Examination of Witnesses (Questions 60-79)
DEPARTMENT OF
HEALTH, PARTNERSHIPS
FOR HEALTH,
PARTNERSHIPS UK AND
DR KOHLI
17 OCTOBER 2005
Q60 Greg Clark: The "enabling"
word again.
Mr Stewart: One thing to point
out is that one of the objectives of LIFT was to put decent facilities
in deprived areas and in that sense it was addressing a market
failure. These facilities are generally going to deprived areas
where the third party developers were not prepared to invest.
In that sense we were not dealing with an economic market situation,
we were dealing with market failure and therefore in that sort
of situation enabling funds are appropriate.
Q61 Greg Clark: I assume that these
were not areas where there were no GP surgeries.
Mr Stewart: No, but they were
extremely rundown and there was a reluctance on the part of GPs
to invest. We always joke about the leafy suburbs of Surrey where
GPs are prepared to invest in their properties; it is indeed part
of their pension. The majority of the investment in LIFT has gone
into deprived areas where that sort of investment is no use.
Greg Clark: Everyone wants a bright shiny
new surgery and Dr Kohli has said how delighted he is with his,
but some hard choices have to be made and I am not sure there
is enough transparency between the allocation of funds into shiny
new buildings and providing a more day-to-day treatment of patients.
Q62 Jon Trickett: I am really very
uneasy about this Report. I do not think it demonstrates value
for money and we are meant to be a value for money committee.
There appear to be two references to this and I am going to put
all my questions to Sir John or his assistant. Paragraph 2.21
says ". . . value for money has largely been demonstrated
by there being a competitive procurement" process in the
main. So we are resting the proof of value for money on the fact
that there is competition. Then at the end in Appendix 1, under
Methodology, it says in paragraph 4 "The local LIFT models
appear to be an effective mechanism clearly demonstrating value
for money", but that is not the conclusion of the NAO, that
is the conclusion of a kind of focus group type of operation called
a Dinner Party. When you read the Report carefully it is actually
bereft of financial analysis frankly. I read it twice and then
I went to the methodology and in the methodology there is only
one reference to financial analysis, the rest of it is qualitative
analysis based on focus groups, expert panels, case studies and
the case studies are just looking at document reviews and interviews
with stakeholders. The vast bulk of the work which has been done
has been qualitative. Paragraph 6 in the appendix on methodology
talks about Operis. This firm appears to have been sub-contracted
by the NAO to do the financial analysis. Why?
Ms Leahy: Operis is a firm which
specialises in looking at financial models and we do not have
that specialist expertise in-house. We contracted with Operis
to carry out a number of analyses on the basis of the information
we had available and then there was a dialogue. They did not just
produce information which we put into the Report.
Q63 Jon Trickett: How many contractors
were invited to tender for this work by the NAO?
Ms Leahy: We appointed them on
the basis of a framework agreement that we had with them which
meant that because it was for a relatively small amount of money
we did not have to go out to tender.
Q64 Jon Trickett: As I thought; there
was no tendering process yet the NAO rests the whole of its financial
analysis basically on an iterative process with Operis where they
appear to have been the sub-contractor. Was the NAO aware of the
work which Operis does on LIFT schemes throughout the country?
Ms Leahy: Yes.
Q65 Jon Trickett: I just went to
the Operis website 20 minutes before this meeting started and
I discovered that on 30 September they advised a range of banks
and other financial institutions on the Doncaster LIFT scheme,
on 24 May they advised bankers and other private sector people
on the Medway LIFT scheme and on 9 February they advised the same
groups of people on the East Hampshire LIFT scheme. It seems surprising
to me that we have not been out to tender, yet we have delegated
the whole financial analysis to a company which is up to its neck
in LIFT schemes, supposedly to advise us on an analysis of LIFT.
How can it be that a company which is involved in LIFT schemes
was used by the NAO to give the Committee of Public Accounts an
appraisal of the content of LIFT schemes? How can that possibly
happen?
Ms Leahy: They ran the analysis
through standard models and it was basically a mechanical exercise
that they do very often and are familiar with and they gave the
output to us. We have checked—
Q66 Jon Trickett: You used a student
at a university to assist you with your financial analysis of
the Operis scheme, did you not? This appears to be another sub-contracting.
Did we pay Mr Arshad Mahmood?
Ms Leahy: He received a very small
amount of money for the work that he did, but he did not check
the Operis work, it was additional to the work.
Q67 Jon Trickett: Did it not occur
to you that the Committee of Public Accounts has to be above and
beyond reproach and the advice we receive, which is to Parliament
and therefore the taxpayer, has to be absolutely unimpeachable.
You employ 700 or so accountants. How is it that we have chosen
a company which is involved in a whole range of private sector
schemes, but particularly LIFT schemes, to do the analysis of
LIFT? How can that be? What reliance can we as Members put on
this Report?
Ms Leahy: I am sure you can rely
on those figures. I am confident—
Q68 Jon Trickett: There are no figures.
Ms Leahy: I am confident that
those figures are accurate figures.
Q69 Jon Trickett: Which figures?
Ms Leahy: The figures in Table
10 which came from the Operis report, the internal rates of return
(IRR) percentages and the residual value. These figures came from
putting numbers that we obtained through a model to get consistent
information from the different parties.
Q70 Jon Trickett: Let me ask you
this. There are other ways of funding GP surgery buildings and
the normal procedure for the NAO to advise the Committee of Public
Accounts is to test what the market is saying against a public
sector comparator. Why is there no public sector comparator?
Ms Leahy: These schemes do have
public sector comparators. We did not put that information here
because value for money is not just the cost side of it and the
costs over the period we are looking at would be very uncertain.
Our definition of value for money which we put in the Report is
a mixture of the whole life costs of the project compared with
the benefits and the quality one can get—
Q71 Jon Trickett: At the end of the
day, certainly I as a Member of this Committee, expect to be able
to have some kind of financial analysis. I accept that value for
money is all about quality of service delivery, but with Dr Kohli
saying that the costs of the scheme, and generally this is a GP
view, tend to be very high and the fear therefore that money is
being diverted into LIFT schemes from other types of financing
I would have thought you would have thought that the Committee
would be interested in the financial implications. In the London
improvement zone mainstream NHS grant funding is available for
enhancements to GPs' surgeries. What analysis have we done as
to the cost of that relative to the cost of the LIFT scheme? Surely
it would have been a direct real life comparison for us to analyse
whether LIFT was giving us value for money in financial terms
or not?
Ms Leahy: The private development
schemes are usually done in many different ways.
Q72 Jon Trickett: This is not a private
development, this is NHS grant, mainstream funded. Has any work
been done on that? Public sector comparators can be either conceptual,
as they often are, as we have debated many times, or they can
be based on real life experiences. There are real life experiences
inside London. There is no reference in this Report, no evidence
that the NAO was aware of that. There is no attempt to build a
comparator. Frankly this document is simply unsatisfactory. I
could not possibly say, nor could anybody frankly, that this document
demonstrates value for money. Mr Coates actually said—and
I wrote down his words—"We will not know for some time
whether value for money and success have been achieved" or
not. Those were Mr Coates's own words; I wrote them down. Given
that statement, does this Report, in your mind, demonstrate value
for money? Sir John, I want to put you on the spot.
Sir John Bourn: I think you make
some good points about our financial analysis and I recognise
that, although Ms Leahy has given some replies, we have not been
able to take you with us. I will also say that we do echo your
fears and also what Dr Kohli said because we have mentioned, for
example in recommendation 9, the importance of actually evaluating
whether these projects do turn out to provide value for money.
We may not have been able to convince you that so far they have,
but we certainly stand with you on the need for a framework, an
evaluative arrangement to see how they work out in practice and
to Report to the Committee on whether they work out well or badly.
Q73 Jon Trickett: Is it possible
that you knew what the answer would be if you did a financial
appraisal and therefore you have adopted a methodology which actually
avoids posing the very difficult questions as to whether these
are developing value for money at all? That is the conclusion
I have come to. You have side-stepped it.
Sir John Bourn: That is not how
we approached it, but I take the points you make and I shall reflect
about them.
Jon Trickett: I just feel that this NAO
Report takes a major step, a step change from quantitative analysis
based on a financial appraisal through to a qualitative analysis
such that it is impossible for this Committee to express a view.
Here we are asking a range of stakeholders, all of whom have a
stake in the success of this scheme, what they believe has happened.
These are the views of people. It is not an objective quantitative
appraisal of the kind I would expect to come before this Committee.
I protest actually about the way this has been put before us.
Certainly I shall not be agreeing to this.
Chairman: Is that a fair criticism, Sir
John? We do not often have this sort of questioning put to you
and that is why it is very important that it is taken very seriously.
Jon Trickett: Particularly, Chairman,
given the fact that we have used a contractor who is up to his
neck in the LIFT schemes to advise the Committee.
Q74 Chairman: Is there anything more
that you feel you could have done to provide some quantitative
as opposed to qualitative assessment to this Committee?
Sir John Bourn: I would defend
the use of a contractor. The fact that a contractor works in an
area means that he becomes expert in it and it does not mean to
say that he is only concerned with one of his customers. He is
a professional person and he is concerned with a range of customers.
I take the point that one could have taken a number of particular
schemes and compared the cost of those with the ones which have
come out of LIFT and one could certainly have done that. Of course
what you would have had would have been a range of schemes which
cost different amounts of money, partly perhaps because they were
funded in different ways, but partly also because they were in
different circumstances. One of the points about the whole of
PFI in the National Health Service is that the government does
not say that PFI is going to be cheaper. It recognises this and
is prepared to pay over the odds to get it. Clearly I regret the
fact that we have not taken Mr Trickett with us, but I would also
make the two points that I have mentioned: you are going to find
in some of these schemes that they are going to cost more doing
it that way. We have also said that for the future it is necessary
to have an evaluative framework which does not exist yet. I accept
that we could have done this better, but I argue that the main
points are there and ones which ride into the future justifiably.
Q75 Jon Trickett: It is not for the
NAO or PAC to get involved in policy or ideology. If the government
decides it wants to do something which is more expensive, for
whatever reason, than other ways of doing it that is up to the
government. However, we are entitled and in fact should express
an opinion as to the additional cost that policy incurs. That
is our role and we ought not to duck it.
Sir John Bourn: I will say that
I am quite happy to come back to the Committee with a supplementary
report which would have the list of schemes which had been funded
directly by the NHS. I am happy to come back and put that information
before the Committee.
Chairman: That would be very useful;
before we consider our Report.[4]
Q76 Mr Bacon: I must say I have a limited
amount of sympathy for the NAO's position, particularly relating
to the public sector comparator, because this Committee has often
criticised the public sector comparator. I suppose there is one
sense in which you are damned if you do and you are damned if
you do not, but it does seem to me that the answer to that is
more information rather than less. I was slightly perplexed by
one of Ms Leahy's answers. You described the financial modelling
process as a standard, rather mechanical one. It did occur to
me that if it is standard and rather mechanical, why is it that
there is no in-house expertise and it has to be farmed out?
Ms Leahy: We do have some in-house
expertise, but we did not have it available at the time to do
that. The resources were tied up at that time when we needed them
and Operis were available and they do the sort of analysis that
we wanted day in day out. We have used them for that sort of analysis
in the past and it seemed good value to us to go to them rather
than use other resources which could have been used on higher
priorities in the National Audit Office. We saw it as a very straightforward
low key decision to do that.
Q77 Mr Bacon: This is obviously a
financial committee and these are called finance trusts. Can you
tell me where in the Report there are tables referring to millions
of pounds spent?
Ms Leahy: We do have the information
on the plans for spending under LIFT for the six case studies
in particular which we looked at for the Report. We concluded
that what mattered for value for money were having a competition,
a competitive procurement, looking at the finance terms which
we have in a table in here, the cost of the debt.
Q78 Mr Bacon: So you thought it was
better to put in the cost of the debt. Actually you have put it
in. I was just checking whether there was anything else I did
not know about, that I missed, other than page 38 where there
are some numbers. I had to dig around to find them, but they are
in Appendix 2 on page 38. A capital sum is given for each of the
various case studies. I personally would have preferred more of
that sort of information, only in more detail, further up, but
that is where I eventually found it. You put the point very succinctly
earlier when you said that value for money is a mixture of the
costs over the period, over the whole life costs, together with
the benefits and the quality. I put that even more simply and
it is essentially what this Committee spends its whole time looking
at, namely, bangs for your buck. That is the real question. It
is not whether the centre that Dr Kohli works in is or is not
marvellous. I went to have a look at it the other day and it is
marvellous and Dr Kohli himself told us what a pleasure it is
to work there, how easy it is to attract staff, there are regeneration
benefits, which I shall come onto if we have time, but it really
is about bangs for the buck, how much you can squeeze out of the
lemon. Dr Kohli, you have some experience of running other GP
practices with GP partners in buildings which you yourselves owned
before you came into the LIFT scheme. Is that right?
Dr Kohli: Yes.
Q79 Mr Bacon: Could you say how many
partners, how big the building was?
Dr Kohli: In 1990 I was a partner
in a practice called Market Street Health Group where we had five
partners and we built on a brownfield site something very similar
to a LIFT concept. In this Report it is called a third party development,
but actually we called it cost rent. Cost rent is in my world
the original LIFT project. It was a device where GPs were incentivised
to build and own and develop high quality premises. They were
then the owners.
4 Ev 18-20 Back
| 
