Q141 Mr Williams: You are capable of dealing with an individual company but we would not expect you to be prepared for anything more than an individual company running into trouble, but it is conceivable in the situation we are now in that you could have trouble across more than one company. You have referred to three projects that are in the red area and you could have a wide scale failure. How would you deal with that? What capabilities do you have to do with it?
Dr Mitchell: On the assumption that the company was capable of operating the franchise in terms of a professional approach, then what we would do would do first would be to go to a management contract for that company; we would not immediately go to a DfT intervention unless we believed that for some reason the company was incapable of managing the franchise for the period it had been let.
Q142 Mr Williams: If you felt that and if there were multiple situations who would bear the cost?
Dr Mitchell: The DfT would.
Q143 Mr Williams: Obviously in the face of collapses in so many areas inevitably transport is going to be affected. This was raised and I would like to know the answer to this: we are told that the termination costs could be covered from a performance bond.
Dr Mitchell: Correct.
Q144 Mr Williams: I apologise to my colleagues; could you tell me a little more about the scale of these bonds, how they are underwritten and how meaningful they are, how reliable they are in the case of people inside the firms that are providing these bonds.
Dr Mitchell: Mr Payne will maybe give some more information in a second about the size of the bond but as you heard him say the bond is about 5% of the cost base of the company, so it is a very substantial amount of money. In the case of the GNER termination all the costs for the DfT were met from the GNER bond.
Q145 Mr Williams: The bond is provided by whom? Is it underwritten?
Mr Payne: It is underwritten by banks.
Q146 Mr Williams: That really reassures us. I have to be very careful what I say in the circumstances but you have bonds underwritten by organisations which have not exactly excelled in the quality of bonds that they have shown they issue. Are you at all concerned about the situation? I do not mind who answers.
Mr Paine: We do monitor the status of those bonds on a regular basis. They are on what is called a first call basis, which means in the gradation of debt they are valued very highly, but in answer to a previous question we did undertake to send in a report on the status of those performance bonds.
Q147 Mr Williams: Are they with British banks or international banks, British and international?
Mr Payne: A selection.
Mr Paine: It varies. The original aim was to ensure, on advice back to bidders, that they did not all have, to use a phrase, eggs in one basket, so we do encourage a range of performance bond holders.
Q148 Mr Williams: If the bonds collapse you would be in a mess, would you not?
Mr Paine: It would be more than us in a mess, but we do take account of that risk. As I said earlier, they are on a high level of call option and they are monitored on a regular basis, we have to receive undertakings to guarantee that they are there for call.
Q149 Mr Williams: You check them every ten minutes do you?
Mr Paine: My colleague would give you the answer to that.
Mr Payne: They are checked every month.
Q150 Mr Williams: Should you not start checking them more frequently? That is a serious question in view of what is happening.
Mr Paine: We will take that away.
Dr Mitchell: We will give consideration to that.
Mr Paine: Your point is well made.