Examination of Witnesses (Questions 20-39)
HIGHWAYS AGENCY
12 MAY 2008
Q20 Mr Touhig: Did not the costs
also increase because you did not foresee the extent to which
meeting your very high quality standards meant that the tendering
period would double from two to four years to start with? You
got off to a pretty ropey start.
Mr Bradbrook: No. We were of the
very firm belief that good preparation work upfront, coming up
with a set of clear and unambiguous tender documents and contracts,
would reduce the costs later on. We were always looking at the
whole life costs. Although the consultancy fee increased three
times, if you look at the overall cost of the contract from preferred
bidder to award there was not one increase; indeed, it went down
by £2 million. Even the NAO's own reports published last
year said that typically PFI contracts increased by 17% after
preferred bidder stage. That work upfront not only stopped the
price increasing after preferred bidder stage.
Q21 Mr Touhig: Let us explore the
work upfront. The tendering process doubled from two to four years?
Mr Bradbrook: Yes.
Q22 Mr Touhig: The cost of the tendering
increased by 50% from £10 million to £15 million?
Mr Bradbrook: Yes.
Q23 Mr Touhig: We see from paragraph
2.4 that the bidders had concern about the validity of the data
you gave them. You talk about all the work you did to get it right,
but really what you said to the bidders was that they should come
and invest in the project and gave them data that was not very
reliable.
Mr Bradbrook: You are talking
about one particular type of data which related to the existing
assets. It was important for us to get as much of that together
as possible because one of the key risks we were transferring
was the asset condition.
Q24 Mr Touhig: But why were you unwilling
to warrant the accuracy of the materials you were giving to the
bidders?
Mr Bradbrook: Because it was a
risk we were transferring. It would be inappropriate to warrant
something for which they were taking the risk.
Q25 Mr Touhig: Is it any wonder then
that you just ended up with two bidders? If I come along to bid
for this project and you cannot guarantee the information you
give me as the basis for my tender is it any wonder that you really
do not have any competition at the end of it?
Mr Bradbrook: I think that for
a contract of this size and complexity with very large bid costs
to have two bidders is good. It compares favourably with the Airwave
project which had a single bidder at a much earlier stage. We
obtained really good competition right up to the point of announcing
the preferred bidder.
Q26 Mr Touhig: So far I think we
have established that you did not have a very robust case for
going down the PPP line. The costs went out of control and you
were giving those who were bidding for the contract information
on which you said they could not rely. It sounds a bit absurd,
does it not? Here is an agency that knows about road telecommunications;
it has a wealth of expertise. It does not want to do the project
itself and so it goes off to a PPP; it will not promise the bidders
that the information it gives is accurate and so some drop out.
Therefore, one does not really have competition at the end of
the day for this work?
Mr Robertson: As Mr Bradbrook
said, we definitely did have competition as far as that was concerned.
We took two consortia beyond the preferred bidder stage and so
we were able to leverage on one side of that contract against
that competition and on the other side leverage against the public
sector comparator. We knew for how much we could do it ourselves.
Q27 Mr Touhig: In June 2002 the agency
realised that third-party revenues which would make the PPP better
value for money would not materialise. Did that not provide any
warnings for you? Were you then certain that you should be going
along this route?
Mr Robertson: Absolutely, and
that was one of the two principal reasons why the objective of
the procurement at that point moved away from what it had been
originally, namely something that was to be an infill of the telecommunications
network accompanied by the opportunity to realise third-party
revenues. In 2001 and 2002 the telecommunications sector went
into a collapse for three particular reasons. First, telecommunication
entities of government had been sold off and that was accompanied
by deregulation. That raised all sorts of expectations about the
telecommunications age. Second, the technology itself advanced
significantly so that what people previously had thought was a
restricted asset suddenly became something akin to a free good.
Q28 Mr Touhig: I noticed that you
go through the KHHD consortium. Are you happy that they are value
for money? You pay them £¼ million a month.
Mr Robertson: Yes.
Q29 Mr Touhig: I would not be too
sure of that. There are only two men overseeing this project.
How many people does KHHD have overseeing this project?
Mr Robertson: There are two, one
of whom is here, known to us as the two Davids overseeing this
project. One David was apparently enough to slay Goliath, so two
might have been considered overkill in this case.
Q30 Mr Touhig: Paragraph 3.7 of the
Report says: "The Agency's ability to manage effectively
the cost of KHHD, which earned its fees on an hours worked basis,
was limited by the size of the Agency's team..." They are
running rings around you, are they not?
Mr Robertson: There were two people
working through this project who I think have done a splendid
job. In addition, at a later stage we boosted the size of the
team in order to help them work. They always had the support and
advice of our PFI advisers and Treasury advisers and have always
been working with the accounts and finance team of the Highways
Agency, so all of the invoices could be checked.
Q31 Mr Touhig: How many people from
KHHD are working on this project? You have two.
Mr Bradbrook: Obviously, it depends
on the point in the procurement cycle, but at the peak when we
had lawyers and accountants involved it was probably of the order
of 15.
Q32 Mr Touhig: They had 15 to your
two?
Mr Bradbrook: As I said before,
their cost would be paid for in a stroke by not increasing the
price beyond preferred bidder stage and not having any claims
whatsoever in the first two years.
Q33 Mr Touhig: But the point I am
trying to establish is: are you satisfied that your two people
against their 15 are keeping on top of this work? Paragraph 3.7
of the Report refers to "the considerable volume of material
prepared by KHHD and the diverse geographical spread of the team
of its advisers". That is clearly having an impact on the
ability of your two men to do their job.
Mr Robertson: I think these people
did a good job.
Q34 Mr Touhig: Not if you look at
what is said here.
Mr Robertson: Looking back at
it now, if we were doing it again we would certainly put in more
resources up front.
Q35 Mr Touhig: As an aficionado of
Yes, Minister and a former minister myself I know that
the best trick in the world is just to sink people under paperwork.
Looking at this Report, it seems to me that that is what KHHD
is doing to your two people; they are sinking under paperwork
and are not really able to manage this project in the way it ought
to be.
Mr Robertson: I think that is
an interpretation of the Report. I accept that the vulnerability
was there, but in our internal audit checks we have not seen any
evidence that this team, albeit with a small core and with the
support of the rest of the agency, did other than what I consider
to be a very good job.
Q36 Mr Touhig: It just seems to me
that the more we go through the Report the more it highlights
the failures of your agency. Were you the agency that also invented
the hotline for cones back in the days of John Major?
Mr Robertson: I believe that was
a political inspiration, not an agency one.
Q37 Chairman: As to KHHD, why was
there not some incentive scheme imposed on it to make it manage
within budgets?
Mr Bradbrook: Initially, in the
feasibility study we did it for a fixed price. Because we were
not committed to follow the recommendations of the feasibility
study it was inappropriate to set fixed prices in their tender
for the subsequent phases, but once we had started the procurement
process to control prices we wrote a project initiation document
and various scoping documents for each of the strands of work.
From those we produced task allocation forms in which each of
the consultant's time was allocated.
Q38 Chairman: That is all very interesting
but you have not answered my question which is dealt with in paragraph
3.8: "In practice, there were no incentives, such as task
performance bonuses/deductions, in KHHD's contract..." I
want to know why there was not an incentive scheme.
Mr Robertson: There were not incentive
schemes there because we were looking to make the decisions and
not have them adjusted by an adviser who was acting up front and
would not be there at the end of the day.
Chairman: That is a fair point.
Q39 Mr Curry: Mr Robertson, I was
thinking of you last Friday evening as I was travelling down the
A1. I go up and down that road most weekends and I know it pretty
intimately. I was thinking that it made life somewhat easier but
you seemed to be removing all the roundabouts from the A1, no
doubt at some gigantic cost, even though over 20 years I have
never been held up at any of them, but it makes for a smoother
ride. I then saw one of your overhead signs which said there were
severe delays after—I think it was—the A428. After
another mile I saw another sign which said the same thing. Two
miles further on there were signs which repeated the message.
I did not have the faintest idea where the A428 is, so your information
was entirely useless to me. Had it said that there were severe
delays after the Peterborough or Welwyn Garden City turnoff, or
whatever it happened to be, that would have been helpful. Had
it then gone on to say what I should do about it, it would have
been seriously useful. The fact of the matter is that I know I
use the A14 to access the A1 and I know where I get off the A1,
but I do not have the faintest idea of the names, numbers, colours
or sex of any of the roads between those two points. Why do you
not give me some information that is useful to me as a motorist?
Mr Robertson: First, thank you
for pointing out the developments we are undertaking on the roundabouts
on the A1. The roundabouts and the junctions of the A1 with which
you will also be familiar have a poor safety record and we are
taking them out for safety reasons rather than for reasons of
congestion.
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