Q151 Lord Forsyth of Drumlean: May I just ask Mr Rylatt, when you are taking a view over what will happen over the 30-year life of a project that is a very difficult thing to do. You have shareholders so presumably you must build in a huge cushion to allow for uncertainty. Does that not result in a substantial additional cost being borne by the taxpayer upfront?
Mr Rylatt: I wish I could build a huge cushion. The reality of the competitive environment we are in is that I cannot and, if anything, what I have to do is to take on much more risk. I can draw it down to quite simple examples, even things like back doors: if I am putting a door into a hospital I have to take a pretty accurate view of how long is that door going to last; how robust does that door need to be? The kind of trade-off I need to do is, do I spend X on a door now which will probably have a life of five years? Do I spend 2X on a door which will give me a life of eight years but may have different maintenance costs, and which route do I take to deliver the best solution? In the competitive environment in which we are the people who are winning are the people who are optimising that to the finest degree.
Q152 Lord Forsyth of Drumlean: Forgive me, it is easier to take a 30-year view on the life of a door than it is on what the community is going to be like, what the demands in the hospital are going to be and whether it is going to do the job, and you were implying that you would do that and you took this risk and you took this risk from the taxpayer. But if I were asked to do that I would be building in a huge cushion and, yes, you would be taking some risk but surely it must mean, if you are being responsible to your shareholders, that there will be additional cost?
Mr Rylatt: I can only answer from my own experience and really repeat that it is a very competitive environment; I wish I had the luxury of being able to do that. I just cannot. We do have to look at increasing flexibility of buildings and clients are now demanding, "Yes, here is my design today but in five years' time I will want to deliver clinical care in a very different model; how can I adapt your building? How flexible is the offering that you are going to provide? How are you going to be able to deal with variations that come through?" All those now are very much a part and parcel of the competitive process that we have to go through.
Mr Sutherland: Can I answer that in a slightly different way actually because I think it is pertinent to everything else? If you go and look around the government today-and I suppose I have been doing that since the mid-80s and I am sure that people can go back even longer than me-it is quite a shabby estate. The reason it is a shabby estate is because once things are built people do not invest on an ongoing basis and the failure to invest in your assets, in a sense I think is the other way around-it builds up a liability for the future. We all know that a stitch in time saves nine yet our behaviour in government is always to cut back on the maintenance, the life cycle in the short term, and we just do not do it. I would recommend anybody to go around and have a look at some of the assets in the estate-the traditionally procured assets and some of the PFI assets, which might be seven or eight years old, and you will see a stark difference because you are forced-you have to continue to invest. Often it comes as a criticism against PFI and says that it is inflexible. The inflexibility people generally talk about is they cannot take away that investment in the asset and put on other things-they have to have a long term investment into the estate; and it does force a very different behaviour in what one is doing. I am with you-we are in a very, very competitive market out there so of course we want to make a return for our shareholders and we will try our best to do that; but we also have to win in competition. I do look at the estate and I think how much is this costing our future generation, never mind what is it like for someone to work in a school or a hospital in which no one is investing? What does that mean for the output? What is it for people who work in office accommodation- and they are awful when you walk around. I was in Ireland last week-we were at the CCMS, which is the Catholic maintained schools department and we have done a lot of PFI-and we were chatting away and they said, "Our Minister does not really like PFI," but he said, "What I asked them to do is to go and have a look at a school in North Belfast which has been designed by a particular architect; it is eight years into operation, and I say to them go and look at the other schools in another part of Northern Ireland-exactly the same architect-and it is chalk and cheese. One school has a budget that has been cut, it has not invested and the other one has. Which one would you rather our kids were in?" I think that is a big point for PFI.
Q153 Lord Levene of Portsoken: We have heard the word "procurement" a lot this afternoon. Clearly there is a need for this to be carried out effectively and professionally. It seems in a way we are really asking the wrong side of the fence because you represent at the vendors rather than the purchasers, but do you none the less see any improvements in the way in which government and local authority departments are exercising their skills in procurement; are they better trained in running these contracts because a lot of them are a lot of money and you cannot just get anybody to pick them up and run with them?
Mr Rylatt: I can only speak from personal experience. We have seen quite a dramatic improvement. I have been involved in the industry from the outset and the competency of the people we negotiate with and we bid to is leaps and bounds from what it was before. I think there are a number of reasons for that. First of all, the public sector is better trained and has procured quite a lot of projects now and often we deal with people who have been two or three procurements themselves and therefore have experienced the procurement process. I think there has also been much more support from central government to say that the local authorities or NHS Trusts were reinventing the wheel on procurement, so they understand the process much more and have much better support. It would also be fair to say that there has been quite a movement of staff from the private sector to the public sector who have taken a lot of the resourcing and procurement skills with them in making that transfer. So we find now that the process is benefiting quite dramatically because of that-things are much smoother than they were before and we do not need to go over old ground.
Mr Sutherland: Am I allowed to disagree on this? I do have a slightly different perspective because I actually look at it and think from a macro point of view it is one thing, but I look at individual transactions and I find it amazing that we are still finding people on the public sector side who are doing it for the first time. When I look across the deals that we get involved in I think that there are some really excellent teams and there are some very poor teams. Where I see the best, personally, is where there has been an element of centralisation, where people have been able to build a team and retain that intellectual property within a team, and I can look at a number of places where that has been very successful. Where we find one-off projects I think we still struggle on the public sector side. If you look at how much it is costing us to bid and how long it takes us to bid I do not think that has got any shorter or any less expensive since I have been bidding these projects. So I think there are pockets of excellence and I think there are some that are quite poor in the government's field.
Q154 Lord Eatwell: I was intrigued by your introduction where you talk about the different methodologies-one methodology over others-and I think you would agree that there is no particular methodology that is going to be entirely perfect. So could you sketch out for me what you regard is the major weakness of PFI?
Ms Anderson: I think our whole philosophy on this is that it is horses for courses and therefore one of the things that we have found as a benefit of PFI, because it is capable of dealing with very complex projects where you need a complex set of procurement skills and having had that experience and having goodwill on both sides, it has led to PFI being particularly successful when we have had to deal with complex procurements. If you look at the evidence the evidence is that PFI has delivered.
Q155 Lord Eatwell: What is an unsuccessful one?
Ms Anderson: I would say that we are not suggesting it is necessary in every case and that is why I started off my remarks by saying that PFI is about 10% of the market.
Q156 Lord Eatwell: Could you give me some examples where you think it would be inappropriate?
Mr Rylatt: If we could assist with that because we deliver both commercial and PFI. PFI has a very different establishment and set up cost. The bidding periods on PFI tend to be longer; there is much more cost in procuring and developing because you are developing a much more complex design as part of the procurement process. Because of that PFI does not suit small projects; it does not suit projects that have very little risk associated with them. It is much better suited to projects that are more complex. If you have a project that is £50 million, a relatively straightforward building, that is much more easily procured through conventional procurement. So it is not a panacea for everything; it definitely has weaknesses, as all methods of procurement have weaknesses. Conventional procurement I think is quite poor for large complex projects, and that is what you find used in different areas. The challenge for us as an industry is to address the weakness of PFI; to try and reduce the period, to try and get bid costs down so that the overall project can be procured more cheaply.
Q157 Lord Eatwell: Complex projects like the Tube, perhaps?
Mr Rylatt: The Tube was quite a unique project, but the Tube was a complex project. There are some quite different features of the Tube relative to a conventional PFI.
Q158 Lord Eatwell: I wanted to focus on one aspect of projects in general, which is project manager satisfaction. Usually project manager satisfaction is cited as one of the advantages of PFI. Is there any evidence for this? I did read the CBI's rather rosy document but I wonder if there is really any evidence to back this up? Is there any data, any surveys other than anecdotal evidence? Do you have any real evidence?
Ms Anderson: We have quite a lot of data. If you looked at the 2008 Ipsos MORI survey, which was of project managers, 92% of them said that the expected standards of service of PFI projects were always or almost always being delivered. Three-quarters of them said that the overall performance was either very good or good; 94% agreed that projects were delivering the agreed service levels either always or almost always. I think that those are pretty good assessments.
Q159 Lord Eatwell: Were they comparative? Were they compared with traditional because, after all, what we need to know is what the difference between the two is?
Mr Sutherland: You come back to the point I made earlier, which is it is quite difficult to compare something because they are very different. I am not quite sure what "traditional" means in this sense because there is a whole gamut of-
Q160 Lord Eatwell: Conventional.
Mr Sutherland: ... traditional types of procurements. If you are going to compare services within a PFI hospital, for example, with how it is traditionally procured, quite often they procured cleaning separately from maintenance-it is all procured very separately. As I have said, if you go to a traditional project quite often they are cut back. So if you are asking somebody who works in a hospital-and quite often that would be extreme- "Do you want a working environment where there is a level of investment constantly within your building or one where actually you are under fire every three years to cut back?" in a sense you almost do not need evidence to be able to say that quite clearly you are going to have a happier person; that there is a cost issue which is separate to that but you are going to have a happier person in an environment where the services are guaranteed and paid for on performance not on just the delivery.
Mr Rylatt: Let me try to build on that. As a construction company who delivers both conventional and PFI I would be hugely surprised if there was any difference, to be honest, between a project manager receiving either of those methods of procurement which to us are equally important. To me the question is much more about the stakeholders who are involved in the projects because the kinds of conversations I have, particularly with schoolteachers when we are three or four years into a project, the first thing they say to me is, "This is wonderful." Not because of the building they are in, which is a lovely building but could have been conventionally procured; they say, "It is wonderful because I can teach. I am here to teach. This building allows me to concentrate on teaching. I do not have to worry about the lights not working; I do not have to worry about the heating not working, somebody else does that for me. I do not have to worry about a budget for maintaining the building; I can focus on the teaching because all that has been taken care of." That for us is a great job satisfaction in what we do, in hearing that from the stakeholders in the buildings because that is just wonderful.