Examination of Witnesses (Questions 120
- 138)
WEDNESDAY 23 FEBRUARY 2005
MR KEITH
HOLDEN AND
MR STEWART
LINGARD
Q120 Chairman: You also look at the
delays. You highlight the fact that the Department itself is frequently
responsible for the delays.
Mr Holden: Yes.
Q121 Chairman: Are we not coming
back to the series of questions Mr Stringer asked you about what
sort of contracts you are expecting the Department to produce?
In effect, if you are saying to us that there are these extra
costs, you know they are very complicated and you are not at all
sure how you got to this point but you think the Department should
produce a standardised contract, it is quite clear from what you
have said this afternoon that it should look at certain areas
like catchment areas, size of population, movement of employment
inwards and outwards. Are you saying that in spite of all these
things, in spite of the difference between the seven different
schemes, in spite of the fact that local authorities are the people
who normally would be the obvious ones to take these decisions
on the way schemes should go, nevertheless you believe the Department
should be producing standardised contracts and standardised schemes
for this sort of development?
Mr Holden: We are not saying they
should develop standardised contracts. We are saying that they
and the industry have recognised that revenue risks are a key
component in driving up the costs of light rail.
Q122 Chairman: Inevitably in any
transport system if you do not use it it becomes even more expensive.
Mr Holden: Right. Therefore, what
we are recommending is that the Department should assess and evaluate
what might be the different merits of different methods of procurement
and the extent to which local authorities are aware of those and
apply them in their local circumstances.
Q123 Chairman: You are not saying
that at the centre you can produce the template and say, "Fit
your scheme to our template or you are not going to get any money"?
Mr Holden: No. One size will not
fit all but it may be that particular models of contract may have
particular advantages over others which could then be applied
in different circumstances by different local authorities. We
do know at the moment that the way in which these contracts are
structured is that there is a problem about the private sector
having to take on all the revenue risk. The Department has recognised
that that is probably not the best way forward. It probably needs
to move towards risk share. What that risk share will look like
in practice is obviously something we are recommending the Department
should go off and do some work on.
Q124 Mr Stringer: Did you ask Mr
Rowlands or the Department whether they have done any assessment
of the cost compared to the design, build and operate scheme of
the whole public sector system?
Mr Holden: No. One of the members
of the Committee of Public Accounts did ask a question in this
area, around trying to quantify the revenue risks associated with
the particular types of contracts that these existing systems
have primarily been built under, but in terms of the counter-factual,
as it were, that is quite difficult because unless you have one
which is wholly publicly financed you are in the realms of—
Q125 Mr Stringer: That was not the
question I was asking.
Mr Holden: We have not done any
work in that area.
Q126 Mr Stringer: I was not asking
if you had done any work. I was asking if you had asked the Department
whether they would share with you their assessments of the publicly
funded systems.
Mr Holden: We did not ask so I
do not know whether or not they have done any work of that nature.
Q127 Mr Stringer: Were you aware
that when the first system was set up in Manchester such an assessment
was done?
Mr Holden: No.
Q128 Mr Stringer: Are you happy with
the Department's methodology in their cost benefit analysis?
Mr Holden: Yes. The cost benefit
analysis that I mentioned earlier on is a standard template which
is used for transport projects. It is used by the Department,
the Highways Agency and by the Strategic Rail Authority. That
has been built up over several decades.
Q129 Mr Stringer: You do not think
it is pseudo scientific mumbo-jumbo?
Mr Holden: It is very complicated.
It involves the capture of a great deal of data and information.
There are issues around some of the assumptions that are contained
within that particular example and the unit costs of the prices
that are attached to any particular practice within that model.
It is highly complex.
Q130 Mr Stringer: Would you recommend
a better or simpler system of doing a cost benefit analysis?
Mr Holden: We have not done any
direct work to see the extent to which that could be simplified
or whether or not there is a better way of doing it abroad. No,
I cannot answer in the affirmative or otherwise. I do not have
the knowledge to form a view.
Q131 Mr Stringer: You are not completely
satisfied with it?
Mr Holden: The key thing is that
some of the figures that go into that particular model around
estimating forecasts of patronage have quite clearly been deficient.
There has been optimism bias which the Department has clearly
recognised, over-optimistic forecasting, and that will drive the
numbers inside the investment appraisal model.
Q132 Mr Stringer: There is a difference
between putting inflated numbers into a particular method and
the method being flawed?
Mr Holden: Yes.
Q133 Mr Stringer: Is it just optimism
bias or is it that the method could be better or is flawed?
Mr Holden: I definitely think
there is optimism bias. In terms of the method, we did not cover
that issue within this particular report. I do know from previous
experience about the method and how it works but I have not done
any particular work to pull that apart, to identify whether or
not it is flawed or otherwise and the basis for it in comparison
with other countries.
Q134 Chairman: Do you think the Department's
recent change on the technology front so that it says it will
look at schemes under five million is going to meet your recommendation
that the Department do more to promote innovative light rail technology?
Mr Holden: I think David Rowlands
told the committee of public accounts that they were going to
be setting up a pilot or a demonstration project as a way forward
on this. The five million threshold has so far been an obstacle
to the development of cheaper technologies and seems rather nonsensical.
Removing the threshold and saying the Department would welcome
proposals is definitely a positive step forward and we would be
interested to see when these other pilots and demonstration projects
get off the ground and the extent to which they bear fruit. They
have recognised that there is an issue there and there is an opportunity
perhaps for cheaper technologies to come through.
Q135 Chairman: Was ultra light rail
being considered by the authorities you visited in France and
Germany?
Mr Lingard: Not as far as I am
aware, no. Other technologies we know were being considered by
the French in certain cities.
Q136 Chairman: It is not easy for
people who do not have a government support and research system
operating to evaluate these different technologies, is it? This
Committee has seen at first hand the enormous amounts of money
being spent by both the Koreans and the Japanese on railway technology,
innovation and research. It seems slightly quixotic to suggest
that they should be able to evaluate these accurately.
Mr Holden: Yes.
Q137 Chairman: Did you at any point
do any kind of comparison across the different schemes that said
not just that this did not hit its ridership but that this particular
scheme was not completed in a number of ways which affected the
numbers of people using it, or did you simply take the existing
figures? For example, if in order to stay on budget promoters
cut some of the facilities that they expected to offer which would
directly affect the numbers of people using the system, did you
have any way in which you could isolate those instances and put
a cost on them?
Mr Holden: The short answer is
no, but we flag those up within the report. Figure five on page
20 gives a high level summary across a number of systems in terms
of delivery of their benefits—is it half full, half empty
or completely empty?—and throughout the report by summarising
what was coming out of the evaluation studies by the Department,
local authorities and also from our own visits. We identify where
there are good things and bad things in terms of maturing particular
benefits and where, for example, there have been false economies,
where they have cut back on particular things during construction
to save construction moneys and that has impacted upon ridership
and therefore operating revenues once the system is in operation.
I do not think in the report we have gone to the extent of quantifying
the saving.
Q138 Chairman: It would be an interesting
point because it might materially affect this whole question of
numbers which make the scheme viable or non-viable.
Mr Holden: Yes.
Chairman: Gentlemen, you have been extremely
interesting and helpful. Could I say thank you to you personally
and also say that not all of us are naturally against centralist
planning. You must not be too disheartened if we appear to be
cruel from time to time. Thank you very much.
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