Examination of Witnesses (Questions 200
- 219)
MONDAY 22 APRIL 2002
MR JOHN
GIEVE, MR
VAUGHAN ASQUE
MR PHILLIP
WEBB AND
MR JEFF
PARRIS
200. Is that a yes or a no about open books?
(Mr Parris) This contract was not procured under open-book
accounting.
201. I understand that. I am asking whether,
in order to maintain good will, and as anxieties have been expressed,
you are willing to demonstrate on an ongoing basis—we are
talking about 15 years here—by operating some sort of open
book system to show the Home Office that you are not profiteering.
(Mr Parris) There is a mechanism within the contract
which is similar to an open-book accounting mechanism which requires
us to prove value for money on an ongoing basis. The broad answer
to your question is yes. The additional thing I would say is that
we have talked in this meeting about the additional possible service
to fire and ambulance and such like. Those are discussions and
negotiations yet to be had and I would fully expect to be able
to demonstrate the provision of a value for money service to anybody
else who joined up.
202. Somewhere in this report it mentions that
they were trying to estimate costs and so on. You were refusing
to provide cost information. That does not sound like the actions
of a partner and it does look rather as though you are concealing
something, does it not?
(Mr Parris) When this procurement went down to a single
bidder we recognised that there was a need to adopt and change
our approach. Indeed there were some advantages from being in
a single-bidder situation. We proposed and PITO accepted the concept
of the "should-cost" model, which is the basis of what
you are referring to. We also suggested that in effect the bill
of quantities would describe the bits which go to make up this
system and we would make our own estimate of what those costs
would be and PITO could check whether they felt they were appropriate
estimates and such like. We did do that and we did do it for six
major cost items. If I am reading your question correctly, there
was some issue during the negotiation when frankly our design
had not materialised, had not matured, to a level where we could
provide all the detail which was required at that stage.
203. Perhaps I have picked this up wrongly or
it has been phrased wrongly in the writing. You would have no
difficulty about providing any cost information which was sought
either by the NAO or by PITO or by anybody else in order to demonstrate
that you were not over-charging.
(Mr Parris) We have done that.
204. Mr Gieve, is that your impression?
(Mr Gieve) May I ask Philip to answer as he was negotiating
that contract?
(Mr Webb) Yes, it was. During that period we worked
very closely with Airwave.
205. Thank you very much. I just wanted to clarify
that. One of the other issues which causes us concern is this
refusal to share profits from bringing in new users. It seems
to me that is counter-productive from your perspective as well.
If the Home Office and the police forces were your partners and
had to have a profit-sharing arrangement they would have an incentive
to help you bring more people in, yet at the moment you do not
have that. Why is that?
(Mr Parris) The discussion which took place at that
time was very much around the way you have just described, that
is we were prepared to engage in discussions about sharing benefits,
sharing the rewards, as long as the Home Office could bring those
users to the table, which unfortunately they could not, as events
show, and if they were prepared to share in some of the risks,
which for the same reason they were unprepared to do. I was quite
prepared to engage in a risk/reward type of arrangement, as is
fairly common in partnerships.
206. Mr Gieve, could you comment on that? Is
that your understanding of the position?
(Mr Gieve) I will ask Philip, because he was negotiating
the contract.
207. But you must have an impression.
(Mr Gieve) The impression is that we would have liked
to get a better deal than we did, but in a commercial negotiation
you have to settle for what you can get in the end.
208. You have to settle for what you can get
in the end. That is presumably because at the stage when you were
discussing that really the O2 people had you over a barrel and
you are on "Take it or leave it". You had to have this
radio, so they could play hard to get and there was nothing else
you could do but accept it.
(Mr Gieve) No, it was not. The Home Office have been
held over various barrels in the past in that way but it was not
true in this case.
209. Usually for your own good.
(Mr Gieve) In this case O2 definitely had already
invested heavily in this project and phase 2 stood to lose a lot
if the project did not go ahead. It was more even than you say.
Having a single body is not ideal and that is why we did the "should-cost"
model and so on, to try to ensure that we were getting a value
for money deal.
210. May I clarify one point on page 12 which
mentions extra charges? In the nice picture at the bottom on the
right hand side it says "Where the police force requires
its officers to operate inside buildings on a regular basis"
basically you have to pay more. As far as I know, there are no
police forces with no buildings, therefore presumably all police
forces will at some stage have to operate inside buildings and
presumably all of them are going to have to pay an extra charge.
Am I picking this up wrongly?
(Mr Webb) They would not necessarily have to pay an
additional charge. The system does work reasonably well in most
buildings, but in areas where they want a much higher level of
coverage, like large shopping malls and airports, they would want
a better service. What most police forces have done is look at
the standard coverage and buy additional coverage for those areas
which did not meet the full requirement.
211. You are wiring inside the airport or wherever
it is to provide that service.
(Mr Webb) Yes.
212. When this wonderful scheme is being rolled
out, why is Scotland last?
(Mr Webb) As part of the original arrangement Scotland
chose to go last.
213. Do they get it cheaper?
(Mr Webb) Let us put it this way, we shall have rolled
out to an awful lot of other forces and ironed out a lot of problems
before we get to Scotland.
Mr Bacon
214. May I start by asking a question about
the money? You said the £1.47 billion was the net present
cost of the stream of forecast payments. Could you say what is
the actual annual payment?
(Mr Gieve) It is £180 million.
215. Each year?
(Mr Gieve) The payment builds up as the service builds
up. The full payment is £180 million.
(Mr Webb) Yes, of that sort of order.
216. What do you anticipate to be the total
cash you would pay out over the 19 years?
(Mr Webb) Total cash over 19 years is of the order
of £2.9 billion.
217. Which is why your website says £2.9
billion.
(Mr Webb) That is right.
218. Is that including an inflation assumption?
(Mr Webb) Yes.
219. Of what?
(Mr Webb) Six% return on capital.
(Mr Gieve) Six% is the discount rate.
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