Examination of Witnesses
(Questions 1-19)
HM TREASURY &
PARTNERSHIPS UK
20 JUNE 2007
Q1 Chairman: Good afternoon. Welcome
to the Committee of Public Accounts where today we are considering
the Comptroller and Auditor General's Reports, Improving the
PFI tendering process and Benchmarking and market testing
the ongoing service component of PFI projects. We welcome
John Kingman who is the Managing Director for Public Services
and Growth Directorate from HM Treasury. Perhaps you might go
through your colleagues, Mr Kingman, I think it might be easier
that way rather than me just reading them all out.
Mr Kingman: With pleasure. On
my left, James Stewart, Chief Executive of Partnerships UK (PUK);
on my immediate right, Jeremy Pocklington, Head of our Corporate
and Private Finance Team; and on my extreme right, Gordon McKechnie,
who has recently joined us as our new Head of PFI Policy from
Deloitte.
Q2 Chairman: Perhaps you might start
by looking at paragraph 2.7 of the Comptroller and Auditor General's
Report, the cost of all this. Mr Kingman, why are you letting
tendering costs rise so much they are putting so many bidders
off the process in the first place? Is that not rather basic?
Mr Kingman: I do not think that
we are in a situation where we are putting bidders off, but this
is something we watch rather—
Q3 Chairman: You have got twice as
many projects only attracting two bidders, so if one drops out
you have a monopoly situation, you are putting people off. The
fact is that only the most experienced people, people prepared
to put up with a very long tendering process are now taking part.
You have made the process so complicated that you are getting
less and less competition.
Mr Kingman: This is something
that we do watch very closely for good reason. I do not think
we are in a situation where we are seeing worrying shortfalls
of competition on bids, but obviously if we were in that situation
that would be very worrying.
Q4 Chairman: You are not worried
that twice as many projects are only attracting two bids?
Mr Kingman: As I say, we do watch
that.
Q5 Chairman: You may be watching
it, what are you doing about it?
Mr Kingman: I might ask my colleague,
Mr Pocklington, to say something about that.
Mr Pocklington: Thank you, Mr
Kingman. I think we are putting in place an agenda of measures
that are designed to improve public sector procurement skills
in order to improve and ensure—
Q6 Chairman: I am sorry, I will stop
you there. We are now the most developed PPP market in the world,
there are 800 projects that have already gone through the mill.
Do we have to wait for another 800 projects before you get things
right?
Mr Pocklington: I think we have
already put in place a number of measures—
Q7 Chairman: You just told me that
you are now making further changes. You are adding another patch
onto the broken wine skin.
Mr Pocklington: The measures that
we are putting in place are showing early signs of improving tendering
times—
Q8 Chairman: After 800 projects?
Mr Pocklington: —in certain
sectors. A recent example is the Building Schools for the Future
agenda where I understand that the average tendering time is 22
months, significantly lower than previous tendering times for
the schools.
Q9 Chairman: Have a look then, Mr
Kingman, at paragraph 3.1, will you? Why are tendering periods
for PFI projects taking just as long now as they did four years
ago? Why have times not improved? Here you are, the most developed
market in the world, 800 projects already under your belt and
tendering periods take just as long as they do now as four years
ago.
Mr Kingman: I think I should be
clear with you, Chairman, we agree with the NAO that the performance
described in this Report is not as it should be.
Q10 Chairman: No, it is a very bad
Report, is it not?
Mr Kingman: I agree with the NAO
that performance is not as it should be. I think it is not a correct
reading of the Report that we have been, as it were, asleep on
the job, we have done a great deal. We would like to see more
progress. There are some early signs including, as Jeremy said,
the Building Schools for the Future programme. I would
also mention on their health programmes Partnerships for Health
has completed 42 procurements with an average procurement time
of 20 months and in a number of sectors we are putting in place
targets to try and get this further down.
Q11 Chairman: Mr Stewart, is this
not an indictment of what you were supposed to achieve seven years
after you were set up?
Mr Stewart: I do not believe so.
Q12 Chairman: You were set up to
accelerate development of procurement and implementation of public-private
partnerships. Were you set up to do that seven years ago? Why
have you not achieved what you were set up to do?
Mr Stewart: I think we have achieved
a lot of what we were set up to do. The Report itself highlights
the importance of a central body like PUK supporting both the
Treasury, the central policy position and individual projects.
To give you one example of the difference we have made—
Q13 Chairman: I am not interested
in one example, you can always pick out one good example. I am
interested in overall processes and, looking at this in the round,
it does not seem to me as if you have achieved much in shortening
tendering periods, which is what you were set up to do so that
we might get more competition, more people applying and, therefore,
lower costs.
Mr Stewart: I would like to pick
up an example that covers the whole market, a lot of people think
that the main objective of the introduction of standard contracts
was to decrease procurement times; in fact, the overall objective
was to improve the quality of documentation which to me is as
important as the time taken to procure. I think another general
example is what we have done across programmes in investment,
like BSF and LIFT, where we have seen dramatic decreases in the
procurement times and procurement efficiencies in both schools
and primary healthcare centres.
Q14 Chairman: One aspect of PFI that
we were told was a very good part was that it was going to create
certainty but let us look at paragraph 3.29, shall we? We see
there that one-third of project teams made major changes to their
projects after a single bidder had been selected. Why did you
not do more, Mr Kingman or Mr Stewart, to prevent this happening?
Mr Kingman: We agree entirely
with the NAO that this is not a desirable situation. We are doing
a number of things on this front, which I will ask Mr Stewart
to describe, but I would say that the problem will be addressed
by the new competitive dialogue process which will dramatically
reduce that period where there is only one bidder in the frame.
Mr Stewart: I am sure we will
come on to this later, but I think some of the reasons for cost
increases are some of the reasons for delays. Although some of
those reasons can be attributed to procurement teams, a lot of
those reasons are, in fact, outside their control. For example,
a project which is highlighted in this Report, the Bart's London
Hospital which I was involved in, ten months of the delay was
due to a planning intervention by the Mayor of London which not
only increased some of the costs because of extra things that
would need to be done but also introduced some delay.
Q15 Chairman: If you would like to
have a look at figure 11, which you can find on page 18. It is
the key features of the PFI projects that have value tested their
services. Look along the columns there to "Final Agreed Price
Change". Do you see that?
Mr Kingman: Which Report are we
on, Chairman?
Q16 Chairman: Benchmarking and
market testing the ongoing services component of PFI projects,
page 18. Look along that column, "Final Agreed Price Change".
Now you have got some reductions. If you look down, you see "Defence
Fixed Telecommunications Service" and "Foreign and Commonwealth
Telecommunications Network", you have got quite heavy reductions
there, which is also good, but apparently that is in the communications
field where prices are coming down anyway. Generally, you see
that the trend is upwards. Why is that do you think?
Mr Kingman: I am not sure that
is correct, that the trend is upwards. The NAO concluded that
five of the nine were good value for money; four of the nine were
uncertain. The one here that is a significant increase, the Debden
Park High School, the NAO noted that the price increase was effected
by other factors that were at play at the time.
Q17 Chairman: It is a pretty mixed
record, is it not?
Mr Kingman: I am very content
to accept the judgment of the NAO, that five of these were good
value for money; four were uncertain.
Q18 Chairman: Let us look at benchmarking
and market testing. These were obviously designed to restrain
costs but, in fact, they have led to price increases. How does
that, do you think, fit the picture that PFI is supposed to lead
to certainty? The reference, if you want it, is benchmarking,
paragraph 2.21.
Mr Kingman: As I say, Chairman,
the question is, were the changes value for money? The judgment
of the NAO was that in five out of the nine they were value for
money and in four out of the nine they were uncertain.
Q19 Chairman: What went wrong with
the four out of the nine then?
Mr Kingman: I am not sure anything
did go wrong with the four out of the nine. It depends how you
interpret the word "uncertain". You may wish to ask
the NAO to unpack what they mean by "uncertain" but
I am not sure there was—
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