Q361 Lord Forsyth of Drumlean: Was it one of your shorter reports or longer reports?
Sir John Bourn: It did show that if you set about it in a sensible way, were not too ambitious, knew what you were doing, had trained people, consulted those who would actually have to operate the projects then you could make a success of it. I think all the difficulties have led the Treasury to think for the present time-I would not quarrel with this for the time being-that you would not attempt to use PFI for IT projects but I think the time could come when you could do that again.
Q362 Lord Forsyth of Drumlean: I am not absolutely clear what you are saying there. What you have described is a sort of Yes Minister type scene in the procurement process which has got nothing to do with whether it is being procured conventionally or with PFI. When you say the Treasury have reached that decision, which is that IT projects will not be procured using PFI, it is not clear to me from your answer why they should take that view. Are you saying they took that view because the whole thing was a disaster and it was a reasonable response but not a particularly logical response, or are you saying there are inherent aspects of PFI which make IT projects not suitable?
Sir John Bourn: I think all the experience that had been had which, for the sorts of reasons I touched on, had not always been successful although there had been successes, the feeling-I think the Treasury are right about this-is that very often the IT project went ahead without really knowing what shape it was going to take, as I said before, without having resolved the software issues-what is the project about exactly? That uncertainty led the Treasury to take the view that they did which, in the light of experience, was not an unreasonable view. I do not believe there is in principle any reason why the IT project could not be successfully determined either by conventional procurement or through PFI. I think in time that aspect of Treasury guidance will be changed.
Q363 Lord Forsyth of Drumlean: In your earlier answer you suggested that the process of PFI might result in greater attention, greater due diligence and greater attention to the scoping of the project. It is not clear to me why that would not apply to an IT project, why people would not want to know what they were getting into.
Sir John Bourn: It certainly should apply to IT projects, yes.
Q364 Lord MacGregor of Pulham Market: Can I ask you about optimism bias? I can see why it was put there in the first place. I remember when I was in one of the departments as a minister the average overrun-over and above the budget-for every project was 28% over budget. I just wondered whether it is working well now. I do not know whether we now have good methodology for updating the comparator or whether there is an analysis of the evidence before that optimism bias figure is established, and I do not know whether the NAO have looked at that. Do you have any comments on that?
Sir John Bourn: I think the NAO have recently produced a report on the construction projects and they have summarised the progress of 114 projects in the period 2003 to 2008 that have shown that of the PFI ones 65% of them came in on price and 69% on time; on the non-PFI 54% came in on price and 63% on time, which does suggest that some progress is being made on both sides. The discipline of a PFI project is valuable because one of the things which becomes more difficult to do under a PFI project, where you are working with a private sector partner who has to know what he is doing and what he has to fund, is that there is at least some degree of discipline over changes in specification. One of the major difficulties of the traditional, conventional procurement of projects-construction projects, defence projects and also, I would imagine, projects in the field of social welfare-has been the constant alteration of them and it is the constant alteration which accounted for so much of the delay and extra expense. PFIs are one way of providing some discipline there but of course you ought not to have to rely simply on the PFI to get discipline.
Q365 Lord MacGregor of Pulham Market: Is there any evidence that there is an unfair bias against traditional projects from the optimism bias itself?
Sir John Bourn: I do not think there is. The Green Book has now a substantial section on the optimism bias and it does set out the reasons from experience why we have found an optimism bias. It does bring out the point that you need to look at this question afresh each time you do it, you should not just say that optimism bias is 30% and just write that in; you should look at particular areas and latest experience. When I think about the optimum bias I ask why is there at all? One of the reasons why it got there was because human beings should always be optimistic about projects and they should always hope they will go well and I think that is a valuable aspect of human nature. However, in government very often one of the reasons why you had an optimism bias was that if you were responsible for the management of a project you would be in competition with a lot of other projects and so you had to make the best case you could for yours. If you could somehow make it appear to be cheaper than it really might be, you felt your negotiating position within the department was strengthened. So I think it was in a sense the culture of the working of government that reinforced perhaps a natural human optimism.
Q366 Lord Best: Sir John, you have made it pretty clear that you do not think that the public sector comparator is a scientific test that everyone should adhere to and that at the end of the day whether something goes public or private it is going to be a matter of some subjective judgment. I am going to pass on from that to a rather broader question for you which is about whether or not a by-product of having PFI has been to bring in infrastructure projects which would not otherwise have happened because government has been inhibited before the 1990s in borrowing and getting on with some of the infrastructure work that perhaps the nation has needed and PFI has encouraged those good things to happen. Has this been an outcome of having PFI? Has it overcome the reluctance of government to take on debt itself and has this been helpful?
Sir John Bourn: I think in the historic circumstances it has been, because of course it made it seem as if you were not paying the financing costs where of course you were; you did not get the money through borrowing through gilts but you paid the financing costs through the PFI. So, while presenting it in a sense as if you could use capital allocations and have more projects than would seem to be affordable, of course it did not mean that you were in fact evading financing costs, you had them anyway.. What I do think, though-and this is really historical speculation-is that we would have had many of the projects that came through on PFI even if PFI had not been introduced because governments- whichever party it had been-recognising the general increase in the standard of living in this country, recognising the possibility and scope and need for more medical facilities, for more educational facilities, would have done most of these things anyway, even if they had funded them through gilts. Of course by funding them through PFI it made it appear at a very surface level that you were not borrowing the money at all and that perhaps historically facilitated it. My own view-and it can be no more than that-is that we would have had most of these projects anyway and the government would have financed them, even though it had driven a coach and horses through its existing and previous approach to capital investment.
Q367 Chairman: A number of witnesses have suggested to us that there might be some real benefit in extending PFIs beyond the current public services that are covered. You mentioned earlier on that you would not go as far as mercenaries, but do you think there are other areas of public service which could usefully be covered which are not covered?
Sir John Bourn: I think there are and of course the process recently has tended to be around partnerships in which you share the risk rather than allocating it to one side or the other. I think that is a useful development. I think the governance arrangements in partnerships often need looking at, but I think apart from those areas which I mentioned where you are dealing with something which is constantly changing, where you are dealing with something where the direct personal service is absolutely crucial, there is continuing scope for PFI and for the more direct bringing of not only public/private money coming into public activity, it is the whole range of private sector skills being more accessible. One of the things from my experience that one found was a handicap to this, was what you might call the differences in culture. When PFIs started there were a lot of civil servants who were very suspicious of it partly because they had grown up having been told that borrowing through gilts was the cheapest way of borrowing and that was the way it should be done, but also out of a general suspicion of the private sector, the belief that private sector people were unscrupulous rogues only interested in money. On the other side, of course the private sector people often thought that those who worked in the Civil Service or local government were bureaucratic pedants who did not live in the real world. If you feel like that about each other then the scope for working together is much reduced and I think we have made progress over the last decade or so in gradually-but not yet eliminating-putting those attitudes to one side. I think that if we are able to do that, this does not mean to say that everything becomes a PFI or PPP project-not at all-but the skills, enterprise and private sector techniques can take a more valuable place in the provision of government services than they had historically in this country.
Q368 Chairman: Do you think there are any real no go areas like, for example, teaching or nursing or even policing?
Sir John Bourn: I think that operational policing- actually arresting people-but everything to do with the provision of equipment and vehicles-in a sense the support aspects of the police-can be carried out by partnership or PFI arrangements. As far as teachers or nurses are concerned, in this country we do have an educational sector employing qualified teachers. These are private sector people in the sense that they work outside the public sector, but of course they have to have the right degree of qualification and oversight and the same thing goes for the medical profession. I do not think frontline diplomatic activity should be, as it were, PFI-ed, and I do not think the judicial aspect of government should be carried out in a PFI way, so those would be some of the areas which I would think should be maintained.
Q369 Chairman: As we have no more questions, I think we can bring the session to a close. Thank you very much indeed, Sir John, for giving us your time and for your very clear answers.
Sir John Bourn: Thank you, Chairman.