 per cent of the total, so there is
a solution to the under- occupation of somewhere like Fazakerley.
In terms of over-occupation, we have arrangements in the contracts
for purchasing additional over-crowded places and the unit cost
of that is a very competitive unit cost.
108. Nevertheless, there is a possible further
call on the public purse?
(Mr Tilt) Only in the sense if the
population continues to go up, then of course we have each year
to go to the Treasury and say, "We need more money."
The unit cost we get at Fazakerley and the others is a very competitive
one.
109. At the end of the day it relies, I
presume, when the contract is drawn up and this clause is inserted,
on the estimates of what the prison population might be 20, 30,
40 years down the line? So if the estimates are accurate, you
should not have any difficulty, should you?
(Mr Tilt) Well!
Chairman
110. I feel I ought to wish you a shortage
of prisoners!
(Mr Tilt) Yes, absolutely!
Mr Williams
111. Mr Tilt, it states in paragraph 2.13,
and you have repeated it, that there was a strategic decision
not to award both contracts. So you accepted that you were turning
down a possible saving of £44 million and you took it on
yourself to make that decision, did you not?
(Mr Tilt) Certainly I made the decision.
I accepted we were turning down a possible saving of £19
million although I acknowledge that if Securicor had really been
able to deliver the percentage reduction the £19 million
could have gone up as high as £44 million. Against that,
of course, I had to balance the very considerable benefits I get
from the successful operation of this, not least of which of course
was the delivery of 1,400 prison places at a time when I needed
desperately to avoid them going into police cells. So there are
huge costs on the other side.
112. I accept that. You accept the £44
million to us sounds like quite a lot of money?
(Mr Tilt) Yes, but 600 prisoners
in police cells for a year is £65 million. That is a lot
of money too. Those are the sorts of decisions I have to balance.
113. This 44 million would have paid one-third
of the cost of Lowdham Grange, would it not?
(Mr Tilt) One-third of the cost?
114. Yes, of that contract.
(Mr Tilt) The total, the 25 year
contract, yes.
115. How much of the Lowdham Grange contract
was construction costs? What was the construction cost element
in it, out of this 130 million?
(Mr Wilson) I think the construction
project cost for Lowdham Grange is in the order of 33 million.
116. You mean you could have built Lowdham
Grange and had change for the money you decided you did not want
to save on these first two projects? That sounds rather cavalier.
(Mr Tilt) We are not actually comparing
like with like. We are comparing the cash cost with the net present
value cost, but okay.
117. But we are in the same ballpark area,
are we not? In other words, you could have had another prison
for free?
(Mr Tilt) The construction cost
of it.
118. Yes. You could have had one built?
(Mr Tilt) You can look at it that
way, but equally I can say to you that I could have ended up with
a huge bill for police cells which ran into over 100 million quite
easily.
119. We will look at that. You did this,
in order you said, or as one of the primary reasons, to create
a market. But you would have been able to go in and keep the market
alive by placing yourself the contract for another prison and
had public money, taxpayers' money, our constituents' money, left
over?
(Mr Tilt) I think the figures on
Lowdham Grange demonstrate that we have a very good deal there
in terms of a yet further reduction in 20 per cent against the
Parc costs, and that is very good.
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