Examination of Witnesses (Questions 140-159)
DEPARTMENT FOR
TRANSPORT, PRICEWATERHOUSECOOPERS
AND LONDON
UNDERGROUND LIMITED
23 JUNE 2004
Q140 Mr Jenkins: It is 20% of the total
package and yet a lot of play has been made of the fact that we
had to increase the cost, the final figure put in, because we
were uncertain of the state of the asset.
Mr Rowlands: Yes.
Q141 Mr Jenkins: Do you think that was
overplayed?
Mr Rowlands: No, I do not think
it was overplayed. The costs that have gone in and as bid in these
contracts are a reflection of the risk inherent in remediating
the assets, the risk inherent in introducing line upgrades. This
Report itself acknowledges that the Central Line upgrade that
was undertaken by the old Underground was six years late and 31%
over budget. Over time what has been driven out is the cost of
remediating the assets and the cost of the risk involved in undertaking
these works and integrating the track, trains and signalling system.
Mr Jenkins: It is just that I thought
well since the administration is nearly as much as the asset maintenance
cost maybe they should have given extra money for the uncertainness
of the administration costs; I am not sure we do that. My time
is up.
Jim Sheridan: I do not have any questions
to ask for two reasons. Mainly I agree with my colleagues that
I think it is important we have some quality time to look in detail
at this Report and, secondly, what initial findings I have found
in this Report have already been covered by my colleagues. Perhaps
we should have another look at this Report another time and, given
what I have read, maybe we should get the Fraud Squad to look
at it as well. I am reminded of the Secretary of State for Transport's
comment yesterday when he said that he comes to work under a black
cloud and that black cloud is called "Looking for money for
public transport". All I would say is perhaps if he stops
this gravy train we will maybe get some money for public transport.
Other than that I would just welcome the opportunity to have a
detailed look at this Report.
Mr Williams: I do not think any of you
need feel obligated to respond to what Mr Sheridan has indicated.
Extra time, so you know, we give each other a set time and then
we can ask supplementary questions. Mr Bacon?
Q142 Mr Bacon: First of all, Mr O'Toole,
can I just check, from what you were saying in answer to an earlier
question it sounds like you think bond financing would probably
have been better, is that right?
Mr O'Toole: Given my background,
I would like to be able to control the whole enterprise if I could.
I come from operating a railway where I had an engineering department,
a maintenance department and an operating department and certainly
it clarified the lines of authority in a way that this structure
does not provide.
Q143 Mr Bacon: It is true by the time
you came on board in July 2003 this had pretty much been decided?
Mr O'Toole: Right.
Q144 Mr Bacon: Nonetheless, London Underground
and Mr Kiley had been giving advice and its views to the Department
of Transport prior to your arrival?
Mr O'Toole: That is my understanding.
Q145 Mr Bacon: There must be documents
in London Underground, prior to your arrival, containing advice
that you had given to the Department of Transport on your preferences
for bond financing?
Mr O'Toole: Not that I had given
but that TfL had given.
Q146 Mr Bacon: I am sorry, the TfL had
given.
Mr O'Toole: Right, not in London
Underground.
Q147 Mr Bacon: Is it possible that any
of these could be forwarded to the Committee?
Mr O'Toole: I am confident that
TfL would welcome the opportunity to forward those documents.[11]
Q148 Mr Bacon: I would like to see what
advice was given to the Department of Transport about the likelihood
of value for money being produced by the option which was eventually
arrived at.
Mr O'Toole: I will pass the request
on.
Mr Callaghan: If I might say,
Mr Bacon, I might save you some effort. London Underground published
two reports called the Final Assessment Report and the
Update to the Final Assessment Report which summarised
everything Mr Kiley had to say at some length. Rather than forcing
you to go back to the original document you might find everything
you need there.
Mr Bacon: Thank you very much.
Q149 Mr Williams: Can I ask NAO, before
we leave that, if you send it to NAO at the same time I wonder
if the NAO could do a brief critique of it for the Committee in
case we have a further hearing.[12]
Sir John Bourn: I would be glad
to do that.
Mr Callaghan: These are in fact
public documents and they are still on the Tube's website.
Q150 Mr Bacon: Mr Rowlands, do you agree
with the National Audit Office that the public sector comparator
is pseudo scientific mumbo jumbo which confers a spurious precision,
which replaces thinking with modelling and is often not information
but just noise?
Mr Rowlands: I do not remember
the exact quote in the Report.
Q151 Mr Bacon: It is not in the Report
but it is the opinion of the National Audit Office.
Mr Rowlands: No, I recollect that
in 2000 the National Audit Office looked at LUL's public sector
comparator and the methodology and said it was satisfied with
it. What it warned at the time was that London Underground should
not rely exclusively on the public sector comparator, that any
evaluation was much more subtle than that and other factors needed
to be taken into account. London Underground indeed did heed that
advice. In reaching its evaluation it looked at quite a number
of factors and it did not rely solely or exclusively on the public
sector comparator.
Q152 Mr Bacon: Can you now answer my
question?
Mr Rowlands: I thought I had answered
your question.
Q153 Mr Bacon: No. My question was do
you agree with the NAO that the public sector comparator is pseudo
scientific mumbo jumbo?
Mr Rowlands: No, I do not agree
with them, and they did not say that.
Mr Bacon: They have said that but we
will pass on.
Mr Williams: Not this particular one,
just in general.
Q154 Mr Bacon: In general, the National
Audit Office has said that.
Mr Rowlands: Sorry, I misunderstood.
Q155 Mr Bacon: The uncertainty surrounding
this project is, as you have acknowledged, so tremendous that
what I do not understand is how you could work out a public sector
comparator with any chance of it being meaningful?
Mr Rowlands: It was worked out
by London Underground with its own management through a whole
series of workshops, basically asking a very simple question:
"If we were doing this for ourselves how would we go about
it? What do we think it would cost? What are the risks inherent
in it?" In very simple terms that is how they approached
it.
Q156 Mr Bacon: You are the accounting
officer responsible for how public money is spent in your area
in your Department. When you took a look at all this, given the
uncertainties and the lack of ability to say whether this represented
value for money, which we have heard Sir John attest to, did you
decide you needed to seek direction from ministers to authorise
spending of this money?
Mr Rowlands: I was not the accounting
officer at the time but the then accounting officer did not decide
to seek a direction because on the basis of the evaluation undertaken
by London Underground, which is freely available to the Department,
by comparison with the public sector comparator, including a bond
financed public sector comparator, this was value for money.
Q157 Mr Bacon: This was considered value
for money?
Mr Rowlands: Yes.
Q158 Mr Bacon: Even though Sir John now
says in this Report that it is not possible to say whether the
whole thing represents value for money or not?
Mr Rowlands: (a) the accounting
officer at the time did not have this Report in front of her when
such decisions were reached because (b) it was on the basis of
the evaluation that London Underground had carried out against
the public sector comparator. These three contracts stood up in
value for money terms.
Q159 Mr Bacon: We may pursue this discussion
at a later date.
Mr Rowlands: I suspect we will.
11 Documents provided, not printed. Back
12
Ev 26, 30¸31, 33¸35 Back
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