Examination of Witnesses (Questions 100
MONDAY 15 APRIL 2002
100. I do not quite understand why accounting
deadlines will be important. Are they important to the purchaser
or to the seller?
(Mr Crisp) Again, can I bring Mr Wearmouth in to explain
this pattern. I think the answer is both.
(Mr Wearmouth) Yes, I think the answer is actually
both. If you look at sales, the actual value that you are going
to dispose of a property is agreed some months before contract
completion. The actual income that is identified here will take
place at contract completion. The value will have been known some
time before the graph indicates incomes coming in to the NHS or
the number of disposals which have taken place. We will know the
income. There is no reference within the document to say that
value for money was not achieved. We have carried out a review
and looked at the graph to see if it has any issues
101. You are not quite answering my question.
My question was why does it help you to have that money suddenly
coming in in March rather than before March? You set up a deal
in, say, September, apparently you set up deals such that you
do not pay until the following March. Why do you always insist
on payment the following March rather than, say, the following
April or any other point? I do not see why you have an advantage.
(Mr Wearmouth) I think the actual income profile of
the sale is predominantly down to the private sector and actually
paying us before the end of the financial year to meet their income
projections and targets financially.
102. What you are saying is that it is the buyer's
wish that so much of the money comes in in March as opposed to
(Mr Wearmouth) It is normally the buyer's wish, yes,
we try to push it as fast as we can to get the money in as quickly
as we can. This graph normally, I would say, would be down to
the private sector and their accounting processes rather than
103. Do you use that as a negotiating tool?
Presumably if they want, so to speak, to shift all the money coming
back to you so they make the payment as late as possible, right
at the end of their financial year, presumably you might say "Pay
a bit more because you are holding up the money for us"?
(Mr Wearmouth) If the sale was protracted and went
on for a period of time of course we would have to seek another
valuation. We may need to look at a remarketing situation depending
on how long the sale actually takes.
104. What I am saying is if you are making an
agreement and perhaps signing a contract in September and you
agree to allow them to make the largest part of the payment in
March, as is apparently happening quite a lot, are you at the
same time saying, "In return for us agreeing that you will
not pay the final sum until six months later in March, we want
to insist on a higher payment of some sort to make up for the
interest we have lost"?
(Mr Wearmouth) If we have the sort of arrangement
where we have staged payments we do have some compensation, some
interest payment that is paid there.
105. You are getting a lot of staged payments
and most of the staged payments are through to the end of the
(Mr Wearmouth) These payments are always made in the
last minute of the financial year and this is the practice of
the private sector and the property development industry.
106. Are you getting the benefit of that through
your negotiations or are you just allowing them to pay late?
(Mr Wearmouth) We do not allow them to pay late. We
have the valuation, we agree the valuation, we agree a sale price,
the property is subject to the market-place, the market-place
determines what the value of that property is. We then conclude
the sale through due legal process and we try to achieve payment
within the financial year. However, it is predominantly down to
the private sector when they pay us for something. We try to pursue
them and we try to get the money as quickly as we possibly can,
but this graph indicates when normally we receive income and again
it is down to the private sector.
107. Is the payment date not specified in the
contract or do you just ask them for money and keep asking them
and they keep putting you off?
(Mr Wearmouth) There is a payment date when the contract
is signed and completion takes place but it is a difficult time.
What we are doing here is selling property for the best possible
108. Mr Wearmouth, you are missing the point.
Either you are setting up a contract in September that says we
will be paid in March because the private sector wants to pay
right at the end of financial year, and if that is the agreement
between you and the private sector, it seems to me that you have
the right to say, "If you are not going to pay us for six
months we will accept that but in return for that we expect to
have an extra £5,000 on the price to make up for the interest
we have lost." That may be what is happening. The alternative
that seems to be happening is you are saying in September we have
got a contract for a certain sum and we expect to be paid that.
The private sector says, "Yes, okay, we will pay it to you",
and you are hoping that they will pay in November or December
but, in practice, year after year you find they always put it
off until March. In that situation you are losing out it seems
to me by not setting up a contract properly so you know exactly
when you are going to be paid.
(Mr Crisp) May I suggest that we give you a written
response to this as to whether or not we invoke a penalty or use
this in contract negotiations.
109. I would be happy to have a written response
rather than no response, but I am quite surprised that you cannot
tell me now.
(Mr Wearmouth) If contract completion is delayed we
would expect extra monies.
110. If completion is delayed beyond what you
say. The fact you are being paid so often in March either means
you are getting extra monies because you expected it in December
or it means that you agreed it to be paid in March, in which case
you would expect to include that in the contract price in some
(Mr Wearmouth) Yes.
Mr Rendel: I am glad to hear that is the case.
Chairman: If you do a note could we have it
some time within the next three months please!
111. Can I ask what happens when a site becomes
part redundant. We have a case in my constituency where a hospital
has been part redundant for a long time and the part that is redundant
is just sitting there until the rest of the site becomes redundant.
What guidelines do you give to trusts as to whether they should
try to sell off the part of the site that is redundant and get
at least half the money early or whether it is better to carry
on and wait until the whole site is ready for development?
(Mr Wearmouth) We normally carry out a site development
brief in conjunction with the local authority and if we can dispose
of part of the site as part of the process of developing additional
housing or additional recreational facilities we would carry that
112. So the advice to them is to at least look
into it as a possibility?
(Mr Wearmouth) Yes.
113. What about change of plan as to how the
site is going to be used. Given that it takes up to five years
to develop a site, it may be that the market changes and initially
you may have thought the best use is to sell it off as an office
site and five years down the track suddenly housing is what is
important and the value of the land goes up. Are you flexible
enough to be able to change like that halfway through?
(Mr Wearmouth) Providing we can get planning permission,
(Mr Crisp) It is part of the point of the annual review,
which is the point made in the Report.
114. Can I turn to Paragraph 3.7 on Page 23,
this is the point that Mr Davies was talking about a moment ago,
when 95 per cent of the valuations turn out to be below the outcome
price and your average excess price is 32 per cent above the valuation.
That is one of the reasons you said you are having problems in
getting good value for money out of your sales.
(Mr Crisp) Yes.
115. If I had those figures I would go back
to my valuers and say, "You are getting your valuations wrong
mate", because, frankly, I would expect valuations in general
to turn out in the middle of the final outcome and that the average
excess would be zero and you would have as many below as above
if the valuations were correct. Why are the valuations almost
(Mr Crisp) I cannot answer that question. I have no
comparisons with district valuers' valuations in other market.
No doubt we can find that out. I do note in this Report that the
NAO did not think that was unusual in terms of making any particular
comment on that. I do not know what the normal pattern is in any
116. Perhaps I could ask the NAO whether district
valuers are always bad at valuations. I should say it is not my
experience in local government but perhaps it is the NAO's experience.
Or is it that the valuations are coming in so much in advance
in many cases that they are way out of date by the time the sales
are made, which I suspect is the case.
(Dr Robertson) I think it is the latter. We observe
in Paragraph 3.8 that some of the largest differences between
prices and valuations arose because NHS trusts did not update
the valuations. That is the biggest factor but we did take up
the broad issue of valuation with the Valuations Office and we
discuss that in Paragraph 3.10 where they say that their service
is providing a reasonable pre-sale guide price but they also commend
a move away from single point valuations to take account of uncertainties
so that you can take into the picture a wider range of factors.
So there are improvements that are possible.
Mr Rendel: Thank you. Thank you, Chairman.
Chairman: Thank you. Mr Brian Jenkins?
117. Like Mr Steinberg I probably shall not
take 15 minutes either because a lot of the questions at this
stage have been answered but I would like to run over one or two
things again just to clarify them in my mind. The newly created
primary care trusts have to put strategies into place. You have
got a lot experience on this so what guidance are you offering
to these new trusts, particularly bearing in mind that on Page
15 we see that in existing strategies with existing trusts a large
number do not at the present time itemise their estate so they
can tell which is the least operationally important, and therefore
we do not know when they sign off what they might need in the
future and we do not seem to have a reasonable set of incentives
for them to indicate what is true surplus estate.
(Mr Crisp) Let me again start the answer and then
ask Mr Wearmouth to pick up some more of the detail. The first
point is that the PCTs are almost always taking over from an organisation
something similar in shape and size so there may well be an estates
strategy for them to build on. The second point is about the exemplar
strategies which were only brought in in 1999. Mr Wearmouth happens
to have here a couple of documents including one which very carefully
takes you through step-by-step what is expected in developing
an estates strategy. Alongside that there are people from Mr Wearmouth's
organisation who are available to help people to do that. Those
would be the sort of steps. Firstly , there is almost certainly
something already there in existence. Secondly, we have a very
clear methodology for doing it. Thirdly, there are people there
to help and support them to bring the strategies into existence.
118. 81 trusts do not even know and have not
got a strategy for optimal use of resources for their estate.
(Mr Crisp) This was mid-2000 and a number of those
organisations have gone out of existence and, again, we have moved
on since then. We do not have a figure for right now as to how
many have got strategies but we anticipate by the end of this
year that it will be everybody.
119. My experience shows that the trust goes
out of business but the personnel do not, they move from trust
(Mr Crisp) Some, that is right.
1 Ev 23, Appendix 1. Back