Examination of Witnesses (Questions 20-39)
DEPARTMENT FOR
TRANSPORT, PRICEWATERHOUSECOOPERS
AND LONDON
UNDERGROUND LIMITED
23 JUNE 2004
Q20 Mr Williams: It may not be a matter
of coming back for money, it may be the uses to which the money
already has been put. Whose decision is final there?
Mr O'Toole: Ultimately that will
be the Mayor's decision and the Commissioner's. Certainly the
decision about how to spend the marginal pound, whether it is
on buses or the Underground.
Q21 Mr Williams: I see.
Mr Rowlands: Could I just add
one point to help. As I said, we cannot attach conditions to the
grant which the GLA gets for TfL, it is ultra vires the
1999 Greater London Act, but we do discuss with TfL its business
plan, we do monitor what the Underground and the buses et cetera
do. If we were to discover after a year or two that the grant
we had been paying was being used for some completely different
purpose than set out in TfL's business plan, for example, I think
we would have some serious heavyweight discussions about what
the next year's grant was going to be to see if they appeared
to be spending it on things they had not said they were going
to spend it on.
Q22 Mr Williams: Pursuing discussions
is all well and good—I apologise to my colleagues but I
want to press on this—at the end of the day if London Underground
insists they want to go one route and you want to go a different
route, I come back to the point, who prevails?
Mr Rowlands: To be very candid
with you, I cannot give you an absolute answer to that because
it is a negotiation-cum-discussion. Parliament in the 1999 Act
gave London a mayor with devolved powers and responsibilities
and that inevitably means it is a world where there is a degree
of at least potential tension between Central Government and the
Mayor.
Q23 Mr Williams: Before I move to the
next questioner, does anyone else want to comment on this? To
us it looks like a rather confusing and potentially conflict ridden
situation. Does anyone else want to make a comment?
Mr Callaghan: If I may, I will
make a comment on the specific PPP contractual position. London
Underground has asked for a specific set of things under these
contracts and they are going to cost a specific amount of money
and that amount of money has already been provided to London Underground
in the way that Mr Rowlands has described. I think in terms of
what happens within the structure of the existing contract then
there is not very much scope for conflict because the money is
already being earmarked to do this and the management of that
contract and that amount of money is in the hands of London Underground.
I think the position is likely to be different on things which
are outside the contract or at the review that you have mentioned
already, Mr Williams, where London Underground may have ambitions
to do other sorts of things, and I think that is just part of
the normal discussion that takes place between any spending body
and its source of funds. I think the PPP does not particularly
introduce any new dynamics into that sort of relationship.
Jon Trickett: I am worried about my competence
to deal with this this afternoon because this Report did not arrive
with me until Monday. This is one of the largest Reports and one
of the more serious ones we have received in front of the Committee
of Public Accounts. I wonder whether there has been some prevarication
somewhere which has resulted in a late publication date deliberately
to engineer a situation where Members have not had time to study
the Report adequately. I give notice now, Mr Williams, I would
like you to consider whether you go around testing me and my colleagues
at the end of the meeting to see if we want this meeting adjourned
rather than terminated to give us a chance to adjourn and study
the document with more care. If it is okay, I will give you notice
now to consider whether you are allowed to do that or not.
Q24 Mr Williams: Sir John, we normally
have a significant interval, sometimes over-long, which is not
your fault, it is our timetabling then, between the time of our
receiving the Report and the time of having the hearing. Now this
is two volumes plus supplementary evidence that has been submitted.
It is one of the most voluminous Reports I have ever seen, only
the Ministry of Defence exceeds it in its word power. How is it
that the two have run so closely together? Has it taken longer
than originally anticipated to produce the Report?
Sir John Bourn: No, Mr Williams,
I sympathise with what Mr Trickett has said. I think the reason
the Committee did not get it with a longer opportunity to read
it and reflect about it arises essentially because the task of
the National Audit Office is to agree the facts with the accounting
officer but in this case there were other people that we wished
to consult: Transport for London who are very much concerned with
these issues. These are not people who lie within the usual system.
They were co-operative and helpful but the discussions with them
took a long time, and I do not criticise them for that because
it is crucial for them, but it was the desire on our part to bring
into the debate Transport for London, not confine ourselves simply
to the Department for Transport, that took the extra time. I say,
I sympathise with what Mr Trickett has said and the Committee
and if you decide you wish to have another cut at it I would understand
that completely.
Mr Williams: I am sure the witnesses
will welcome the opportunity.
Mr Bacon: Get them back!
Mr Williams: Mr Trickett raises a very
valid point. We will look at this issue on Monday and I serve
notice on everyone that a second phase of the hearing is a possibility.
Q25 Jon Trickett: I am grateful to you
and if it had occurred to anybody that by getting the Report late
to us somehow we would be precluded from getting a full hearing,
no doubt what has been said will remove such a thought and stop
the same thing happening in the future should it happen. I want
to ask some preparatory questions for a later fuller hearing perhaps.
I note on the second of the two Reports, which is about whether
the PPP are likely to work successfully, that the NAO states—I
refer to page five, paragraph five and it is the second bullet
point and this is a remarkable statement by the NAO given how
diplomatic they are with the use of language—"There
is only limited assurance that the price is reasonable, reflecting
the complexity of the PPPs and some uncertainty about the eventual
price, but any price revisions have to meet tests of economy and
efficiency and greater price certainty . . . ". I would like
to know who inserted that particular clause? " . . . and
greater price certainty would have resulted in a higher price".
So in order to get a more certain price it is going to cost us
more but because we did not get certainty there is limited assurance
that the price is reasonable. That is a very interesting and complex
sentence, the meaning I am going to ask Sir John to explain to
us.
Sir John Bourn: The essential
point is the one that Mr Rowlands made. Here was an attempt to
put together a very complicated deal and in order to bring it
to completion the Government essentially had to agree to spend
a great deal of money to get it. That is why they did feel, because
they spent the money, that the game was worth the candle but it
cost a lot of money to do a very complicated deal and to get all
the people on board to do it. That is the essence of the matter
that lies behind that.
Q26 Jon Trickett: This is the equivalent
of you saying you will not sign off the set of accounts. I do
not think you are able to say to this Committee, and I put it
to you, you cannot say to this Committee, that the taxpayer has
got value for money in this particular deal? That is what the
sentence says.
Sir John Bourn: I am not saying
that it has because nobody knows.
Q27 Jon Trickett: You cannot tell the
Committee one way or another and, therefore, Parliament and the
House of Commons whether or not this deal represents value for
money. That is a fact.
Sir John Bourn: No, I cannot.
I am giving the Committee the right answer. Nobody can tell that.
Q28 Jon Trickett: Mr Rowlands, do you
want to add anything to that?
Mr Rowlands: Since this is a preparatory
hearing, can I give you a little bit of background?
Q29 Jon Trickett: Sure, an abbreviated
response if you do not mind because I have some other questions.
Mr Rowlands: Okay. The original
estimate that began the PPP for the so-called maintenance backlog,
one to one and a half billion pounds, had no engineering basis
to it whatsoever. It was quite clear as this progressed that the
backlog, as I said earlier, could be measured in many billions
of pounds, such was the state of the infrastructure. This deal
attempted to deal with that degree of uncertainty and that is
why the NAO have said quite reasonably what they have said.
Q30 Jon Trickett: I think you signed
this contract off, you are the accounting officer. Can you say
that the taxpayer has got value for money from this contract?
Mr Rowlands: Yes.
Mr Williams: The NAO says there is only
limited assurance the price is reasonable.
Q31 Jon Trickett: You have agreed to
that. You have agreed to that sentence.
Mr Rowlands: It is not saying
that the price is unreasonable. Had the price been unreasonable
the Department would not have signed it off.
Q32 Mr Williams: There is only limited
assurance that it is reasonable.
Mr Rowlands: Because greater price
certainty, as it says here, could only have resulted in a higher
price. It was a trade-off between risk and price.
Q33 Mr Williams: If you are buying a
secondhand car on that basis you would be very conscious of caveat
emptor.
Mr Rowlands: Indeed, and the problem
with this secondhand car is the tunnels are 150 years old and
nobody knows what state they are in.
Q34 Jon Trickett: You have agreed to
this sentence.
Mr Rowlands: Yes.
Q35 Jon Trickett: You assent to this
sentence?
Mr Rowlands: Yes.
Q36 Jon Trickett: Okay. I want to move
on then. Paragraph 12 of the same Report talks about the seven
and a half year periodic review. This is rather important, given
the sentence we have just talked about, because periodic reviews
tend to make sure the contracts are on track and one of the recommendations
on page 11, paragraph 12 says that "LUL report that initial
information to date from the Infracos is inconsistent and, in
some cases, inadequate". Can I ask Sir John where the evidence
is for that for the Members to consider?
Ms Leahy: You are asking for the
evidence for that sentence?
Q37 Jon Trickett: Yes, where is the evidence
for that sentence?
Ms Leahy: That is a statement
that LUL made to us, a statement that Mr O'Toole and many of his
colleagues have made. We do not have any evidence of that, we
put it as that is what they have reported to us.
Q38 Jon Trickett: Is the periodic review,
as I stated it, a rather important matter in making sure the contracts
are on time but also economic and so on? Therefore, I would have
expected further information to back that sentence up. I do not
want to delay things now but I wonder whether supplementary information
could be provided as to in what way you find the information from
the Infracos inconsistent and in some cases inadequate and what
steps you have taken to ensure that you get adequate information?
Can you provide us something about that in writing, please?
Mr Rowlands: I cannot because
this is an LUL statement, I am sure Mr O'Toole can.
Mr O'Toole: I would be happy to.[2]
Q39 Jon Trickett: Fine. Thank you very
much. I want to go on to the highlighted block below. "If
partnership is to work, LUL needs to be given accurate, consistent,
and regular information . . . ". That paragraph then is supplemented
by a reference to paragraph A3.4. Can someone tell me where A3.4
is, please, in the Report because there is no such paragraph?
Where is that paragraph?
Mr Rowlands: It is actually in
A3.2 if that is helpful.
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