Examination of Witnesses (Questions 40-59)
HM TREASURY &
PARTNERSHIPS UK
20 JUNE 2007
Q40 Derek Wyatt: Are you able to
put into the public domain those local authorities that have been
to talk to you asking for advice in upskilling? Is that a confidential
thing? I would like to get a better idea of which local authorities
are any good. Could you provide a league table for us?
Mr Kingman: No, I do not believe
we could. We certainly do not do any formal assessment of capability.
Q41 Derek Wyatt: Does the Audit Commission
do that? Do you talk to the Audit Commission to say, "Listen,
I know you analyse the local authorities into good, fair, weak
and all that, but if it is weak and fair in this area, what goes
in to help these local authorities get better?"
Mr Stewart: The
answer is the best local authorities are those which have done
more than one procurement and I think Leeds is highlighted in
this Report as a Council that improved its performance over a
number of PFIs. One of the initiatives in the Building Schools
for the Future programme has been for Partnerships for Schools
to arrange to capture skills in the local authority market and
transfer them from one local authority to another. Unfortunately,
a lot of the data that you are asking for is anecdotal rather
than comes in any formal manner.
Q42 Derek Wyatt: You do not say,
"Oh, goodness me, it is Kent again"?
Mr Stewart: Kent are quite good,
they have done a number of procurements.
Q43 Derek Wyatt: Luckily, it is my
authority. That is why I am asking.
Mr Stewart: They have done a number
of procurements.
Q44 Derek Wyatt: In the various stages—the
Chairman said it is getting longer and longer, or it is not getting
shorter, the procurements thing—there is nothing you can
do on-line, you cannot take three stages on-line confidentially
and move them faster between departments and so on? Must this
all be a paper and meeting process or is it on-line? Can you offer
a confidential intranet system to help with the bidding process
and the deal-making?
Mr Pocklington: I think there
are a number of aspects in which the Treasury helps and assists
and also holds local authorities to account. We have already discussed
the important standard contract which is designed to improve the
quality and consistency of PFI procurements across the public
sector. The Treasury also runs the Project Review Group which
is required to approve all local authority PFI projects and that
provides us in the Treasury with an opportunity to scrutinise
projects and the advisory teams at two stages in the lifecycle
of a project.
Q45 Derek Wyatt: On-line?
Mr Pocklington: No, this is a
real meeting with representatives from the project.
Q46 Derek Wyatt: There is nothing
you can do using technology to speed up the process?
Mr Pocklington: We provide all
our guidance on-line.
Q47 Derek Wyatt: I know, but I am
thinking about filling in forms and getting the thing done, it
is too complex.
Mr Kingman: I think the impression
that it is all about forms and bits of paper is not the world
I recognise really. This is more a world of personal relationships.
The Operational Task Force, for example, is a phone-based system.
I am very clear there are things that can be done to speed up
the process, but I do not think the process problems we have here
are really one of bits of paper moving around the system.
Derek Wyatt: Thank you, Chairman.
Q48 Dr Pugh: I could not help noticing—it
is not very far away from me—that St John's, Bootle more
or less broke the record for a benchmarking exercise lasting,
I think, twice as long as the nearest competitor. I wondered whether
you could tell us a little bit about what went wrong there because
if benchmarking is a good thing, surely it ought not take that
long to do?
Mr Kingman: I am not sure, I am
afraid, there is anyone here who knows enough about that case.
We would be very happy to send you a note about it. [1]
Q49 Dr Pugh: Could you send us a note
on that? It would be useful. It would be surprising and obviously
a very expensive exercise and if you also indicate in your note
what the whole benchmarking exercise, if it lasted two years,
cost. You mentioned quite voluntarily earlier Building Schools
for the Future. Presumably, Building Schools for the Future
includes not just simply the actual physical fabric of the schools
themselves but some soft services as well, they are going to be
involved too in the PFI contracts. Does the provision of soft
services include, for example—because schools in the future
are going to be quite different from schools in the past and they
are going to have a very heavy IT role and so on—the supply
of software or IT support?
Mr Stewart: One of the main objectives
of that programme was to incorporate the integration of ITC into
the design of the building and ultimately to improve educational
standards so, yes, the ITC supply is an integral part of that.
Two years into the programme Jim Knight, who is the Minister for
Schools, has asked for Partnerships for Schools to look into that
issue to see how it is going.
Q50 Dr Pugh: So it is an integral
part so there will obviously be some fairly lengthy contracts
involved for software services?
Mr Stewart: I am not convinced,
but I will check, that it is actually the educational software;
it is more the hardware, the wiring and the white boards.
Q51 Dr Pugh: What I am interested
in is whether there will be provision for market testing that
element of the PFI, because you can imagine that schools start
off in a situation they are comfortable with and then they get
told five or six years down the line, "I am sorry, it is
time for an upgrade and you must have product X or supplier Y,"
and they cannot get out of it because there is no provision in
the contract for benchmarking or market testing or outsourcing
or any other alternative. Please assure me that is not the case.
Mr Stewart: That is not the case.
To the extent that there is technology refresh it would be certainly
one of those services which is benchmarked but, as I said, I think
there is a very low educational software element.
Q52 Dr Pugh: In terms of soft service
PFI provision of that, what is the average length of contract
we are talking about for cleaning or catering, or whatever? What
do schools and hospitals and so on sign up for, on average?
Mr Stewart: It is five to seven
years.
Q53 Dr Pugh: And when they come to
negotiate it, and I think it is specified in the NAO document,
they are not in such a strong position, are they, because I think
on page 12 of the Report on benchmarking it says that Nabarro
looked at the robustness of the contracts and concluded that most
of the benchmarking clauses and half of the market testing clauses
were expected to have limited effectiveness . Why is that and
what are we doing about it?
Mr Kingman: We agree that this
is not a desirable situation that is described here. It is important
to note that these were early contracts being looked at, and the
NAO note in their Report that the quality of the contracts has
improved since then, which is obviously important. I think it
is important to bear in mind that whilst these contracts clearly
were not as good as they could have been, in practice where authorities
have had these contracts they have found ways to negotiate with
contractors, and there is one such situation described in the
Report.
Q54 Dr Pugh: If I were in a very
weak legal position and I was going back to the contractor saying,
"It is getting rather costly now or the amount you are demanding
is more than we can afford," as seems to be happening in
some places in hospitals and schools, I would imagine that I would
be dependent upon a fairly compliant supplier who needed further
business and needed to remain fairly amenable, but if I came across
a supplier who wanted his pound of flesh it would seem fairly
evident that unless the legal contracts are really robust he would
get it, would he not?
Mr Kingman: I am not in any way
defending contracts that are anything other than completely robust
and I agree with the NAO that it is not desirable that Nabarro
think these contracts were not tight enough.
Q55 Dr Pugh: One sign this was going
on to a greater or lesser extent would be if a negotiation resulted
in the person negotiating on behalf of the hospital or school
realising that their position is weak, realising they have not
got the money to pay the extra, realising they are in a fix, what
they normally do is reduce the spec and they would actually ask
for a little less from the contractor. Do you monitor that happening
in PFIs? Have you got any figures on how many negotiations result
in the person being provided with the service simply asking for
less?
Mr Kingman: We certainly do monitor
all PFI projects and indeed we publish data on them and I am going
to ask James to say something about that in a moment. I just want
to say there are case studies where bodies have had contracts
that were not sufficiently tight but they nevertheless have managed
to negotiate quite good arrangements. I am told there is the case
of Victoria Dock Primary School which put in place an agreed profit-sharing
scheme with the private sector that allowed them to take a share
of the gains going forward.
Q56 Dr Pugh: Forgive me, I am sure
there are anecdotes good and bad. What I really wanted to know
is whether you could spot a general trend and one indicator that
things were going really badly for people being provided with
soft services under PFI would be a general trend to ask for a
lesser spec as a way of getting by.
Mr Kingman: I do not think there
is any general trend, partly because there have been so few of
these benchmarking/market testing projects so far at the stage
we are at in the programme.
Q57 Dr Pugh: You could not furnish
any data on that now?
Mr Stewart: On benchmarking specifically,
a typical benchmarking clause might say if the increase in the
cost was beyond a certain figure then you have to go to market
testing, so that is one of the protections that is built in the
model. On the data front what we have been asked to do, as I said,
is collect data. So far we have been to 43 project managers, which
covers around 55 projects which we consider to be pilots, so the
data is being collected, and one of the things we have held back
on is going out to any more authorities because we wanted to actually
have this hearing because we thought we might learn some thing
from this hearing and that you might want some extra data, so
following this hearing and following the consequences of this
hearing we are proposing to roll out the collection of that data
right across the programme.
Q58 Dr Pugh: Thank you but I do not
think we do need more data! The NAO Report implies that the PFI
solution is the preferred solution of Government policy and it
says on page 7: "We are not, however, aware of any systematic
overall comparison to date between the cost and quality experiences
of facilities services procured under the PFI with conventional
outsourcing"—a head-to-head comparison in other words.
Have you go any evidence that PFI is a better way of doing things?
Mr Kingman: No, we actually take
a rather careful position on this. There are situations where
there is a case for using PFI for soft services but the Government
is rather carefully neutral on this point, and indeed the documents
that we published argue that our studies of the evidence suggest
that PFI is neither preferable nor inferior to conventional outsourcing,
and that is the evidence that we have had to date.
Q59 Dr Pugh: Okay, one thing you
could have said and you have not said is that by having a PFI
with an element of benchmarking you get a reduced price in terms
of the initial bid that is accepted, but the NAO Report says that
having benchmarking in the contract does not seem to afford much
comfort to the supplier and does not reduce the overall contract
price. You presumably agree with that?
Mr Kingman: We certainly agree
that benchmarking is in general the less effective way of doing
things and that is why we favour market testing as a better approach.
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