Examination of Witnesses (Questions 20-39)
HM TREASURY &
PARTNERSHIPS UK
20 JUNE 2007
Q20 Chairman: Perhaps the NAO could
help us.
Mr Finlay: The situation is that
there are some projects which achieve price decreases, not just
the communications one, which you have already referred to, but
some of the hospitals projects did get price decreases. In these
other projects where a lot of the issue came down to negotiations,
they were left with price increases so, given that some had achieved
decreases, there was inevitably uncertainty about whether these
other projects had price increases.
Q21 Chairman: Is it true if they
have managed to limit price increases, they have only done so
by reducing services? Is that right?
Mr Finlay: In some cases there
has been some element of service reduction.
Q22 Chairman: Do you think that we
have got adequate data to know the PFI services are value for
money when there is a lack of data to compare them with conventional
outsourcing?
Mr Finlay: The Report notes that
at the moment there were difficulties in making those comparisons.
Q23 Chairman: What do you say to
that, Mr Kingman?
Mr Stewart: I think we have all
got to accept this Report looks at the first nine benchmarking
and market testings and, in parallel with this Report, at PUK
we have been asked by the Treasury to collect data on both benchmarking
and market testing. That data will be used by the public sector
to inform their value-testing exercises but also to provide information
to the private sector to tell them when market testings are coming
up so that we can encourage a supply market to develop.
Mr Kingman: Could I add, Chairman,
the reason that we have moved from a policy that took benchmarking
as best practice to one of market testings was precisely because
we think that it will lead to more robust outcomes. That is a
change which we made relatively recently and it is one that the
NAO endorse and think likely to lead to benefit for them.
Q24 Chairman: Mr McKechnie, can I
ask, you have come from the private sector, have you not?
Mr McKechnie: I do.
Chairman: Tell us whether we are right
in thinking that the private sector in the last ten years has
eaten us for breakfast, because our people tend to come and go,
for instance, in the Health Service, trusts run their own PFI
projects, often in the private sector you have got people with
years of experience, much better paid and they stay for the entire
lifetime of the project. What can we learn from the private sector
in the public sector? As now you are poacher turned gamekeeper,
what can we learn from you? This is a question not meant aggressively.
We would like to get the benefit of your advice.
Q25 Derek Wyatt: It is just the natural
tone.
Mr McKechnie: My experience of
public sector procurement teams is, quite frankly, a mixed experience.
I have seen some that are good and some that are under-resourced
and not so good. I have to say that in recent years I believe
I have seen some improvements in the public sector procurement
teams. My experience mainly in recent years has been with the
Ministry of Defence and I think that the establishment of the
Private Finance Unit in the Ministry of Defence and more recently
the appointment of the commercial director there has improved
matters.
Q26 Chairman: I think the Ministry
of Defence has quite a grip on things, has it not? It is much
more centrally run. What lessons can be learned from that, say,
with regard to the Health Service, for instance, or education?
Do we give too much independence to individual trusts in negotiating
these PFI projects? Should there be maybe more central direction
and help, do you think?
Mr McKechnie: I think that it
would help if there was a greater transfer of skills around the
procurement bodies, so people who are actually doing the procurement
have had experience of previous ones. I think that is one of the
proposals that is put forward which the OGC and the new Government
Procurement Service are intending to do, to create a secondment
model in order to achieve that.
Q27 Derek Wyatt: Good afternoon.
I am interested, looking at this Report, Improving the PFI
Tendering Process that there are three main people from the
National Audit Office assisted by three others, that maybe four
and a half people can write a Report to tell you what is going
wrong. Rather than ask Deloitte's, why do you not just nick a
few people from the National Audit Office because very quickly
they are able to pinpoint what is wrong with the PFI system?
Mr Kingman: We are very happy
to garner talent from wherever we can get it, but I think that
we need—and it is something we have discussed at a previous
hearing—in the Treasury, precisely as the Chairman put it,
poachers turned gamekeepers, people who can ask the right questions
and know how to make sure that we are not going to get eaten for
breakfast by the private sector.
Q28 Derek Wyatt: Is there some reason
why you do not give this PFI process out to the private sector
to manage?
Mr Kingman: In some respects we
do, in the sense that we have Partnerships UK which is, as you
know, a joint venture with the private sector. In the end the
Government's policy has to be made by the Government and I think
it would be risky to—
Q29 Derek Wyatt: Any riskier than
the Thames Gateway?
Mr Kingman: I am not an expert
on the Thames Gateway, but I think it is important to bear in
mind the evidence is that PFI has delivered remarkably better
results than conventional procurement overall.
Q30 Derek Wyatt: Since 1997 we have
spent £70 billion on computer systems that have not worked
in Government, so it would seem to me that there is a culture
inside Government that does not really understand big projects.
Why not use HSBC or Deloitte's or why not use them much more to
handle these things?
Mr Kingman: I would be the first
to agree that there are significant numbers of major projects,
particularly IT projects, that have gone wrong. Most of them were
conventionally procured projects not PFI. The reason that we set
up OGC was precisely to have some serious private sector expertise
to tackle these sorts of problems and I am really pleased that
we have just attracted an excellent new commercial chief executive
of OGC. We do have these skills but I do not think we can sub-contract
policy decisions that are for Government and ministers to a private
sector firm without losing value.
Q31 Derek Wyatt: Just reassure me,
I had a PFI hospital that was in five small hospitals, a community
hospital, in four different local authorities, a minefield, but
it made lawyers and accountants very wealthy. What I did was I
went to the Health Minister to ask if she could explain how it
worked and she said it was a matter for Sheffield, and Sheffield
would make the decision about the PFI. I then found that in the
Treasury there was a health PFI specialist and I went across to
see her. She said under no circumstances would they allow this
PFI to go forward. It took 18 months in the Health Service for
them to say, "This isn't a bad idea", but I already
knew that the Treasury were going to say no. Please tell me that
does not happen any more.
Mr Kingman: I would hope it does
not happen very often. I am not aware of the details of the case
obviously, but it does not sound very sensible.
Q32 Derek Wyatt: Do you have regular
meetings with the PFI teams across Government?
Mr Kingman: Absolutely, yes.
Q33 Derek Wyatt: Regular, weekly?
These are big projects that are going across. We have had one
at Dartford, a brand new hospital that has gone broke already
in the space of seven years, £100 million, I think.
Mr Pocklington: My team is in
regular contact with PFUs around Whitehall.
Q34 Derek Wyatt: What does that mean,
"regular"?
Mr Pocklington: Different members
of my team would be in touch probably on a daily basis, members
of PFUs have more structured meetings.
Q35 Derek Wyatt: I am trying to understand
how the Treasury already knew they were not going to approve.
Okay, it was only a £50 million thing, but it is still £50
million. How quickly do you tell the opposition, as it were, in
Government, "This isn't stacking up, guys"?
Mr Kingman: I really do not know
the details of the case.
Q36 Derek Wyatt: Forget that particular
one, but there must be others where they go up in each department
to the top silo man and then come across to you. The reason the
delay is, I would maintain, there is bouncing going up and down
the Department and they are trying to double-guess what you are
thinking.
Mr Kingman: The situation described
is not one we try to run at all. In the first instance, we would
not tend to think of the Department as the opposition. What we
try to do is have very close relationships with PFUs, precisely
so you do not have this long bureaucratic process but so that
departments understand clearly what it is that are the Treasury's
principles which we set out in guidance and so on. Quite often
they come to us and say, "We have got an issue. How do you
think that might play out?"
Q37 Derek Wyatt: I think I have exhausted
that one. What makes me as nervous is the lack of financial skills
in local authorities, so what do you do? Do you actually say your
own information—if it is confidential I understand—we
have got to say, "Look, we have got league one players, we
have got league two and league three. If we are going to give
league two and league three players some PFIs, listen, we need
to upskill that group"? If you say those sorts of things,
what do you do to upskill the knowledge base of local authorities
there?
Mr Kingman: As you know, we do
not control local authorities.
Q38 Derek Wyatt: I know. One of the
great criticisms is there is not enough skill in handling this
at local authority level.
Mr Kingman: We would agree that
is a major issue. What we have sought to do is, firstly, to give
help and support through the Operational Task Force which local
authorities have access to and, secondly, to provide secondees
so that a local authority that is doing something can get a skilled
person to help them. James may want to add.
Mr Stewart: I think it is a challenging
issue. In the world we live in local authorities are responsible
and accountable for their own procurements and there is a tension
when the centre tries to tell local authorities what to do. Some
of the problems have certainly been overcome in the Building
Schools for the Future programme where there is a strong central
body that—
Q39 Derek Wyatt: It is huge amounts
of money being released.
Mr Stewart: It is a £2.5
billion a year programme, so I think those sums are justified.
Unfortunately, you have individual procurements going on in individual
local authorities, if you are trying to provide the skills that
you are talking about, it does not come for nothing.
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