Examination of Witnesses (Questions 200-219)
MR RICHARD DOUGLAS, DR PETER DRURY, MR ANDREW HOLT AND MR DUNCAN EATON
WEDNESDAY 23 JANUARY 2002
200. So that makes the total value involved somewhere about, what, £150 million?
(Mr Douglas) No. They are schemes over £20 million. Most of these are very significantly over £20 million. The total value of those is over £7 billion.
201. So what proportion is that of the total investment budget in the NHS?
(Mr Douglas) I am afraid I do not have the figures to hand that would show that but I can drop you a note that sets out the PFI investment next to the total figures.
202. Thank you. You say in your evidence that you have not taken the OGC's advice exactly but you have adapted the OGC's advice to National Health Service circumstances.
(Mr Douglas) That is right. Our approach on PFI is consistent with OGC advice and the procurement construction of a hospital is different than in other sectors, so what we have done is our standard forms of contract are very slightly different but consistent with OGC guidance.
203. So to what extent is there a difference then? There must be some or you would not have had to adapt them.
(Mr Douglas) I would not be able to say precisely what all the differences were on the contract but what we have done on each case, and we did this before with the private finance team and the Treasury, is we agree with them our forms of contract; we agree the approach, the form of contract with them; we take their comments on it and in all I would expect other than very minor cases we would take their advice. I cannot remember definitely in the year I have been involved anywhere where we have been offered advice or comment from OGC on a PFI contract or an approach to PFI where we have not accepted it.
204. Do they give you advice on what is a reasonable public sector comparator with the PFI project?
(Mr Douglas) No. The public sector comparator is produced as part of the business case and that has to be our responsibility and the trust responsibility.
205. And there are no guidelines on that?
(Mr Douglas) Internally, yes. We have produced a guidance that tells people precisely how they will approach a public sector comparator, what has to be built in and what assumptions they should make.
206. But these are your guidelines, not the OGC's?
(Mr Douglas) This may be ignorance on my part but I do not think the OGC have set out anywhere the details of how a public sector comparator should be constructed. I might be wrong; they might have picked up on the guidance Treasury had earlier on.
207. Where are the benefits coming from in the NHS PFI projects?
(Mr Douglas) They are coming from things being built to time and to cost. The primary initial benefit we are getting is we are delivering schemes to time and within an agreed cost.
208. I understand, but why is that happening when it was not happening before?
(Mr Douglas) Because the private sector partner does not get any money unless they do, or they get less money if they do not. It is a very clear discipline for the private sector. What we hope to see as the PFI develops as well is some additional benefit from the way the hospital is designed to help the running of the hospital when the private partners also pay for the cost of facilities, management and services element, but the main initial benefit is time and cost.
209. But why do those arise? Why is there that discipline now when it was not there before?
(Mr Douglas) Because there is a very clear financial incentive for the private sectorit really is that simple. If they do not deliver, they do not get paid.
210. Is it that or is it because the Department now cannot intervene all the way along the line in the design of the hospital right up to the opening? You have to agree it at the time the contract is signed?
(Mr Douglas) That is always going to be one of the elements. There always is the temptation, particularly with a big hospital scheme, that people will think of new things as the development is going on and will add to it. What people know now is that, if you start to do that, there is a very clear cost and the cost is a lot clearer than ever before, making additions or changes during the design and construction phase.
211. What is the staff reaction to these contracts a) due to their terms and conditions of service if they have been transferred but b) because the contract, once settled, cannot be changed and circumstances may change in a year or two or three or more after the hospital is functioning.
(Mr Douglas) We have some pretty clear rules about what happened with terms and conditions. We are talking as well with the unions, as you probably know at the moment, about the potential of staff being seconded into the private sector rather than being transferred. In terms of being tied into something, we were tied into a hospital when we built it before. If we had to make changes to a hospital because the world had changed three years on, it cost us money before; it costs us money now. That is really not fundamentally different.
212. But what about the terms and conditions of service and staff, because there has been a great deal of comment and anxiety and complaint about that?
(Mr Douglas) I have not come with the detail on terms and conditions today for this hearing but, as I say, we have been in discussion with the unions: we are looking at piloting schemes where they could be seconded into the private sector rather than transferred. That is specifically trying to address some of the clear staff concerns.
213. Are those issues that are covered by the OGC guidelines, or are you making them up as you go along?
(Mr Douglas) The approach in the pilot we are doing on seconding staff we have discussed with the OGC all the way through, and the small steering group we have had that has been looking at this includes OGC representation on it.
214. Does that mean there is consistent application of these rules right across the public sector?
(Mr Douglas) On this particular issue about the secondment of staff, this at the moment is an NHS issue, not a public sector wide issue.
215. May I just ask this on PFI? There are 64 contracts over 20 million and, as you said to Mr Beard, they include some very big projects of hospital build. When was the last time you let a major building PFI contract?
(Mr Douglas) I am not sure which was the last one that was agreed.
(Mr Douglas) We can supply that. Eight of the 64 that we have had under PFI are now up and running; they have been built. We have fifteen where we have closed the contract and they will be shortly entering or are into the construction phase, so there are 23 that are passed contract close in one way or another, and that leaves around 40 where we are still in discussions.
217. So eight are built, or thereabouts?
(Mr Douglas) Eight are operational.
218. Fifteen are ready to go?
(Mr Douglas) Yes.
219. And 14 are in the pipeline?
(Mr Douglas) Yes.
2 See Ev 63-68. Back
3 See Ev 63-68. Back