Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 140-159)



  140. Where are we passing the good ones on? Where is the source? Where is the centre? Is that Mr Gershon's remit? Do you pass on the good news and say "This is a good scheme. It is a good PFI. This is how it is set up. This is how it is run. These are the check points to abide by"?
  (Mr Gershon) Yes. Part of the Gateway Review process is to get a much sharper insight on to where we see good things happening where we can encourage other clients to replicate them.

  141. You use this term "encourage". Why do we not insist they pass through the process, the procedure, before they are allowed to PFI?
  (Mr Gershon) I am probably going to get this wrong in constitutional terms, still as a relatively lay person. At the end of the day accountability for what goes on within a department rests with the individual Accounting Officer. He is the ultimate authority. He is accountable to you and to Parliament for the decisions that he makes. Now, with the Gateway Review process, my experience has been because of where we have deliberately focused the attention on the early life of projects where there is the greater scope for management to take corrective action, the accounting officers are paying a lot of attention to the recommendations that are emerging because much to my surprise most of them do not seem to like coming here defending what has gone wrong in the past. They seem to welcome the recommendations that we are providing to them to help try to get projects on to much stronger foundations in the future.

  142. I think we try to be as helpful as we possibly can. One of the things I try and do is to explain that. When a person comes here as an accounting officer and says "I have put a PFI through the system. I took no advice. I did not put it through the guidelines.", they can expect to get roasted. You can take that message back. I am surprised as a Government we have not stopped them from going ahead with any scheme unless it is given clearance and they have gone through a set procedure, understood what the risks are and how to overcome the possibility of a risk. You say it is left to each individual authority or each individual accounting officer?
  (Mr Gershon) It is still very early days yet. It can only have real benefit on projects which are still very much in their gestation period. With the Gateway Review, my experience has been that the Accounting Officers respond to the recommendations very positively.

  143. If I can go on, very quickly. I think you did answer this. I noticed declining enthusiasm for PFI but I thought as the projects become less appropriate with PFI, as the risk was much more difficult to transfer, you said "Yes, there were one or two which now we have scrutinised we have decided to pull back from because there was recognition that you cannot transfer risk."
  (Mr Gershon) Mr Ryan said that in a number of NHS hospital projects the client felt that there was better value for money to be obtained by going down a non PFI route than a PFI route. Therefore he went down the route which provided better value for money.

  144. Mr Busby, quickly. How do we stop—this is almost impossible—the contracting team from your particular company or any other company having stitched up a deal, a very good deal, then moving off to stitch up another one? How do we ensure the contractor leaves his team in place for the duration of the contract?
  (Mr Busby) I had a slightly different view to what was expressed with regard to this continuity because on my side of the business the skills needed to put the deal together are very different skills from those that are needed during the progression of the contract. Yes, there will be undoubtedly in any organisation some links but fundamentally the people that are building the hospital, for example, are not the same ones who will negotiate the contract to build it. This requirement for continuity from our side of the fence is somewhat different.

  145. And impossible to maintain?
  (Mr Busby) Always. If we felt that we would like to do that then I am afraid the market forces would obviously prevent us from achieving it, I suspect.

  Mr Jenkins: Thank you very much.

Geraint Davies

  146. Mr Busby, the Kier Group that you are in charge of turns over one billion pounds a year.
  (Mr Busby) Yes.

  147. Can you tell me what proportion of that is PFI?
  (Mr Busby) In turnover terms last year less than 50 million of it.

  148. Is that all? Okay. So there is 50 million in turnover. I think you said you expected over two per cent return on turnover, that you were hoping to reduce it to one per cent. I hope the shareholders are not listening to that. Can I ask how your expected rate of return between PFI and non-PFI compares?
  (Mr Busby) PFI returns, on the experience to date, are higher.

  149. How much? What are the figures?
  (Mr Busby) About 2.5 per cent, I would estimate.

  150. On PFI?
  (Mr Busby) On PFI.

  151. What is your normal rate?
  (Mr Busby) One per cent on other contracts.

  152. Right.
  (Mr Busby) But, if I could add to that?

  153. No, do.
  (Mr Busby) The risks involved in this process are significantly greater. For example, the contract that such a return made, because it is really largely one contract, required us to invest £4 million before we had a signed deal. Right up until a minute to midnight that deal could have aborted and we could have lost £4 million, and that is more than we made on the job.

  154. You invested £4 million before signing a deal?
  (Mr Busby) Yes.

  155. In preparation with solicitors and all the rest of it to get the contract?
  (Mr Busby) Yes.

  156. For a contract of what value?
  (Mr Busby) Just under 70 million.

  157. Seventy million?
  (Mr Busby) Yes.

  158. I thought you said a moment ago your total turnover was only 50 million for all PFI projects.
  (Mr Busby) Last year that 70 million contract was of two and a half years duration.

  159. So what value of contracts have you established with PFI extending into the future if you brought all that cash flow together?
  (Mr Busby) In contract terms I have not got that. Can I come back to you on that?

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