Examination of Witnesses (Questions 60-79)
HM TREASURY &
PARTNERSHIPS UK
6 FEBRUARY 2008
Q60 Nigel Griffiths: Why do you not
make it a requirement is what I am asking and then instead of
having two thirds complying with that not unreasonable request,
you would have the whole show?
Mr Kingman: There is a tension
between our desire to promote good practice and not actually hamstringing
the whole of the public sector by saying the Treasury knows best
about everything and there are no circumstances in which you can
do something different.
Q61 Nigel Griffiths: You are making
an exaggerated sweeping statement that the Treasury knows best.
I am not suggesting the Treasury knows best: I am suggesting that
it would be very good if there were a pool of contract managers.
Forget "knows best on everything else". I would hope
you do know best on this.
Mr Kingman: If I may, there may
be, for example, a small PFI project where actually they do not
need a full-time contract manager. I do not know whether that
is justified or not. It is a reasonable judgment for someone to
make. Our role is to say that it is a very good idea to have a
full-time contract manager and you have to have a good reason
if you want to do something different.
Q62 Nigel Griffiths: You have an
operational taskforce. Why did it take half a decade of PFI to
set that up?
Mr Stewart: We set it up at what
we thought was the most appropriate time when there was some operational
experience. That is not to say no support was available before
then. We were providing ongoing support: we just formalised that
and set up a formal OTF in March 2006.
Q63 Mr Williams: Only a couple of
quick points. We are told that competitive tendering has not always
being undertaken where it would have been possible. Why is that?
Are they advised they should undertake competitive tendering or
not?
Mr Kingman: They are very strongly
advised that they should and we have a very strong presumption
in favour of competition. There are three big projects where this
did not happen. Two of them were prisons and the procuring authority
took a judgment that operationally they could get the existing
contractor to manage the risk within the prison context much better
than they could getting an outside contractor to do it. Then they
benchmarked that price against what they could get and they made
a judgment that that was the right thing to do. I certainly would
not exclude the possibility that that is a reasonable judgment
for a procuring authority to make, but it should absolutely go
through very clearly why it is not having competition, whether
it has a good value for money reason for not having a competition.
Q64 Mr Williams: I see new guidance
has been issued in 2007. PFI has been around since 1992. Why has
it taken so long to produce new guidance?
Mr Kingman: We continually improve
the guidance and there is a sort of archaeology of bits of guidance
that we have issued over the years which I hope has continued
to improve, learning the lessons as we learned them. PFI has in
some form been around since 1992 and the great bulk of PFI projects
really started coming on stream at the beginning of this decade.
Q65 Mr Williams: So what were the
principal lessons the new guidance was intended to address?
Mr McKechnie: The standardisation
of PFI contracts has been around for some time. The first one
was issued in 1999 and it was version four that was issued in
2007. The two main improvements, with respect to the operational
phase, were that it dealt with management fees, which have already
come up in discussion, because they were also becoming an increasing
problem over the previous years. As James mentioned earlier, it
made a distinction between how to handle small changes, medium
changes and large changes. The concern had been until then that
some of the small changes were being handled in somewhat too bureaucratic
a way and it was much more sensible to streamline that.
Mr Williams: Following on the point Nigel
has been dealing with, the fact that a third of the hospitals
and one in six schools do not have enough staff to manage their
contracts properly, I am as bewildered as Nigel was, as to why
you tolerated such a situation. How long have you been aware of
the scale of this failure?
Q66 Chairman: I am amazed Mr Kingman
that you do not know the answer. You have had to turn to somebody
who has been imported from the private sector. I have to say Mr
Kingman I have found your whole attitude during this hearing arrogant
and lackadaisical and I hope in the remaining few minutes you
will try to do better and try to take this Committee more seriously.
Mr Kingman: I am sorry Chairman;
I certainly do take this Committee seriously.
Q67 Chairman: You have been asked
a direct question and you can perhaps now give us the courtesy
of answering it. It says in your biography that you are responsible
for £600 billion of public money. Right, well let us now
have some answers.
Mr Kingman: I am afraid I do not
know at what time the Treasury has been aware of this.
Q68 Mr Williams: Do you mean this
came as a surprise to you when the National Audit Office mentioned
it?
Mr McKechnie: It did not come
as a surprise. We knew that some projects were under-resourced;
we have known that for some time.
Q69 Mr Williams: So what did you
do about it?
Mr McKechnie: We have done things
such as set up the operational taskforce and we have encouraged
projects to hire more staff. It is not just about numbers, it
is also about getting the right skills and that has to do with
the training programmes that have been run by the operational
taskforce and indeed the NAO itself has run training programmes.
Q70 Mr Williams: In dealing with
setting up a PFI contract, the costs that you incur in relation
to the supplier are only part of the costs, are they not? There
is the cost that you need to do just what is not being done, to
monitor it. Is that cost allowed for anywhere, is financial provision
made for adequate supervision?
Mr Kingman: The Treasury is not
resourced to monitor every PFI project and we do not seek to monitor
every PFI project.
Q71 Mr Williams: No, but you tell
someone else to.
Mr Kingman: Departments certainly
do and their auditors do and the NAO do and that would be true
of a publicly procured project just as much as a PFI one.
Q72 Mr Williams: But it is therefore
part of the cost of the PFI contract is it not to have it properly
monitored.
Mr McKechnie: Yes.
Mr Kingman: Yes; absolutely.
Mr Williams: Do we know what that aspect
is costing us?
Q73 Chairman: Well, what is the answer?
Mr McKechnie: We will need to
write you a note on that. [1]
Q74 Chairman: What is the point of sending
us a note? Why are you here?
Mr Kingman: We do not have that
cost at our fingertips.
Q75 Mr Williams: It is a concealed
cost and it looks as though either it is not being met by you
or by whomever made the original arrangements or it is not being
used properly by those to whom the resource is made available.
Which is it?
Mr Kingman: I would strongly agree
that it is part of the cost of the project and when a procuring
authority looks at doing a PFI project, it should take that into
account and I have every reason to think they do so.
Q76 Mr Williams: Who ultimately bears
the responsibility for ensuring that something as important as
this is applied across the 16% of hospitals and 16% of school
that are not doing it? Are they being provided with the resources
for it?
Mr Kingman: The responsibility
lies with the relevant procuring authorities and ultimately with
the relevant accounting officer in the department.
Mr Williams: We are not getting very
far.
Chairman: No, we are not.
Q77 Mr Burstow: Just a couple of
things I wanted to pick up on. The first thing is something you
said earlier on in response to one of the questions that M Bacon
was asking in relation to the role Mr McKechnie plays within the
Department. You made a comment that we need people from the private
sector in the Treasury because they know where the bodies are.
Could you perhaps tell us which are the bodies you had in mind
and then perhaps Mr McKechnie can tell us where they are?
Mr Kingman: I will ask him to
do that. As the Committee has rightly pointed out on a number
of occasions, PFI is complex and risky because there is the risk
that the public sector frankly has the wool pulled over its eyes
by sophisticated people from whom we are buying services. We think
that part of the Treasury's role is to prevent that happening
and that is what I mean by saying we need to have people who know
how it all really works.
Q78 Mr Burstow: Is that one of the
reasons that all of these extra charges that the Report has uncovered
are being lumped on?
Mr Kingman: On the contrary. I
would say that it is a very good example of the kind of thing
that we are able to clamp down on because we work out that it
is going on and we do something about it.
Q79 Mr Burstow: If they have been
clamped down on, why was it they were revealed through the work
the NAO has done?
Mr Kingman: Our guidance, which
said that we thought these fees were unacceptable, was issued
in March 2007, well before the NAO began their work.
1 Note by witness: The Committee asked about
the financial provision made for monitoring operational PFI projects.
The value for money assessment for each PFI project must reflect
the cost of ongoing monitoring, as set out in the Treasury's 2006
"Value for Money Assessment Guidance". I am afraid the
aggregate cost of monitoring PFI is not recorded by the Treasury
nor collected at a departmental level. This is because the ongoing
monitoring of PFI projects (or in fact conventionally procured
projects) is not recorded separately from the various other ongoing
administration costs. Back
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