Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 160-179)



  160. You are a fairly small player because we are looking at something like—
  (Mr Busby) We have about half a dozen contracts under PFI.

  161. In the generality of this report, on the 400 projects the Government do they have already committed £100 billion and you are a very, very small fraction of that, you are talking about millions of pounds, or are you into billions?
  (Mr Busby) In total it would be 150 million-ish on construction work over the half a dozen that my group has.

  162. It is small beer in the totality of things. Basically in ballpark terms, and I know from what you say this is being distorted by this one contract, you are looking at, say, 2.5 per cent return versus one per cent on normal activity, so two and a half times the level. You think that is a reflection of inherent risk, yes?
  (Mr Busby) Yes, I do.

  163. If there is inherent risk, risk goes both ways so you would expect in the wash that it comes out at the same level, one per cent, because you win some and you lose some.
  (Mr Busby) No, I do not. I am not being asked to invest £4 million up front in any other part of my business.

  164. Do you think 2.5 per cent return is normal or below average?
  (Mr Busby) I am sorry?

  165. Do you think 2.5 per cent return is normal or below average, because it seems a bit low from the figures I have heard before?
  (Mr Busby) We are in a competitive marketplace. Every contract that we have been awarded under PFI has certainly been in competition and I would be surprised if our returns—

  166. Have you lost a lot of bids?
  (Mr Busby) Yes, of course.

  167. Okay. You think it is rational from the point of view of your shareholders to put forward £4 million bidding for a contract, paying solicitors or whatever you did, for a £70 million contract?
  (Mr Busby) There are times when we questioned it, but yes.

  168. If you had not won the bid then that £4 million would have been lost money. Would that have been factored into other PFIs?
  (Mr Busby) That is why I believe the returns that we are getting are fully justified. We have lost contracts.

  169. In this example, what was it for incidentally?
  (Mr Busby) A hospital.

  170. Presumably there were competitors who also spent £4 million and did not get the deal, is that correct?
  (Mr Busby) No, I think that is wrong. There could well be competitors who spent up to, say, £1 million.

  171. £1 million?
  (Mr Busby) We have certainly incurred £1 million of costs on a project that we have not got.

  172. If you are running, as you are, a successful private sector enterprise then you need to stay in business. In the global analysis of PFIs, if each PFI is four companies bidding, for argument's sake, and they all put forward in this sort of contract between £1 million and £4 million up front for the bid then we are talking about a net loss in this sort of industrial system of three or four million through that competitive activity that you have to recover from prices if all these companies are to keep going. That is true, is it not?
  (Mr Busby) Your numbers are not correct.

  173. They were your numbers, with respect.
  (Mr Busby) Taken out of context.

  174. Let me give you it again then. You said in this example you put £4 million and other competitor companies were putting £1 million up front. Is that an abnormal situation, is that what you are saying? That was the situation because that was the evidence you have just given.
  (Mr Busby) Yes, that was the situation, but you said that, in fact, there were typically four bidders, all four bidders would not be spending at least £1 million. There is a process here.

  175. How many bidders would there be?
  (Mr Busby) Typically four, but in the early days of getting down tothe final two the costs are much lower.

  176. Is there a sense in which some prospective competitors are actually excluded from the competitive process by the very high entry costs in terms of lawyers and all the rest of it?
  (Mr Busby) Yes.

  177. If I was running a company and knew that you were bidding and you were going to spend £4 million even though I could do a better contract, I would think, I would not be prepared to bet £4 million, I would go elsewhere.
  (Mr Busby) Yes.

  178. Could I ask Mr Gershon just on this narrow line really. You are in the midst of reviewing the rates of return for PFI deals, are you not, or rather your organisation? That is correct, is it not?
  (Mr Gershon) We have commissioned a review, yes.

  179. Tell me the spread of rates of return you are picking up?
  (Mr Gershon) The review is under way, it has not concluded.

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